Round one wrap of the COVID-19 ERS program: what just happened!

COVID-19 ERS round one. We are now halfway through the ERS program. Some questions have been answered, some questions haven’t and some new questions have been raised. nuj looks at what occurred and what we learnt in round one, and what we are expecting for the next access round.

Round one of the COVID-19 Early Release of Super (ERS) program is now complete. We take a look back at the initial round, share what we learnt, and outline how these insights are informing expectations for round two.

The ERS program has certainly been interesting to watch: there have been spikes, there have been behavioural impacts, there have been changes, there have been breaches and there have been strong statements made by the regulators regarding access.

nuj has closely followed the ERS program from the start, collaborating with the regulator on insights, exploring questions raised by super funds and continually analysing, interrogating and enriching the numerous streams of data.

What happened in round one:

Consistency at an industry-level

Round one of the ERS program ended with $18.1bn in payments made up to 28 June, representing 0.9% of the APRA regulated super fund assets.

The vigilant monitoring of super fund execution capabilities through round one of the ERS program has pegged the payment curve to the application curve, with the total growth across each of the sectors remaining relatively consistent.

Partway through the first round, there were early indications of a spike leading into financial year-end, however, these quickly re-corrected to continue the same trajectory.

nuj originally forecasted total round one payments of $16.9bn with an expected flattening of the application curve. However, no flattening occurred, resulting in total payments of $18.1bn as at 28th June.

Varied fund-level impacts

The top 5 impacted (Industry) funds have each released over $1bn, with a combined amount representing 47% of total early release payments.

At a fund level, there has been everything but consistency.

As a proportion of assets, Retail funds have been hit the hardest. Five of the top six impacted funds coming from the Retail sector, each having more than 5.5% of their total assets removed at the close of round one.

On an absolute basis, it has been the Industry fund sector that has released the most funds, with $11bn in payments on behalf of 12% of their total members.

The concentrated impact of the program is extremely evident through the fact that 47% of total payments in round one came from five of the biggest Industry funds, and we expect this to continue into round two.

What we learnt from round one:

About application growth

Volatility in the number of applications made at a fund level has grown throughout round one of the ERS program, with a significant spike at financial year-end.

At an industry and sector level, weekly application numbers have remained relatively consistent throughout round one, with only small deviations from the average.

All sectors experienced a slight spike in the application numbers in weeks three and four of the program, with the Retail and Industry fund sectors seeing a marginal drop at the tail end of the round.

However, drilling deeper down into the application numbers to an individual fund level, there has been a lot of volatility. Volatility has been measured as the percentage change in applications against the mean for each individual fund, and then aggregated to a sector view.

The spike in fund application volatility in the final week of round one was predominantly driven by a decrease in applications across the majority of funds in the industry. However, around 20% of Retail funds saw an increase in their applications in the final week of round one, which comprised of a mix of banks, financial institutions, specialised platforms and smaller adviser driven funds. Also to be noted was a cohort of smaller Industry funds linked to industries heavily affected by COVID-19, saw increases in their applications in the final week.

We expect to see another significant jump in volatility for the first week of the second round given the early indications of member participation.

About average payment size

A relatively consistent decline in the average payment amount over round one could be linked to market sentiment related to the progression of COVID-19 cases in Australia.

Going back to the start of the ERS program on the 20 April, there was a significant amount of uncertainty regarding COVID-19 and its projected impacts on the economy. In light of this financial uncertainty, we feel that it is no coincidence that the highest average payment amount for round one of the ERS program was at the beginning.

As time progressed and Australia saw the positive effects of closing the borders and social distancing, there was a correlated decrease in the average payment size.

Although the timing may not be perfect, parallels can be drawn between the spike in the average payment size in late June with the spike in COVID-19 cases in Victoria.

Another view is that as the program has moved along, the media and rhetoric have increased and members have taken a more considered view on their short term cash needs and lowered their drawdown amounts.

What are we expecting from round two

Revised forecasts

nuj revised its initial forecast to $32bn in total early release payments in light of new learnings garnered through round one of the ERS program.

Conversations with Treasury have reinforced nuj’s position on its revised forecast of total payments for the ERS program.

Applying the learnings garnered from round one coupled with patterns identified at individual fund level has driven nuj to revise their forecast for round two. Our revised total payment forecast for the ERS program is now $32bn, up from our previous prediction of $29bn.

With projected payments of $32bn at the close of round two on 24 September, representing 1.7% of the APRA regulated super fund assets, our sector impacts follow a similar pattern to round one. At an individual fund level, however, there are significant deviations.

Both nuj and the Treasury have revised ERS total projected payments upward from initial estimates.

Will behavioural science trump data science?

Now that we are in the second round of the ERS program with another bite at the cherry, are we going to see more behavioural impacts in the way members interact with the program?

Judging by the crashing of the ATO website on 1 July, as members moved to execute their second drawdown, we are likely to see a different application trajectory for round two.

The changes that we are likely to see are going to leave us with a few more questions to answer. Will this new trajectory see more new members join the ERS program for the second round, and will it change the amount that round one drawdown members will take in round two?

We may not have the answers right now, but we are going to find out soon enough.

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