The two funds are pressing on with their “merger of equals” after hammering out the new entity’s board and leadership structure, promising complementary capabilities across retirement and advice, as well as fee savings for members.
Big investors want to build resilience into their portfolio and “get on with their job” of generating returns for members and clients even as policy shifts, short-termism and government interventions make that job much harder.
Super early access for housing would hurt every member’s balance: Aware
Superannuation funds largely weathered the Morrison Government’s decision to allow early access to super during the Covid-19 pandemic, where members could withdraw up to $20,000 from their retirement savings.
But if early release were to be expanded, becoming a permanent feature of the system – say, under the Coalition’s “super for housing” policy – the effect on the balances of members that chose not to use it would be almost as substantial as for those that did, according to Aware Super CIO Damian Graham.
“Absolutely there would be implications for the investment strategy,” Graham told the senate economics reference committee on Thursday. “If you take it to the extent of very broad access, there could be a much more material liquidity requirement. There could be a much more defensive strategic asset allocation for our members, which we know in the long-term has a very material impact on what their retirement outcomes are likely to be.
“Our focus, particularly for younger members, is to maximise the amount of risk they can take through time, because we believe that’s the way to generate the best retirement outcome for them. If they have a very conservative (allocation) or there’s a market event and they reduce the risk by going to cash, that can have a really deleterious impact on their long-term retirement outcomes.
Aware uses a lifecycle strategy for its MySuper option, where risk is gradually stepped down as members age. Anything that would require the fund to hold more defensive assets – or even more liquid assets – would have a “real risk” of reducing their retirement balance.
“The dynamic around having collateral or guarantees for deposits, I don’t know how we would do that functionally. I think that would be a very significant change of business practice for a fund. I don’t know how we would do that in a way that was efficient and wouldn’t add to costs, and obviously it would definitely add to a lower return.
“But we know that housing affordability is a big issue and we’re trying to play an appropriate part to build new supply and bring it to market because we think it’s how we can have a positive impact – within the confines of appropriate risk-adjusted returns because that’s our fiduciary duty to our members.”
Graham said that there was an “appropriate risk return for its members” from investing in Australian housing even as senator Andrew Bragg questioned why members shouldn’t have the right to withdraw their superannuation for a house deposit.
“I think it’s a supply-side issue. We believe that what we’re doing adds positive supply to the market, and we believe that will help the affordability issue,” Graham said. “I guess there’s many things that I think are contributing to this issue, but we don’t believe that just providing additional demand through early access of super would necessarily have a positive impact on the challenge.
“When we look at the dynamics of different potential policies, it doesn’t appear to me – though I’m not an expert on those policies – that it would have the desired effect. It would certainly add to the demand, but we also don’t believe that the people that are targeted through first home ownership are necessarily the people that have sufficient superannuation savings to drive the mechanism that the policies are intending to drive… We believe this is the best way we can contribute within our fiduciary duties.”
