The COVID-19 pandemic, like the GFC before it, has forced the authorities to take actions unthinkable even for the most adventurous interventionists. Faced with an unseen predator able to jump across species and continents in our interconnected world, the varied global responses show the challenges in addressing its health, financial and social impact effectively.
Science – always imperfect and evolving – has few reliable pointers yet and many questions. Statistical approaches applied to large groups have little to reassure individuals exposed to the pandemic: the tyranny of averages.
The bold decisions announced by the Australian authorities splurging resources with rare multi-partisan support would be considered brave, indeed courageous in ‘Yes, Minister’ speak. But they are unavoidable.
What about some other super options
In super (our multi-trillion retirement savings vehicle propelled by compulsion and tax concessions and constrained by preservation), significant changes have been announced, including halving the minimum drawdown rates in pension phase, and allowing limited access up to $20,000 for those in dire need. The apparently opposite measures make sense, by reducing the pressure for fire-sales of assets locking in non-deductible capital losses, and by allowing strugglers to cope.
Retirement yonder only makes sense if the victimised savers survive till then.
As the Government has made it clear that the rapid-fire reforms are still work-in-progress, what more can or should be done?
It is useful to invoke the mantra super lawyers, regulators and consumer advocates intone all the time, ‘the best interest of members’, which can only be assessed with available incomplete information. By this definition, rushed super reform is not designed to benefit any other stakeholder including trustees, employers, service-providers, professional advisers or financial planners. They have all been caught up in the COVID-19 mess, but must do what it takes in members’ interest.
Calming the public, restoring confidence in markets and adjusting to the physical, emotional and financial pressures would make the task less difficult.
Here are a few:
- To reduce the selling pressure, allow those with available cash in super to lock it in under preservation by relaxing concessional and non-concessional contribution limits – say double them with a minimum of $50,000 and $250,000 respectively per financial year. This would enable those currently unable (pensioners who have reached the transfer balance cap, those above age 75 etc) to contribute to their nest egg.
- Clarify that those who have already withdrawn more than the reduced minimum rates in 2019/20 can repay the excess if they are able. This would treat them on par with those who have not yet drawn more than the current minima, to preserve equity and fairness.
- Consider increasing the $1.6 million cap on pension balances given the extraordinary reduction in balances. This is despite the clear current rules which prevent topping up due to market falls (and symmetrically, having to reduce in a boom) and goes to the substance of confidence rather than literal compliance.
- Allow companies to distribute franking credits even without any dividends being paid. This is largely a book-keeping adjustment over time, but would increase confidence shaken by valuation losses, as more companies find they are unable to pay dividends and some funds are beset with illiquidity.
- Facilitate liquidity for funds forced to fire-sell to meet the improved access. Despite the haranguing about ‘they should have seen it coming’, nobody foresaw how a wet-market disaster in China would make the world wet their foundation garments. Hindsight is wonderful but not available at the ophthalmological dispensary. Silly to let the emergency measure to sink those caught up, especially if they have sensibly matched long-term liabilities with illiquid liabilities given increasing longevity. Hit by a crisis of confidence, illiquid assets freeze (as occurred during the GFC, and APRA was forced to reprieve funds unable to pay).
- Clarify super funds can access the small business grant of between $20,000 and $100,000 subject to the announced turnover limits. This is not the time to quibble if SMSFs can run a business (ATO says they can, subject to qualifications). The fact is like any other managed investment scheme, they are a business in themselves buying and selling assets to make revenue and capital profits. No amount of semantics could alter this reality. Note these funds constitute the engine-room which support many small businesses comprising outsourced service-providers as well as audit, accounting and actuarial professionals.
No doubt this is a laundry list, but we should debate the ideas as the outlook is decidedly uncertain.
Ramani Venkatramani is an ex-APRA regulator, now the Principal of Ramani Consulting Pty Ltd. He advises on risk, regulation and retirement outcomes and trains global regulators in supra-national core principles of banking, insurance and pensions supervision, crisis pre-emption and remediation.