The COVID-19 pandemic will cost Australia’s superannuation industry A$3tn ($2.1tn) in foregone growth by 2040, estimates Rainmaker Information, a provider of research and information about the Australian financial services industry.
Prior to COVID-19, Australia’s superannuation savings were projected to climb to A$10tn over the next two decades, but COVID-19 has seen this figure revised down to A$7tn, according to Rainmaker Information.
This assessment is based on results from its Superannuation Projection Model that compared two strategic scenarios: pre-pandemic growth expectations with post-pandemic expectations.
This modelling factored in Australia’s recession, rising unemployment, lowering superannuation contribution levels, lower long-run super fund earnings expectations and reduced population growth.
About half of Australia’s population growth is driven by net immigration and this is highly likely to be impacted by international border closures and travel restrictions. The longer this impact lasts the bigger the dampening effect on Australia’s economic growth.
“This lower projected outlook for superannuation savings outlook could have significant economic consequences on Australia if it is not carefully managed,” said Mr Alex Dunnin, executive director of research and compliance at Rainmaker Information.
“Super funds are major investors into Australia’s economy with their investments spanning infrastructure, property, purchase of government bonds, company shares, agribusiness, seeding start-ups and energy projects. Three trillion dollars less in available capital could have major ramifications.”
Mr Dunnin said that superannuation will however remain a massive pool of savings available to boost retirement living standards and help the nation’s economy for decades to come.
The release of Rainmaker’s latest superannuation projections follows an announcement that almost A$30bn has already been withdrawn by distressed super fund members as part of the Early Release of Super scheme.
On top of this, the Rainmaker MySuper performance index is expected to show that 2019-20 delivered average returns of -0.7%, the lowest returns since the Global Financial Crisis.