COVID-19 will cost super funds more than $3 trillion in growth by 2040 – a shortfall that could have significant economic consequences.
Rainmaker believes that the coming recession, rising unemployment, reduced population growth and lowered contributions will mean Australia’s superannuation pool will only grow to $7 trillion rather than the projected $10 trillion by 2040.
“This lower projected outlook for superannuation savings outlook could have significant economic consequences on Australia if it is not carefully managed,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information. “Super funds are major investors into Australia’s economy with their investments spanning infrastructure, property, purchase of government bonds, company shares, agribusiness, seeding start-ups and energy projects.
“Three trillion dollars less in available capital could have major ramifications.”
While Rainmaker’s MySuper performance index is expected to show that 2019-20 delivered average returns of -0.7 per cent – the lowest returns since the GFC – the researcher believes that will do little to disrupt long-term strategic shifts in superannuation, including the “increase in dominance” of not-for-profit funds.
“The contracting role of retail offerings in proportional terms is a transition that could fundamentally reset Australia’s superannuation sector, wealth management and financial advice marketplace,” Mr Dunnin said. “We are already seeing this [play out] with these sectors working hard to become much more efficient, lower their fees, develop new lines of business, new channels and platforms”.
Rainmaker also expects the proportion of super savings owned by retirees to increase from 30 per cent to 44 per cent by 2040, fuelling pressure for continuing reform of Australia’s superannuation policy. Last week, ISA demanded the immediate release of the Retirement Income Review – a major policy document that could determine the future of the super system – and raised concerns that the consultation process had not been transparent.
“The report has an opportunity to build on the successful super system with sensible evidence-based reform that helps provide members with a dignified retirement, addresses entrenched inequalities and tackles underperformance while strengthening the default system,” ISA said. “If used as a stalking horse to erode the policies that underpin the system – compulsion, preservation, universality and a strong default system – workers’ retirement savings and the economy will suffer.”
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