Relaxed Lending and Superannuation in the Covid Recession

October 7th 2020

COVID-19 has sparked massive changes in banking and finance, not least because of the deep recession impacting the economy.

Among the changes that have been witnessed in finance, the so-called responsible lending laws have been relaxed to make it easier for a borrower to get a loan. In addition, around $35 billion has been withdrawn from superannuation accounts as the government has encouraged people to pull out cash from their superannuation savings to cover the costs of being unemployed or working fewer hours during the COVID-19 recession.

Relaxed Lending

After the banking Royal Commission of a couple of years ago, the rules and regulations surrounding personal borrowing were changed to make it harder for borrowers to get a loan. As a result, credit growth slowed. Then along came COVID-19 which hit the economy hard, credit growth weakened further, and in the process, the economic downturn intensified.

The government has eased the rules in an effort to boost borrowing and in the process to give a shot in the arm to the economy.

Will this lead to a surge in dodgy loans or were the earlier restrictions a step too far that stopped many worthy borrowers getting access to credit? Will it help the economy? Will it fuel a house price surge as restrictions are scaled back?

Superannuation

Around 2 million people have withdrawn cash from their superannuation accounts, with close to half a million people clearing out every cent. While this is positive for consumer spending now, it will undermine retirement savings for those people, particularly over the course of many years.

Amid the COVID-19 recession, debate has also escalated about the proposed increase in the superannuation guarantee payment which was scheduled to rise from the current 9.5 per cent to 12 per cent within 4 years. Some are suggesting that cancelling the rise will lead to higher wage increases and as a result boost consumer spending.

This is a hot debate, with huge implications for the funds management sector, savings, and the economy more generally.

There is little to suggest that higher superannuation contributions eat into wages, but it is clear it will further erode the accumulation of retirement savings. What else will it mean for the economy and the finance industry if this freeze comes to pass?

For further information on Stephen Koukoulas or to enquire about making a booking for your next conference or event please contact the friendly ODE team

Asia/Pacific

  • +61 2 9818 5199
  • info@odemanagement.com

United States

  • +1 877 950 5633
  • enquiries@odemanagement.com
Go To Top