The government’s emergency measure allowing members facing financial strife to withdraw $20,000 from their super will cut returns for members to “mid-single digits,” according to HostPlus CEO David Elia.

Speaking on a webcast on Wednesday morning, Mr Elia said the surprise early withdrawal move had changed things for super funds.

“Clearly the government has changed the rules and super funds now need to factor in sovereign risk [the danger of governments acting precipitously],” Mr Elia said.

“That means funds will carry higher levels of cash, resulting in lower returns.

“We will be less aggressive in terms of the allocation of funds to [the venture capital] sector and that applies to all asset classes.”

Returns could fall into “the mid-single digits” level, he said, far below the 10.7 per cent average for “balanced” funds in 2019, and 7.3 per cent per annum average over the seven years leading up to January 31, 2020.

All will be hit

The whole industry will suffer, Mr Elia said, not just HostPlus.

“Simply by virtue of [the government intervention] … we will see lower returns across the sector. I think that’s the significant conclusion you can draw,” he said.

Rainmaker superannuation researcher Alex Dunnin agreed.

“I think he’s right,” Mr Dunnin told The New Daily.

“If super funds have to be prepared for the off chance that the government could allow members to access their funds early, then they would have to hold more liquid assets, [such as] cash and bonds, and less equities, infrastructure and alternatives,” he said.

The government played down the risk of further surprise changes to the super system, with Finance Minister Mathias Cormann telling the Senate on Wednesday that “given the economic impact of the coronavirus crisis” the early withdrawal scheme “is entirely appropriate”.

“But this is a temporary measure,” Senator Cormann said.

“We’re not proposing to make it permanent … that is not something that is on the table.”

However, Mr Dunnin said there was no certainty.

The government has shown us that they can change super in pretty amazing ways.”

HostPlus came under fire in recent weeks, with media outlets suggesting its retail and hospitality-heavy membership meant it was disproportionately exposed to the economic impact of the coronavirus.

“They came in for virulent criticism, but it all turned out to be a hoax,” Mr Dunnin said.

Withdrawals overestimated

That criticism centred on calculations that “our total membership of one million would withdraw $20,000 each, which would mean withdrawals of more than $20 billion,” Mr Elia said.

“But we’ve got 570,000 members with less than $10,000 and 160,000 members with between $10,000 and $20,000.”

That meant the $20 billion withdrawal figure was never realistic, Mr Elia said.

As it turned out, about 150,000 HostPlus members withdrew just over $1 billion – $910 million has already been paid, and the $100 million outstanding will be paid within APRA’s five-day limit, Mr Elia said.

Some 0.2 per cent of withdrawal requests would not make the five-day limit because of concerns about scams and slow withdrawals of funds where members have made particular stock choices.

Across the super system “total funds withdrawals have been just over 1 per cent of funds under management,” said David Knox, partner with super consultancy Mercer.

“Some funds will have seen withdrawals of more than that, with HostPlus experiencing around 2.5 per cent,” Mr Knox said.

“But even 2.5 per cent is not a big issue as far as liquidity goes.”

Overall, HostPlus has a strong liquidity position, Mr Elia said.

“We’ve got $6 billion in cash after having paid out $900 million,” he said. HostPlus appears to have cashed up considerably in recent times.

Although Mr Elia said cash reserves now stand at $6 billion, on May 2 they stood at $4.2 billion, according to a document on the fund’s website.

Liquidity not a problem

The surprising early withdrawals measure might not see all funds increase liquidity holdings.

“I’m not sure all funds will have to hold more in cash, but some might,” Mr Knox said.

HostPlus’s recent inability to withdraw money from property fund ISPT had not affected its ability to raise liquidity, Mr Elia added.

“We could have used the secondary market to do it and we’re happy to hold on to the unlisted sector,” he said.

Meanwhile, Australian Institute of Superannuation Trustees CEO Eva Scheerlinck said policymakers should maintain a steady hand to enable super funds to perform their key functions.

“For super to do the job it needs to do – both in terms of delivering ordinary Australians a financially secure retirement and helping Australia recover from the COVID economic shock through nation-building investment – there needs to be stable policy settings that ensure a long-term horizon for superannuation,” Ms Scheerlinck said.

The New Daily is owned by Industry Super Holdings