Recently, there has been some media coverage surrounding the ‘liquidity’ of super funds and their ability to support the Australian Government’s early access to super initiative, which was designed to help support members financially impacted by Coronavirus. Understandably, this may have caused some questions from members about what this might mean for their super.
WHAT DOES ‘LIQUIDITY’ MEAN?
In the financial world, the term liquidity refers to how easily an investment or product can be turned into cash. So for superannuation, liquidity can refer to how much cash a super fund holds, or how easily a super fund’s investments can be converted (or sold) into cash.
Generally speaking, the more liquid an investment is, the easier and faster it is to buy and sell. For example, shares are considered highly liquid as they are frequently bought and sold on share markets. However, direct investments in property or infrastructure are considered less liquid because of the time and difficulty often associated with buying and selling them for a given price.
WHAT ROLE DOES LIQUIDITY PLAY IN A SUPER FUND?
Liquidity can be important for super funds for several reasons, including:
- Helping to fund and take advantage of investment opportunities for the benefit of members
- Providing flexibility for making changes to investments as market conditions change
- Helping the fund ensure cash is available for day-to-day operations – including transfers for members changing funds, for payments to members of account-based pensions and, of more relevance, to ensure the necessary cash is available for members to draw on as part of the government’s early access to super scheme.