The Traps of some Industry Super Funds – A Precautionary Tale 

As from November 19, the first sizable industry fund, Australian super, will be making some significant changes to their fund, that may cause some concern for investors, especially if they were coming close to retirement.  These changes come as amid fears of a potential property market plunge.  Amongst the changes, property funds will be frozen for up to two years in the event of a crisis. Furthermore, the fund will prevent members from investing more than 70% of their savings in its property portfolio option.  

According to Kofkin Bond and Co, one of the most challenging changes will be the rule that states that, for up to two years, the fund has the right to freeze any attempts at withdrawing savings from the property option, as well as prohibiting funds out of, as well as any new contributions into, the options.  

“Imagine having a ‘healthy’ super balance and no access to it…” Stated Jamie Ardern, Principal of Business Development at Kotkin Bond and Co. “To be stuck in a fund investment that, for asset test purposes, is still classed as full value {although its true value may be half} but have no access to it, nor income from it, is simply the GFC mark II.  This could seriously impact up to 1.2 million superannuation account holders at AustralianSuper.” 

AustralianSuper group executive, Paul Schroder has said that the changes are being made to ‘manage risk and protect all member interests.  

Tony Kofkin, Managing Partner at Kofkin Bond and Co isn’t convinced. “I find it interesting, AustralianSuper is preparing for a commercial property market collapse by ensuring their members are not able to withdraw or have access to their funds if they have invested in the fund option – I would assume most members wouldn’t a vested interest in such a rule.” Tony continued “Having such freezes in place would have to become a concern for many investors and fund member, who are thinking of retirement within the next couple of years or simply require access to their funds. this is even more of a worry as there may be many members who aren’t even aware that these changes are not only coming up but are literally around the corner, not giving a lot of time for members to think of alternative investment plans.” 

These policy changes come as interest rates begin at record lows and commercial property valuations are looking to be at an all-time high.  

“It won’t be a complete loss If the commercial property market does collapse” explained Kofkin, “the assets in this fund won’t be revalued to ensure the fund continues to see healthy returns on the annual member statement. Of course, now, this will be despite actually being worthless and not having access to the funds.” 

Mr Schroder attempts to explain “ the fund is committed to the property option but these changes were necessary to ensure other members are not disadvantaged…” 

Although as far as the team at Kofkin Bond and Co are concerned “Imagine having a “healthy” super balance and no access to it? Or, even worse, imagine needing to have access to it and not knowing about these changes until it’s too late? This is what happens when your fund holds assets that aren’t liquid…let this be a precautionary tale”   

 

 

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