Tax & Accounting Blog

Australian superannuation stimulus poses risks for fund trustees

Accounting, Accounting Firms, Blog, Superannuation April 24, 2020

By Nathan Lynch, Regulatory Intelligence, Thomson Reuters

The Australian government’s COVID-19 superannuation reforms pose a number of challenges and pitfalls for fund trustees, an industry official warned.

The emergency changes to superannuation were designed to provide compassionate access to funds for people who are struggling financially amid business closures. At the same time, superannuation funds are facing liquidity issues and regulatory risks as they handle a surge in redemption requests.

Tony Negline, superannuation leader at Chartered Accountants Australia and New Zealand, said funds needed to pay particular attention to their obligations to fund members during this period of volatility.

“Superannuation is normally one area that is slow to change. But these are not normal times. COVID-19 has changed all that with the introduction of unforeseen measures that directly and indirectly impact your super,” Negline said.

Some of the main COVID-19 reforms include the early release of superannuation “hardship” rules and the JobKeeper payments, which have implications for super.

Applications for release of super this calendar year have to be submitted by June 30, and can only be lodged through the MyGov platform. The second application must be lodged by September 24.

These were “tight deadlines” for applicants and their advisers who needed to assess their clients’ circumstances to determine whether they would be better off leaving their money in super long term or drawing down emergency funds, Negline said.

“There’s clearly a cohort of people who are doing it very tough now financially,” he said. “They find themselves in a very tight spot. So, for those sorts of people this might be their only avenue of ready cash, so they really have very little choice but to take the money out regardless of any longer-term impacts.”

ASIC has offered regulatory concessions on the provision of financial advice to ensure as many people as possible can access advice on this issue.

“That’s a good move by ASIC,” Negline said.

Liquidity challenges

For superannuation fund trustees, there is an expectation that any applications for withdrawals must be processed within five business days. They will receive a list of approved applicants each day from the Australian Taxation Office (ATO) through a bulk CSV file.

This need for timely processing of these requests must be balanced, however, against the elevated fraud risk in this financial climate.

“Some funds would probably like to take their time withdrawing that money. The Australian Prudential Regulation Authority has been pretty hard on funds and said it really shouldn’t take more than five business days to process the transaction,” Negline said.

“There’s a lot of pressure on funds to make sure they do the right thing.”

As redemption requests accelerate, there have been widespread concerns about liquidity in superannuation funds. This is particularly challenging for funds that are heavily invested in unlisted or illiquid assets, such as commercial property and infrastructure.

“Funds are required to stress test their affairs. I think if any trustee is found to be wanting then I would not be surprised if the regulator has a very firm chat to them. Of course, there’s a lot of class actions and those sorts of things, so funds are going to want to be careful how they manage this,” Negline said.

Tony Negline and Nathan Lynch will deliver a free webinar on the COVID-19 super stimulus measures on Wednesday April 29.
Click here to register.