Superannuation is down but not out

By Cameron Micallef

June 16 2020
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Superannuation funds are set for their fourth financial year of negative growth, but it will be the mildest reduction on record, new research has found.

According to Lonsec’s SuperRatings, the median balanced option rose by 2.1 per cent in May as sharemarkets rallied off economies reopening.

However, May’s strong growth left superannuation financial year-to-date returns at the end of May at -1.6 per cent, leaving super funds likely to have its mildest year of negative growth.

“Super members have benefitted from recent gains, but markets are still under pressure and remain vulnerable to negative news, including a potential second wave of COVID-19 infections,” said SuperRatings executive director Kirby Rappell.

“Funds were hit hard in February and March, and some saw that as an opportunity to raise questions about the value of super. Since then we’ve had two strong months and the critics have certainly been quieter, but we know there’s a long way to go before super balances return to a more stable footing.”

Since the start of 2020 to the end of May, the median balanced option fell an estimated 5.7 per cent, with the 12-month return holding in positive territory at 0.5 per cent.

In contrast, Australian shares, measured by the S&P/ASX 200 index, fell 13.9 per cent over the calendar year to May and are down 10.0 per cent over 12 months.

The median growth option, which generally has a higher exposure to shares and other risk assets, is down an estimated 6.8 per cent in 2020 and is up 0.5 per cent over 12 months, while the capital stable option fell only 2.1 per cent since the start of 2020 and rose an estimated 1.2 per cent over 12 months.

Super funds still meeting their long-term objectives

Despite the challenge that COVID-19 poses to financial markets, superannuation has proved resilient, much as it did during the global financial crisis of 2008 and 2009.

Remarkably, since 1992, the median balanced option has returned an average of 7.0 per cent per annum, which is well above the common long-term objective of CPI plus 3.5 per cent

“Super members may understandably feel disillusioned after watching their balances go down through February and March,” said Mr Rappell.

“But super is a long-term game, and members should be cognisant of the steady gains super has delivered over a long period of time and will continue to deliver into the future.”

“What really matters for most members is whether funds are meeting their long-term objective, and by this metric, super has been an incredible success. Funds came back strongly after the GFC and there’s good reason to believe they’ll do the same this time around.”

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About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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Retirement