The coronavirus pandemic will continue to affect superannuation accounts for two decades, with overall balances likely to be 30 per cent below expectations by 2040, according to new research.

Super research group Rainmaker found that “prior to COVID-19 Australia’s superannuation savings were projected to climb to $10 trillion over the next two decades.”

“But COVID-19 has seen this figured revised down to $7 trillion,” the company cautioned.

That significant drop means super balances will be 30 per cent below pre-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,” Rainmaker executive director Alex Dunnin told The New Daily.

“The government has said unemployment might go to 10 per cent and stay there for a time, and that will have a big impact on super,” he said.

“It means returns will be lower because the economy will be weaker, with lower than expected contributions to super because people will be out of work.”

Population hiatus

“A big part of our economy has been propped up by immigration, with net migration accounting for half of all population growth,” Mr Dunnin said.

“Now the government has said immigration will be down by 85 per cent with international border closures and travel restrictions.”

The longer this continues, the bigger the effect on Australia’s economy will be, Mr Dunnin added.

“The end results of all that could be, while we have got used to having super returns of 7 per cent to 8 per cent annually, that might drop to 5 or 6 per cent,” he said.

Those factors will mean the overall amount of money in superannuation will be lower than was expected prior to the pandemic, and individual members’ balances will be lower than otherwise predicted.

Early withdrawals will hurt

The government’s move to allow withdrawals of up to $20,000 from their super will add to that pressure, according to Ian Yates, CEO with Council on the Ageing [COTA].

“People don’t understand the long-term implications of all this. There will be many hundreds of thousands of people who will have their retirement incomes significantly altered,” he said.

“We think the government ought to give people the opportunity to put back some extra contributions in the future if they are in a position to do so.”

That program was originally slated to end on September 24, but was recently – and controversially – extended until December 31.

Maybe not so much

David Knox, partner with superannuation consultancy Mercer, said he doubted the long term effects of the pandemic would shave 30 per cent from super balances over 20 years. However, he said there would be a significant reduction nonetheless.

There could be super shocks down the track. Photo:Getty

“If you look at the predictions on unemployment the economic conditions will be tough for the next five years so there will be lower wages growth, lower contribution levels and lower investment returns,” Mr Knox said.

“The early release scheme means that there will be $30 billion to $40 billion taken out of the system and that will have a compounding effect.”

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Rise must go through

Bernie Dean, CEO of Industry Super Australia, said the government needed to ensure that super is given the best chance to recover by delivering the legislated increase in super guarantee contributions to 12 per cent from the current 9.5 per cent of wages.

“Super is already a great economic leveller for most Australians but we need to do more to avoid us ending up as a divided nation, with millions of women and low-income earners scraping by just on the aged pension,” he said.

“The government needs to keep policy stable. That’s the proven and best way to get workers savings and the economy growing again.”

Despite the expected reduction in superannuation growth levels, trends on where the growth would be would continue, Mr Dunnin said.

Not-for-profit industry and public sector funds would continue to grow relatively while for-profit retail funds and self-managed super funds [SMSFs] would relatively decline.

The overall economy would be hurt by the lower growth in superannuation because there would be less money to invest in the corporate sector to fund growth.

“This lower projected outlook for superannuation savings outlook could have significant economic consequences on Australia if it is not carefully managed,” Mr Dunnin said.

The New Daily is owned by Industry Super Holdings