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Supporting clients with super choices during the COVID-19 crisis
 

Supporting clients with super choices during the COVID-19 crisis 

Policy changes and market volatility are throwing the spotlight on super as the COVID-19 crisis ramps up. 
Get insights from industry leaders to keep in mind as you talk to clients about options for their super.

The COVID-19 pandemic cast a long shadow over the 2020 Retirement Conference held on 31 March in more ways than one. As you’d expect at this time of social distancing, the event, presented by Conexus Financial, Investment Management and Professional Planner, became a virtual conference, with all hosts and speakers appearing via video conference. And while participants had prepared very relevant contributions on the latest hot topics in retirement and super, the pressing concerns stirred up by this crisis had plenty of air time in every session.

In opening the conference, the Hon. Jane Hume, Assistant Minister for Superannuation, financial services and financial technology, spoke about the economic policies and measures the Federal Government has introduced to “fight a battle on two fronts – public health and the economy.”

Super to the rescue?

Senator Hume was quick to highlight the opportunity Australians facing financial hardship now have to draw down on their super savings, with the option to access up to $10,000, tax-free in the current financial year and a further $10,000 after 1 July 2020. “This is an extreme solution for the unprecedented situation we’re facing,” she says “The policy is a targeted, scaleable, temporary measures that can be rolled out quickly and affordably, using existing communication and administration rails.” She went on to stress that it is the ATO – not super funds – who will be managing the process.

Fact Sheet on Early Access to Superannuation

A last resort measure

While expanding the scope of financial hardship gives access to vital cash flow relief for Australians who have lost their income, it’s likely some will not be fully aware of the impact on their future income in retirement. “Clients who have the most need of early access to super are also most likely to experience inadequacy in their retirement savings,” said Liz Hughes CFP®, Principal at WealthSpring Financial, speaking at a conference session on Retirement Adequacy. “If someone were to be taking out this amount to have it there just in case, it’s important they know what the long term consequences are going to be. With the social media posts I’ve been seeing it’s clear that many just don’t have the knowledge to make an informed choice. They’re saying ‘why shouldn’t I take my super out now, it’s not performing anyway.’”

This is a serious concern shared by other experts at the conference. Both Senator Hume and FPA Chief Executive Officer Dante De Gori CFP® suggested that other government stimulus measures can provide a first line of defence for Australians experiencing financial stress and hardship with a draw down from super being a last resort.  “The wage subsidy announced by the Prime Minister will support many people financially through this crisis, without having to access their superannuation,” said Senator Hume.

“The latest package should go a long way towards making sure more people have the cash flow they need,” agreed Dante. “But because of the scenario we are in, all options should be on the table. No-one knows what the lasting effect of this crisis will be but Australians should be careful about taking action that will put in jeopardy their long-term goals for retirement. Our FPA members have a pivotal role to play in supporting clients to make the best decisions about these different measures available to them.”

Demonstrating the value of advice

Senator Hume also spoke to the value of advisers in supporting people to make sound decisions for their super investments at this uncertain time. “There is a genuine opportunity for advisers to demonstrate their worth,” she says. “There are a lot of nervous people out there, a lot of people who are unadvised who may be switching their account balance into cash with the market volatility we’re seeing.”

Liz says that her approach of “hammering home messages about diversification and volatility at every review,” is making it easier to reassure clients now. “99% of them have been brilliant during this ‘corona quarter’ as I’m calling it,” she said. “As a planner who has been through the GFC, I draw on that experience and have identified portfolio reports from that time to make my case to retired clients as to why I advise them to keep two to three years’ income payments in cash.”

“And for the clients with accumulation accounts who are convinced they should sell their assets down, I show them the 10-year portfolio performance of a client who went to cash in 2009, no matter how hard I tried to talk him down. I’m able to demonstrate that other clients who stuck with it ended up with their portfolios close to expectations we’d forecast in 2006 within a few years.”

“This is exactly why personal advice is so important,” adds Dante. “Financial planning clients are not in default options in their funds, they’re in appropriate asset allocations for their situation and life stage. With the government in a stimulus state of mind, one of the things we’ll be putting forward is a subsidy to support Australians seeking advice. Making it a tax deductible expense for those in need would be one option.”

More changes in the pipeline

When asked about further changes to super policy in light of the COVID-19 crisis, Senator Hume said there was nothing under discussion but that further changes could not be ruled out altogether. “This crisis poses a risk to every part of our economy,” she said. “The decisions we’re making now, we’re not making lightly and they all come with a trade-off and with implications that are economy-wide.”

“We’ve just changed the definition of what financial hardship means for withdrawing super and that’s huge. So freezing super guarantee contributions at 9.5% is not on the agenda right now. But it would be foolish for a politician to come out and say there will be no more interference with super to see us through this crisis.”

Senator Hume added that “post-retirement reforms are on pause, they have been temporarily de-prioritised in light of the crisis and we will return to these when this crisis is over.”

The social distancing demands of this crisis are highlighting the need for some important process and compliance changes from super funds. “I’m hoping that a silver lining to this situation is that certain technologies will get pushed along,” says Liz. “Many super funds still want wet signatures and documents sent in the post. Where is the value for clients in financial planners taking the time to get documents signed, witnessed and posted off? At a time like this it’s not only impractical, it’s becoming virtually impossible.”

Senator Hume also suggested that getting people more engaged with their super may be another silver lining for the future success of the super system and for the role of financial advice. “I’m genuinely proud of the superannuation industry,” she says. “But extraordinary times call for extraordinary measures and I see this as an opportunity to reimagine an industry that’s plagued by complacency and inertia just because of its compulsory nature. With a crisis comes opportunity and with these new measures we may be seeing a higher level of engagement with superannuation from fund members.”

 

Original Author: Produced by Money & Life team and published on 01/04/2020 Source