Super funds back from the brink

A strong June quarter has seen super funds recover from the depths of the COVID-19 crisis.

kirby rappell

A strong June quarter has seen super funds recover from the depths of the COVID-19 crisis in March, however results for the 2020 financial year will fall shy of a positive return.

As major industry and retail funds begin reporting their returns up to June, the full impact of the virus thus far is starting to be revealed.

Pleasingly, funds have performed better than previous estimates suggested, with many scraping through with only small negative results.

According to estimates from leading superannuation research house SuperRatings, the median balanced option returned 0.8 per cent in June as markets continued to recover from their March lows.

Despite a promising comeback over the quarter, super funds were unable to muster the momentum to finish in positive territory.

Based on June’s estimate, members in the median balanced option have seen their super fall by around 1.2 per cent over the past 12 months.

While the financial year result will be negative, it is a relatively mild drop compared to previous years in which super has taken a hit.

“Super funds made a strong comeback in the June quarter, but the market remains challenging due to the degree of uncertainty surrounding the COVID-19 pandemic,” said SuperRatings executive director Kirby Rappell.

“While markets have shown signs of stabilising, which is good news for members, we don’t want to get ahead of ourselves.

“Members want to see a sustainable recovery in their balance, rather than a rapid rebound followed by another dip. Slow and steady is the way to rebuild.”

Super funds still have some way to go before recovering from the virus-induced sell-off in February and March this year.

Since the start of 2020, the median balanced option has fallen 5.1 per cent, while the median growth option is down 6.7 per cent.

The capital stable option, which includes more defensive assets like bonds and cash, has fared relatively better, falling only 1.6 per cent.

Pension returns have performed slightly better over the financial year, with the median balanced pension option down 0.8 per cent, compared to a fall of 1.4 per cent in the median growth option and 0.5 per cent in the capital stable option.

Mr Rappell explained that while the virus seems to have been contained in most of the country, Victoria’s recent spike in the number of cases and the lockdowns in some parts of Melbourne could mean more challenges are on the horizon.

“There have certainly been some positive developments recently, although we remain in challenging times as markets seek a way forward, with the low interest rate environment creating an extremely challenging outlook for those members near the retirement phase searching for meaningful and sustainable income,” said Mr Rappell.

“For members, it means they will need to be prepared for some more ups and downs. However, a patient approach has paid off for members over the long term with the median balanced-style fund returning 7.0 per cent per annum since the introduction of superannuation in 1992.”

According to SuperRatings’ data, over 15 years, since June 2005, a starting balance of $100,000 would now be worth $238,209 for members in a balanced option.

For a growth option this would be slightly higher at $239,089, and a member with full exposure to Australian shares would have seen their balance grow to $260,647.

In contrast, returns on cash would have seen their balance grow to only $158,492.

Are you concerned that the second wave of the coronavirus in Melbourne could send super spiralling down again?

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    To make a comment, please register or login
    8th Jul 2020
    No. I think that the funds managers are a bit more wiser now. I notice that my main fund has way less shares than what it is used to.
    8th Jul 2020
    Down 4.4 % FY... run our own fund however bank share component negatively impacted the result albeit a much reduced weighting now.
    Looking to move into a Industry Fund as finding the "market " a lot more volatile and demanding a lot more attention/time than pre Covid-19 ... new world I guess.. have to adapt.
    8th Jul 2020
    Yo gotta luv financial language!

    "however results for the 2020 financial year will fall shy of a positive return."

    aka will lose money.

    It all just reduces confidence and respect for people who can't stick to facts.
    Oooooops, sorry didn't mean to include pollies. (lol)
    8th Jul 2020
    The fund may not actually lose money but not show an increase for the year. It all depends on the fund but it is a good time to be in an Industry Fund.
    8th Jul 2020
    Ray Dalio Founder of Bridgewater and an adviser to the US Fed is saying holding cash is a losing proposition, he says diversify as much as you can. Hard for Self Funded Retirees who are reliant on their fund earnings though. I escaped this March downturn but got caught in 2008. I am not really convinced that there won't be a second market meltdown, so I am just sitting on the sidelines for now.
    8th Jul 2020
    I think it also depends on how much Super you have and your age as to how much risk you should take
    8th Jul 2020
    I have reported each time this question has been asked that my fund was recovering well and was just a little less than in March. Well today it has now regained all the losses, surpassed that figure and still trending up!

    No it is not an industry fund!
    8th Jul 2020
    My husband and I are self funded retirees. My husband has been in a nursing home for the past 3 years and I have to pay extra for this because of being self funded retirees. Our superannuation is going down and the income we are receiving for this has decreased a lot. We now get about $400 - $500 more a month than what I have to pay extra for my husband's nursing home fees. Out of this money I have to pay bills. living expenses, and I am now eating into our savings. I am worried that we may eventually have to apply for a pension which will be a drain on the governments funds. There must be a lot of other people in a similar situation. Unfortunately this is something that we are not to blame for. However I feel that I am losing my independence as such and I feel very sad about this. Take care everyone and hopefully things will eventually sort themselves out.
    8th Jul 2020
    While I sympathise with your situation it is what your savings are for as our retirement system was not intended that you could live on your dividends or interest alone
    10th Jul 2020
    Once your savings are depleted somewhat you would surely qualify for the part age pension like so many of us. As Tanker says - the money is there to be used.

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