The firm stated that in the past, funds were concerned about how to allocate high incoming cash flows from employment contributions, not wanting to leave too much in cash and bonds in a low interest rate environment.

With their relative stability of cash flows, a number of funds had used unlisted assets as proxies for government bonds, but with higher returns. Infrastructure, direct property holdings, private equity and venture capital had all benefited from the decline in interest rates over the last 15 years, with the reduced discount rates increasing their valuations.

The constant flow of superannuation guarantee contributions had provided positive net income for the industry as well as a cash buffer and strong overall liquidity.

But after experiencing COVID-19, funds may aim to prepare themselves for the next crisis. 

“Over the next decade, the superannuation industry is not likely to have the same earnings pattern as enjoyed over the last 20 years,” an analysis from Rice Warner stated. 

“This will mean new targets — is CPI [consumer price index] plus 3 per cent to 4 per cent still viable over the next 10 years? Perhaps it will be if CPI is negative for some of this time.”

It added that if targets are reduced, projected future retirement benefits for members could decline, alongside confidence in the system. 

The decreased targets would flow into communications material, online calculators and financial advice models. 

“Forcing superannuation funds to hold more liquidity in anticipation of another unexpected government requirement will reduce the long-term earning capacity of superannuation and eventually lead to lower tax revenue and higher age pension costs,” Rice Warner said.

Industry super funds could also be set to seek new members in other sectors than the ones that they primarily cover, particularly those who cater to industries that have copped heavy hits to employment, such as hospitality, retail and tourism.

Rice Warner has anticipated that funds may also look to build up membership of their account-based pensions to provide an increased buffer against another downturn. 

The firm is not yet aware of any funds that will need to ask APRA for approval to cease rollovers due to liquidity, but some of those hit harder may need to sell some assets to support their cash flows.

A number of super funds have taken to adjusting the value of their unlisted assets in light of the downturn, including AustralianSuper, Hostplus and REST.

But Rice Warner has estimated that the initial falls of 5 per cent to 15 per cent on some unlisted assets could be lowered again later if future earnings are expected to be lower for longer, particularly when the use for assets such as convention centres and airports in coming months remains uncertain.        

Further, it added that the speculation around super funds’ investments in unlisted assets and their liquidity had been unfair. 

“The media and government have taken the view that funds should have allowed for this in their LMPs [liquidity management plan],” the consultant stated. 

“This is harsh as the legislation is new and very little notice of payment was given. These calls are essentially berating trustee boards for not having provided for the sovereign risk of the government requiring cash withdrawals well outside their own enunciated (but not yet legislated) objective of superannuation.”

Rice Warner has previously forecast the withdrawals could total to as much as $40 billion to $50 billion as unemployment rises and sectors such as hospitality, retail and tourism are knocked about by the coronavirus shutdown. 

“Most funds will manage, but some operate for members in industries with high levels of unemployment,” it said.

“As JobKeeper does not allow for any superannuation contributions, the regular cash flow has been severely disrupted. None of this could have been foreseen.”