Superannnuation balances in the accumulation and pension phase will suffer significant declines as a result of the COVID-19 pandemic, with the impact on SMSFs to be exacerbated due to their high levels of equity holdings, according to a research group.
According to DEXX&R, the impact of COVID-19 on superannuation funds under management (FUM) held in accumulation-phase accounts will be $347 million, or a 15.8 per cent decline from $2.20 trillion in December 2019 to $1.85 trillion in December 2020.
The research house released the figures as part of its “DEXX&R Market Projections Report” and also stated that over the 10 years to 2029, the impact is projected to reduce accumulation-phase FUM by $1.29 trillion, down to $2.46 trillion from a pre-COVID June 2029 projection of $3.75 trillion.
The report stated these figures had factored in the impact of early release of superannuation, a decline in contributions due to higher rates of unemployment and underemployment, low wage growth and depressed investment returns.
On this last point, DEXX&R stated COVID-19’s impact on economic activity would cause a fall in the value of listed companies across most industry sectors during 2020.
“With some limited exceptions, our view is that underlying profitability of companies operating in most sectors will be impacted for the foreseeable future. In addition, there will be significant number of companies that cease trading or downsize over the coming 12 months,” it said.
“In addition, this will have a dramatic impact on expected future earnings, with DEXX&R revising down expected 10-year earnings to 3.6 per cent, down from pre COVID-19 earnings of 5.4 per cent.”
Speaking with selfmanagedsuper, DEXX&R managing director Mark Kachor said the impact on SMSFs was likely to be greater than that on other superannuation sectors due to the higher allocation to equities within the typical SMSF.
Pointing to recently released ATO data, Kachor said its estimation of equity holdings inside SMSFs being around 30 per cent was too low as SMSFs could also hold equities via indirect means.
“The equity holding figures are wrong because SMSFs can invest via managed funds, listed structures and platforms, as well as direct shares,” he said.
“We estimate SMSF equity holdings are closer to 70 per cent, which is why they are likely to suffer such a significant decline in assets,” he added, pointing to a projection SMSF assets will fall by $108 billion, or 15.7 per cent, to $582 billion by December 2020, from $690 billion in December 2019.
The report stated the longer-term impact on SMSFs would be a $548.1 billion, or 60 per cent, fall to $375.2 billion when compared to the projected pre-COVID June 2029 FUM of $923.3 billion.
In contrast, the projected downturn for the industry fund sector was $439 billion, or 31 per cent, to $970.7 billion from a projected pre-COVID June 2029 figure of $1.4 trillion, while the retail super sector is projected to have a $178 billion decline, or 41 per cent, to $259 billion from a projected pre-COVID June 2029 figure of $439 billion.
