Data released recently by the Australian Prudential Regulation Authority (APRA) that show an increase in employer contributions can largely be accounted for by government’s filling in funding holes in its old defined benefit (DB) schemes, according to Tria Investment Partners.
APRA superannuation data for 2011/2012 indicate total contributions increased to $117.5 billion – $82.1 billion from employers and $34.2 billion from members – which Tria managing partner Andrew Baker said was commonly reported as a turnaround in investor sentiment or attributed to members’ trying to beat the cut in the contributions caps.
Australian Taxation Office (ATO) data for self-managed super funds (SMSFs) – which are incomplete since many have not yet lodged returns for the 2011/2012 financial year – show member contributions were up 20 per cent to around $17 billion, but this only brought them back in line with 2008/2009 levels.
SMSF employer contributions were up slightly to $7 billion but are still 30 per cent down on recent levels, according to Mr Baker.
The new edition of the Tria Super Funds Review found member contributions to collective funds were essentially unchanged in 2011/2012 at around $16 billion – so if anything, they are down slightly, he said.
Employer contributions to collective funds were up 17 per cent or $10 billion to over $70 billion, but “sadly there is no big ‘investors pile back into super’ story”, according to Mr Baker.
Normal growth accounted for $4 billion of the $10 billion increase, with employer contributions continuing an upward curve of around 7 per cent per annum over the past three years, and additional salary sacrifice contributions accounted for $1 billion at most, Mr Baker said.
The remaining $5 billion, or around half of the increase, was a result of government’s “filling in some of the funding holes in their old defined benefit schemes”, Mr Baker said.
So the 2011/2012 “surge” was a result of taxpayers topping up the assets supporting defined benefits of retired and soon-to-retire public servants. Major contributions included $4.6 billion by the NSW Government into State Super, and the $0.5 billion by Victorian local councils into the Local Authorities Super Fund, he said.
Although Mr Baker admitted that additional funds moving into the superannuation system was a good thing, it was not indicative of any significant change in investor sentiment.
“The cost of filling holes in DB schemes is becoming a big deal, given that the above initiatives come on top of the support that the Commonwealth provides to the CSS, PSS and military schemes to keep them solvent (ignoring the role of the Future Fund which is not supposed to be tapped until 2020),” Mr Baker wrote in an update on the Tria website.
This cost is now running at over $4 billion per annum in terms of transfers from the federal Budget, he added.
