29 Apr Funds accused of inflating super hit
Patrick Commins – The Australian – Wednesday 29 April 2020
A stoush has emerged between Treasury and the massive industry superannuation sector after the department accused Industry Super Australia of inflating the potential impact on retirement savings of withdrawing money under the government’s emergency early release of super scheme.
About 832,000 Australians have withdrawn a collective $6.91bn from their superannuation accounts, according to the latest Treasury figures, as members take advantage of loosened rules allowing early access to super for those suffering from financial hardship as a result of the COVID-19 crisis.
There has been some concern in the superannuation industry that members drawing on super today will undermine their ability to fund themselves in retirement.
Industry Super Australia warned last month that a 30-year-old making the maximum $10,000 withdrawal today would have $97,214 less in their super than they otherwise would have by the time they retired at the age of 67.
A similar calculation using the Australian Securities & Investments Commission’s MoneySmart online calculator, however, estimates the hit to a retirement balance would be only $43,200.
At a Senate select committee hearing on Tuesday, Treasury head of retirement income policy Robert Jeremenko said the reason for the large discrepancy was that ISA was using “nominal figures, rather than real”.
Mr Jeremenko said that using a nominal figure — not taking the impact of inflation into account — would give a “larger hit to retirement balances”. He said this was out of step with standard industry practice and “inconsistent with what ASIC has told super funds, or told anyone who is making public statements about balances on withdrawal of super balances”.
“Generally the well-respected methodology to predict the time value of money is to take into account an inflation adjustment.”
Liberal senator James Paterson said he planned to ask ASIC to investigate ISA’s claim.
Senator Paterson said it was “shocking ISA is spending super fund members’ own money trying to mislead them about the consequences of withdrawing super early. Very clearly, despite saying they are supportive of the government policy, they are trying to undermine it.”
But the industry super body hit back at Mr Jeremenko. ISA deputy chief executive officer Matt Linden said “the Treasury official’s characterisation of our modelling as not being expressed in ‘today’s dollars’ at the COVID-19 Senate committee is incorrect”.
ISA’s estimates were adjusted for inflation, just at a lower rate than was assumed in ASIC’s calculator. Additionally, the industry super experts had assumed a higher rate of return over the coming years: something which would boost the earnings foregone by pulling money out today, leading to a bigger hit to retirement savings in 37 years’ time.
“We have written to Treasury requesting that they correct the record,” Mr Linden said.
A Treasury spokeswoman declined to say whether Mr Jeremenko would bow to demands to correct the official parliamentary record, but appeared to hold to Mr Jeremenko’s criticisms.
“The ISA figures are significantly higher than the figures produced by the ASIC calculator,” the spokeswoman said.