Australia’s economy has suffered through Covid-19. Could our substantial super funds deliver the rebuild we need?
Australians may think of superannuation as simply a place to store money for retirement, but that is only the beginning of its value. With about $3 trillion in total assets, super funds play a significant role in stabilising the economy during times of crisis. We asked three experts how super can have a positive impact on rebuilding the Australian economy after Covid-19, and what the government must do to support it.
Super must be allowed to stick to its long-term, diversified investment strategies that will see us through economic recovery
Matthew Linden: The latest national accounts show the Australian economy has taken a big hit from the impacts of Covid-19. But, looking forward, our immense pool of superannuation savings - one of only five of its scale internationally - can help kickstart the recovery.
While the primary purpose of super is to grow members’ money for their retirement, the scale of the pool of savings involved means very significant money can be invested to grow member savings and support businesses and jobs. With stable policy settings, including the preservation rules and requirement for regular employer contributions, funds can invest for the medium to long term. They can provide capital directly to businesses through equity or debt, which in turn can be used to shore up finances, offer confidence to hire employees and develop innovative new products and services. Funds have invested hundreds of millions supporting the biotechnology industry that is part of the effort to find a global vaccine.
Furthermore, industry funds are looking to expand their already massive portfolio of domestic property and infrastructure, currently valued at about $80 billion. This means bringing forward capital expenditure to improve these assets. Big proposals have been put on the table for governments to act on swiftly, including, for instance, an airport rail link for Melbourne airport and regional communities.
During a crisis -as we saw during the global financial crisis (GFC) -industry super funds are able to continue to invest in the future. In fact, Super now offers the government an opportunity to make strong investments in a down market, to help us all return to a strong position once the crisis is over. To perform at its best, super must be allowed to stick to its long-term, diversified investment strategies. That’s how it will see us through economic recovery after Covid-19.
Matthew Linden – Deputy CEO, Industry Super Australia.
If governments want it done, they’re going to have to step in and bear some of the cost
Assoc. Prof. Kevin Davis: We don’t know to what extent the economy will bounce back. But super funds were a stabilising force during the GFC, because they are not subject to the potential outflows or inability to roll over funds that banks that are levered are subject to. The interdependencies in the rest of the financial sector are lessened with super funds.
Realistically, what you want is for super funds to be investing in securities and investments that are creating value and therefore will provide returns. But to put a social obligation on super funds to do things that happen to be at the expense of members but to the benefit of society is not a feasible approach. There are lots of investments that the government needs to subsidise, or at least bear the risk.
One of the problems is that, ideally, you want super funds to make investments in long-term assets and big infrastructure. But at the moment, you’ve also got government and conservative commentators criticising them for in the past having invested too much in long-term infrastructure. There is a problem there that’s of political making.
If governments want to use private funding to support projects that are valuable socially but don’t provide an adequate return for the risk involved, the governments have to be involved by taking on some of the risk through issuing securities associated with those projects, where they end up being a significant part of the downside risk. If governments want it done, they’re going to have to step in and bear some of the cost.
Assoc. Prof. Kevin Davis - Professor of Finance, University of Melbourne.
Super is a billion dollar resource we can use to crank up the economy
Dr Rebecca Huntley: In a very general sense, everybody knows about superannuation and they think it’s a good thing. But there’s not a great understanding in the community about what super is, other than something that employers have to pay into an account.
When you describe it further, people understand you’re talking about billions of dollars these funds have for investment; the leverage and power of that is huge. A lot of those funds are run in a particular way, which is not for profit, but for public interest, and people are amazed.
This is where industry super funds can play a really important role in public education and policy advocacy. A lot of politicians assume people think super is boring and nobody cares about it. But super is sexy when you think about what we could actually do with it. So, who can tell the larger nation-building story about what the funds can do?
Most of the time, people see super as a system that everybody’s tied into, but they don’t think about super as a really effective platform or tool to be able to crank up the economy and do interesting things in the economy broadly, with benefit to Australians. That is the missing piece of the puzzle.
There would be an enormous public appetite and interest, particularly given the public knows we’re going to go through a turbulent economic period in which there might be less international cooperation, and difficult barriers to international trade. So, what are the resources that we have domestically and can use to keep our standards of living? Super is one of those resources.
Dr Rebecca Huntley - Principal, Vox Populi Research
Future proof your finances with Industry Super’s guide to coronavirus and your super.
Consider your own objectives, financial situation and needs before making a decision about superannuation because they are not taken into account in this information. You should consider the Product Disclosure Statement available from individual funds before making an investment decision. Originally produced content by Guardian Labs Australia to a brief agreed with and paid for by IndustrySuperFund. The original content can be accessed here: https://www.theguardian.com/industry-superfunds-supercharged-future/2020/jun/23/we-ask-the-experts-will-super-save-our-economy-post-covid-19