3 questions super funds should be asking right now about the COVID-19 ERS program

COVID-19 ERS program. When its over, what will be the new norm? What will be the full impact on the superannuation industry? Will consolidation speed up? Will the regulator take a firmer stance? nuj looks at three questions around where we are now, where we are going and what we are missing…

The COVID-19 Early Release of Super (ERS) program has consumed the superannuation industry through the pandemic. We are almost half way through the program and lots of questions are being asked.

Regulators have played a big role in the program, with the super funds left scrambling to keep members informed and making sure payments are made on time.

After analysing numerous sources of data, connecting with a large number of super funds on their programs and collaborating with the regulator on findings, nuj is well positioned to provide insights into the broader impacts of the ERS program on the Australian superannuation industry.

Q1: Is there going to be a spike in applications at the end the first round?

What is expected to happen?

The projected total payments for the first round of the ERS program will be $16.9bn, representing 0.9% of the APRA regulated super fund assets.

From a payments perspective, the initial spike that was experienced across the industry in the early weeks of the ERS program has continued to subside.

The industry average withdrawal amount has decreased consistently from the start of the program to date, diluting the weekly increases to the total program impact.

Analysis of the application data combined with decreasing industry average withdrawal amounts shows that both the size and number of applications have slowly decreased through the program, flattening the future projected impact.

Projecting forward to the end of the first round of the ERS program (30 June), sees total payments to members of $16.9bn, representing 0.9% of the total APRA regulated super fund assets.

What are we seeing?

Applications have been relatively consistent all through the first round of the ERS program, reflecting no indications for a spike prior to year end.

From an applications perspective, if we average the first reporting date to reflect a standard 7-day reporting cycle, the initial spike is flattened and replaced with a softer spike in the 3rd and 4th week of the program.

Projecting the application curve forward to the end of the first round of the program, we do not expect to the see a spike in applications. Equally we don’t expect to see a significant drop in the current application levels, just a consistent subtle decline through to 30 June.

The consistent decrease in the industry average withdrawal amount through the first round indicates some behavioural impacts in the way that members are engaging with the program. Members who have taken longer to withdraw from their super may be taking a more considered approach to their short term cash needs versus the long term impacts on their retirement.

Q2: What is the projected total draw down from the ERS program?

What is expected to happen?

Treasury has estimated that the total early release of super to be in the range of $24bn, but we think it is going to be more, quite a bit more.

Our initial high level estimates, prior to more recent data points, projected the total payments in the ERS program to be similar to estimates made by Treasury.

As the program has progressed, it has become evident that there are an increased number of withdrawals from super funds with high average member balances. What’s more is that the majority of these withdrawals have been over $8,000 of their superannuation balance.

Combining these two elements of high average member balances and withdrawals over $8000, along with the timing and frequency of these withdrawals, is providing a clear indication that these members are likely to also participate in the second round of the ERS program.

What we are seeing?

We forecast the total impact of the ERS program to be $29.3bn by the 24th September, representing 1.5% of the total APRA regulated super fund assets.

The eligibility criteria set out by the ATO for early access to super have been relatively broad, allowing people who may not be in a position of financial hardship to access the ERS program.

From other content that has been released regarding the use of the ERS funds, it seems that in many cases the program has been leveraged to accommodate lifestyle choices as opposed to financial support.

In light of the above, coupled with our insights around the demographics and average account balances for the majority of members that withdrew in the first round, nuj has forecast the total impact of the ERS program to be $29.3bn by the 24th September. This amount representing 1.5% of the total APRA regulated super fund assets.

Q3 - What are we missing?

What has happened to date?

During the ERS program, the main focus of super funds has been effecting payment within five days of an application being received.

There has been a lot of hype in the media around the ERS program. Hype in lead up, hype in the initial draw downs and hype around the total impact. However, most of the media through the program has been around super funds ability to pay applications within 5 days.

To expedite the application process and to ensure consistent messaging and user experience, the ATO internalised this process through the myGov website. Moving the super funds away from the application process seemed to heighten the scrutiny around the piece of the process that it did control: paying applications within 5 days.

The basis for the ERS program is to support people experiencing financial hardship as a result of the COVID-19 pandemic through an early release of their super. Under this backdrop it makes perfect sense to hold super funds to account on how quickly they can execute and get these funds into the hands of their members.

The execution performance across the various sectors of the super industry has been mixed, however, the Industry Funds have received the most applications and have turned them around the quickest.

What does this mean?

How much are Australians going to end up paying for the ERS program?

Our analysis of the ERS data has shown that both self administered and externally administered funds have both performed well in turning around applications within 5 days, but at what cost?

Superannuation is a long term investment meant to be held all the way to retirement. Although early access to super through financial hardship is not new, super funds have never been required to execute this volume of applications.

In order to meet their requirements and to avoid negative external scrutiny, super funds and administrators have expanded their teams to support the effort. All the additional costs to communicate, execute, report and manage the program will inevitably come back to the members.

We leave you with this final question… how much are Australians going to end up paying for the ERS program?

Please participate in this quick survey if you would like understand the total costs of the ERS program.

If you are interested in harnessing and enriching your data, we'd love to help out. Contact us on sales@nujsuper.com or follow us on LinkedIn.