Financial Services Council chief economist, James Bond, said the unexpected drop in superannuation contributions in the June quarter could be attributed to a loss of investor confidence in the super system as well as “leakage” of employer contributions to the self-managed superannuation sector.
According to the latest quarterly data from the Australian Prudential Regulation Authority, superannuation contributions grew by just 1.9 per cent last financial year, with the June 2013 quarter one of the weakest quarters since the global financial crisis. Total contributions fell by $112 million in the June quarter over the previous corresponding period. Contributions also fell by $399 million between the March and June quarters in seasonally adjusted terms.
Bond said the June quarter defied the pattern of strong superannuation contributions at the end of the financial year, due primarily to a decline in employer contributions, which fell by $489 million between June 2012 and June 2013.
“The decline in employer contributions in three of the past four quarters has overshadowed an increase in member contributions,” he said.
He also cited “leakage to self-managed superannuation funds” and the threat of further tinkering with superannuation policy as other possible explanations for the drop in contributions.
“It is possible that the SMSF sector is taking higher contributing members from the APRA-regulated sector,” he said.
“Also, the constant media speculation about potential changes to the tax treatment of superannuation in retirement affected confidence in the super system, which could have stopped some people making further contributions.”
Bond also pointed to Australia’s rising unemployment rate, and the strong negative relationship between contributions and unemployment.
In August, the Australian Bureau of Statistics released its labour force data for July, which showed that while headline unemployment remained unchanged at 5.7 per cent, total employment fell by a seasonally adjusted 10,200 people, with full-time employment decreasing by a 6700 people and part-time employment falling by 3500.
The data surpassed market expectations, which had forecast an increase in the unemployment rate to 5.8 per cent.
“When unemployment goes up, contributions go down, and when GDP growth slows down, so too do contributions,” Bond said.