Search
Close this search box.

How your retirement savings can navigate us out of Covid-19

mask-Noel Hadjimichael-The-Australian-Business-Executive

It is now more than 150 days since we have all faced, across the globe, the economic, social and political impacts of Covid-19. It has been a story of remarkable similarity: mass economic dislocation, workers sent home to isolate, businesses shut with many not to reopen, mass transport shunned and overseas travel treated as a national security threat. With signs of easing in Europe, Australasia and East Asia there is scope to consider what is the role of business in the immediate and medium term recovery phase.

If this pandemic had hit during the Middle Ages the role of the Church and the fears of an uneducated populace would have given it a religious, mysterious and demonic narrative. In the Edwardian era we would have been tempted to see this as a disease of poverty, poor hygiene and foreigners – ready made for xenophobic hysteria, shipping quarantines and slum clearances. If we had faced this in the immediate post war 1950s the lure of science and Cold War competition combined would have allowed us to “manage the fight” by vast amounts of so called medicinal measures plus a rash of germ warfare allegations.

I’m interested in the economic dislocation aspect of the current crisis – the more than 1 billion workers with relatively (up to 2020) secure employment and income streams who have been furloughed, paid to stay at home by governments or shunted onto welfare schemes in the absence of everyday work. Private business enterprises, in particular the medium to large companies that are the powerhouses of nearly all advanced economies, are fighting to return to a marketplace that has a perfect storm of negative characteristics. Subdued consumer spending, heightened uncertainty, overwhelmed public health infrastructures and scared politicians. A lack of strategic messaging by those who shape the narrative is deeply worrying.

European, North American and increasingly East Asian workforces have contributed over the past 50 years, with greater pace in the past 20 years, to the accumulation of vast stores of wealth held by mutual fund (for Australians Superannuation or Britons Pension) managers in vehicles that are designed to pay for ever expanding periods of retirement living. Whilst government funded welfare plays a critical role, private wealth nest eggs are a significant asset of between 30 and 60 percent of most OECD nation’s workforces. No longer the preserve of the elite, the white collar or the privileged. 

Business needs three key springboards for any post first wave Covid period: consumer confidence, investment activity and the suppression of underemployed or unemployed labour. Customers are rightfully cautious – they have seen their friends and  family threatened by a global pandemic. Employment has been slow to return with many shopfronts still closed, retailers and eating establishments operating limited services, factories adopting safer working routines and whole sectors like transport, tourism and education in crisis. It is investment activity that governments and mutual funds can impact quickly and decisively.

The hundreds of millions of pension fund members (regular employees and managers who have contributed to their own future by growing deductions from pay packets) are the same cohort of threatened workers who have an immediate desire for economic activity to not only be restored but strengthened in this period of crisis. PPP emerged as the sexy and radical by product of neo libera economics: private public partnerships. Often governments were able to persuade private interests to build or build/operate large infrastructure projects that the public purse could not or did not wish to fund or finance. This was part of the privatisation push from the 1980s and whilst commenced by right wing ideologues, it has been adopted across the political spectrum as a legitimate vehicle of economic management. 

Maybe it is time to revisit the concept of public versus private sector responsibilities. Business it can be argued wants government off its back and generally supports low tax and low intervention cultures. But the Covid-19 crisis (we can argue the origins and culpability issues another day) places in stark focus the horrid reality that private enterprises require a stable and confident market for their products and services – one that requires consumers (be they other businesses or individuals) to act confidently and spend. Governments offer mutual funds desirable taxation regimes to promote and boost returns and growth. Governments may also need to step in and drive a strategy to engage with mutual funds managers designed to maximise their direct investment in the companies, corporations and entities that offer employment and incomes to their core stakeholders: their members. 

It is not a surprise that private wealth residing in mutual funds has been drawn down by members in places like Australia due to government policy (the so called $10,000 twice cash grab to help with Covid-19). But the viability of long term pension policy requires contributions to restart with employment and build. It is useless and harmful for large amounts of cash to be held (in a low to zero rate of return environment) whilst business and industry need cash injections to stimulate necessary capital and management investments.

It is not that radical for pension funds representing the employees of say a manufacturer or retail chain, to take a fresh and prominent position as a shareholder – a shot to the arm to allow the entity to reboot itself and preserve as many jobs as possible. Workers may need to accept low to nil returns on their invested funds in the next 5 years – but if that can buy the time to propel at least 80 percent of all employees back to meaningful work it would be worthwhile. We may all need to “buy in” to the recovery of private business – the only generator of the majority of jobs and the only substantive vehicle for innovation/technological advance.

It is useless to have trillions of dollars of long term investment funds playing a waiting game or seeking to maximise returns (as if to promote the bonus payments of its managers) when their beneficial owners are facing mass dislocation and loss of income. Governments have a limited ability via bonds to buy their way into an economic recovery – it is up to our savings to play a prominent role.

A few weeks ago the FSB (Federation of Small Business in the UK) noted the following: a majority of small firms (62%) wanted more Government action; seven out of ten people do not feel comfortable returning to work without social distancing measures; and over 87% of small firms recorded a fall in business confidence in Q1 of 2020. Serious indicators that this is not a manageable economic downturn or recession in  the traditional sense. 

I don’t want my pension monies to be underemployed or strategically misused when my neighbours need work to feed their families. I want my free, private enterprise and democratic society to make it through this crisis – my savings are needed as much as my brain or muscles. 

Noel Hadjimichael is a London based public policy consultant in the security, defence and civil society space with relevant experience working in politics, the civil service, industry and the charitable sectors.

Subscribe

The Australian Business Executive (The ABE) provides an in-depth view of business and economic development issues taking place across the country. Featuring interviews with top executives, government policy makers and prominent industry bodies The ABE examines the news beyond the headlines to uncover the drivers of local, state, and national affairs.

All copy appearing in The Australian Business Executive is copyrighted. Reproduction in whole or part is not permitted without written permission. Any financial advice published in The Australian Business Executive or on TheABE.com.au has been prepared without taking in to account the objectives, financial situation or needs of any reader. Neither The Australian Business Executive nor the publisher nor any of its employees hold any responsibility for any losses and or injury incurred (if any) by acting on information provided in this magazine. All opinions expressed are held solely by the contributors and are not endorsed by The Australian Business Executive or TheABE.com.au.

All reasonable care is taken to ensure truth and accuracy, but neither the editor nor the publisher can be held responsible for errors or omissions in articles, advertising, photographs or illustrations. Unsolicited manuscripts are welcome but cannot be returned without a stamped, self-addressed envelope. The publisher is not responsible for material submitted for consideration. The ABE is published by Romulus Rising Pty Ltd, ABN: 77 601 723 111.

Subscribe

© 2024 - The Australian Business Executive. All rights reserved. A division of Romulus Rising Pty Ltd, an Australian media company (www.RomulusRising.com).