Negative superannuation returns

Fifth downturn in 30 years

The numbers are in and ‘its not pretty’ said one super fund chief. This is all too true, with Chant West reporting an expected 3.5% drop in super fund balances over the past 12 months. This amount is still an estimate as it takes some funds a few weeks to report their 12-month financial year performance. But super fund research houses SuperRatings and Chant West agree that it will be about 3-4% down for those in balanced funds and could be as high as negative 7-8% for those in growth funds.

With an average 65 year old pre-retiree holding about $250,000 in super, this means a decrease of about $7000.

But to add some context, for financial year 2020-2021, the increase for many was a whopping 18%.

The longer term return is a more important indicator, and this reveals a median fund return of about 7% over the past 30 years, since the compulsory superannuation was introduced by the Keating Government in 1992.

So whilst this past year is one of the five in which returns are down, the other 25 were up, and overall have delivered returns far in excess of investments such as cash.

It’s also worth remembering that these ‘losses’ are paper losses unless you are needing to withdraw all, or a significant proportion, of your funds.

This could include those who are about to try to withdraw lump sums and those who make regular withdrawals via an Account Based Pension or similar retirement income strategy.

In response to the negative outlook, Chant West Senior Investment Research Manager, Mano Mohankumar stated:
“When markets fall sharply, as they’ve done recently, there’s a tendency for some people to panic and think about moving money into less risky investment options, or to cash, with a view to switching back later. But attempting to time markets is a risky proposition. Far more often than not, it results in a worse outcome in the long run than if you sit tight and stay the course. Panicking only converts paper losses into real ones. Not only that, you risk missing out when markets rebound – as they will at some point. Even many members close to retirement can afford to take a long-term view. That’s because a lot of people most likely won’t take out all their super when they retire. A substantial amount is likely to stay in the super system in the pension phase, often for many years, which provides plenty of time for losses to be recovered.

“So we encourage everyone – younger and older – to remember that superannuation is indeed a long-term investment. Most members can afford to remain patient and, if you’re thinking about withdrawing money or switching to a less risky option, we strongly encourage you to seek financial advice before doing so.”

What can you do?

These negative returns are one result amongst many financial indicators which will be released across the course of the year. Reacting emotionally is normal, but then it’s helpful to take a step back and look at the bigger picture. For this reason, we  would highlight the very useful overview of negative returns recently written by Retirement Essentials Director, Jeremy Duffield. In this article, Jeremy considers the upside of market downturns and how they can be viewed and used to your advantage.

Downturns can also mean your assets, and income, have reduced which could increase your Age Pension entitlements.  You may now decide to adjust your reportable assets and ensure you receive your full (new) entitlements.

Or you may now be eligible for an Age Pension for the first time.

Test these propositions on our Age Pension Eligibility Calculator if you are unsure.

And if you are unclear as to your eligibility or how your (lower) super balance might affect your overall income, you can always book a consultation with one of Retirement Essentials’ qualified and experienced advisers.

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