Members urged to take long view on super as damage revealed

Super members are scrambling to check their account balances.

Super members need long-term view

In the wake of the most challenging quarter for financial markets in living memory, super members are scrambling to check their account balances to see what effect the sell-off is having on their retirement savings.

While members are undoubtedly nervous and wondering what the market has in store for them next, leading research house SuperRatings cautioned members against making investment decisions based on an emotional reaction to the current environment.

“Our message for super members, especially those further from retirement, is stay invested if you can,” said SuperRatings executive director Kirby Rappell.

“Knee-jerk changes to your portfolio could have a negative effect on your retirement. Switching to cash will lock in losses and mean you miss out on the upside when the market eventually recovers.

“We suggest members talk to their fund or financial adviser to help ensure any decision is aligned with a long-term strategy.”

Superannuation has been hit hard by the coronavirus and the market’s reaction to extreme measures such as social distancing, lockdowns, and travel bans.

According to estimates from leading research house SuperRatings, the median balanced option fell 8.9 per cent in March and is down 10 per cent over the quarter.

The median growth option, which generally has a higher exposure to shares, fell 12.5 per cent in March and 14.1 per cent over the quarter.

The median capital stable option fared relatively well amid the market turmoil, falling only 4.1 per cent in March and 3.8 per cent over the quarter.

Pension returns have also been buffeted by the wave of selling.

The median balanced pension option fell an estimated 10.2 per cent over the March quarter, while the median growth option fell 14.4 per cent. In contrast, the median capital stable option was down 3.8 per cent.

The only good news in March seemed to be signs of a relief rally as markets priced in the government’s fiscal stimulus packages and the Reserve Bank of Australia’s bond-buying program, along with similar efforts from governments globally.

While more pain is expected, markets have already sold off heavily in response to the coronavirus and the measures taken to contain it.

How is your super option exposed?
According to SuperRatings, times of severe market stress can make investors second-guess their long-term investment strategy.

For super members, switching to a more conservative investment option in the middle of a crisis can lock in significant losses and mean missing out on the upside when markets inevitably recover.

Older members nearing retirement are likely to be in conservative balanced or capital stable options, which have higher allocations to defensive assets, providing protection from share market movements.

Australian and international shares generally make up just over half of the portfolio for a balanced option, with the rest invested in bonds, property, alternative assets, and cash.

For growth options, shares typically make up around 67 per cent of the portfolio, meaning members are more exposed to movements in share markets.

In contrast, members in a capital stable option will typically have only a 20 per cent allocation to shares, with much higher allocations to bonds and cash, providing more stability and protection against share market swings.

“Over time we have seen funds investing more in alternative assets such as unlisted property, infrastructure and private equity, with these assets representing around 20 per cent of the average balanced fund’s portfolio in 2019, up from 15 per cent in 2008,” Mr Rappell explained.

“Members need to keep the current market conditions in context. For most members, while there may be a fall on paper, the loss only becomes crystallised when members sell out.”

How much damage did the coronavirus do to your balance in March?

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    COMMENTS

    To make a comment, please register or login
    leek
    15th Apr 2020
    9:10am
    I did switch $$ around, first to conservative and property and then envetually to Cash. I switched back a week ago and made about 15,000 "units". This means when the market does come back I am 15,000 units ahead. I watched my Ex move to cash during the GFC, and he switched back at the right time and made a lot of money when the market came back. I should have switched to cash earlier than when I did, I lost $14k due to this mistake.
    Locksy
    15th Apr 2020
    11:19am
    leek to put in bluntly you are gambling. OK you have done well this time but continually switching your super choices may catch up with you in the the long term. You never know what is around the corner.
    Horace Cope
    15th Apr 2020
    10:07am
    There is another item that will affect those who have retired and are drawing down their from their super; the compulsory 5% (6% if over 75) can be halved for the foreseeable future. If the drawdown isn't essential for living I would suggest that this option be taken up.
    older&wiser
    15th Apr 2020
    11:58am
    Can be halved only for 2019/2020, and 2020/2021. Thats at this stage, though could be reviewed.
    Chris B T
    15th Apr 2020
    10:21am
    The Idea of access to $10k this financial year and $10k next financial year has implications as to How The Super Funds can supply funds at this Time.
    I obvious one is Super Funds are not Banks and Cash to Payout at this rate would be a challenge.
    Tanker
    15th Apr 2020
    10:52am
    This access to super funds might have appeared handy for the government but is not going to be good for either the funds or those who draw that money out. A short sighted move by the government I believe.
    Tanker
    15th Apr 2020
    10:52am
    This access to super funds might have appeared handy for the government but is not going to be good for either the funds or those who draw that money out. A short sighted move by the government I believe.
    Horace Cope
    15th Apr 2020
    11:00am
    There may be downsides to withdrawing funds from super but if it's a choice between putting a roof over one's head, feeding a family or leaving money there for future retirement then, really, it's a no-brainer.
    Mariner
    15th Apr 2020
    11:11am
    Yes Horace, I hear you! Have some mates exactly in that situation, they are grateful for the access of $10'000 right now.
    wisky171
    15th Apr 2020
    12:29pm
    I'm sure some are using it to an advantage to buy cheap toys.
    Chris B T
    15th Apr 2020
    12:46pm
    My comment was about The Ability of Super Funds been able to Fund These Withdrawals.
    Super funds are not Banks.
    Circum
    18th Apr 2020
    12:06pm
    The ability to access $10000 from ones super account has always been there as long as one could prove financial hardship.The government has only made access a bit easier by widening the eligibility.
    Yes access was abused in the past and will probably continue.I know people who accessed their super because they were short on cash and needed to pay car rego.
    Circum
    18th Apr 2020
    12:06pm
    The ability to access $10000 from ones super account has always been there as long as one could prove financial hardship.The government has only made access a bit easier by widening the eligibility.
    Yes access was abused in the past and will probably continue.I know people who accessed their super because they were short on cash and needed to pay car rego.
    Wake Up
    15th Apr 2020
    11:05am
    Can someone please tell me why this Government is moving heaven & earth to protect their investment property values while the rest of us watch our Super tank like a sinking ship?
    Horace Cope
    15th Apr 2020
    11:15am
    Really, Wake Up? What policies have governments put in place to alter the property market? What part does a government play as regards how super fund managers invest the funds under their control. Would you like some cheese and biscuits with your whine?
    Karen
    15th Apr 2020
    8:33pm
    I think the reference is to the reality that government electeds use the rules on house hoarding to the max, and thus are biased in any implementation of change. It's like have an 'independent' group working out your pay rise.... while their pay rise also depends on their decision.......

    Down at the football field: - "interesting new rules... the referee is also awarded points for winning at the end of the game and can cash those in for ready... provided, of course, he chooses the right winner" ..... (ummm ----yeeesss)...
    Baby Huey
    15th Apr 2020
    11:08am
    I expected a downturn over year ago and put my money into cash and liquid assets, however I did not anticipate the China virus trigger. I will wait until good income producing investments bottom out to go back into markets. I am still looking for a truly independent adviser. I do not trust the so-called conflicted advisers with a all care and no responsibility approach attached to a singular platform.
    The Sheriff
    15th Apr 2020
    12:59pm
    Babe, your instinct is spot on not to trust so called "independent advisers", whom in my view are just parasites parroting the pipe dreams of the self-appointed gurus from the major banks. As far as I am concerned if one dredged the sewers of the world one could not find a bigger concentration of bloated turds.
    Karen
    15th Apr 2020
    11:09am
    Ah, yes - the old conscript 'long view' - either accept it or it's yours anyway.
    Semiretired
    15th Apr 2020
    12:26pm
    I am currently in the transit to retirement phase, still working 20 hours a week and drawing down 10% of my super to replace my wife's income when she was forced to retire a few years ago (she has no super). I can't access the age pension for another 2 years, and even then it will only be half the married rate as my wife doesn't turn 67 for another 6 years. My super is currently balanced ie half shares and half cash, yet I lost about 10% of it's value when the pandemic first hit. It has clawed back about $5000 since then but I'm at a bit of a quandry at what to do. Should I cut my losses and change my super to cash as a friend has done, or try to ride it out. I remember losing very little during the GFC.
    Sceptic
    15th Apr 2020
    12:41pm
    The single rate of pension is more than half the married rate.
    Semiretired
    15th Apr 2020
    12:52pm
    I know that but if you are married and your wife is too young to go on the pension you are only entitled to go on half the married rate. I think this is very unfair, but I've never seen it discussed anywhere. Centrelink would tell you that your wife could get a job, but how many jobs are available for someone in their 60's with no qualifications? And I don't think she would qualify for the newstart benefit.
    Mariner
    15th Apr 2020
    1:54pm
    Your wife could go on Jobseeker Allowance (Newstart) in your case. I understand very well as we went thru the same for 4 years. They might ask your wife to volunteer for a certain amount of hours per week but most places have too many of them already. We lived on my pension and some of her super, you might have to do the same. All this happened during the GFC.
    Semiretired
    15th Apr 2020
    3:13pm
    Thanks for that advice Mariner. I know my wife would resist going on Newstart, she already worries that I resent her for being too much younger than me! It may be that I don't fully retire when I turn 67, but continue working part time for a while longer. My job, while not high paying, is not difficult or tiring and as far as I am aware will be safe for the foreseeable future. Our main problem is that we've still got a mortgage, although it's quite small by today's standards. We'll just have to wait and see!
    Snowflake
    15th Apr 2020
    1:24pm
    Has anyone noticed that the unemployment rate at the moment is higher than the age pension? If the government believes that's how much they should recieve to survive how come the age pension is still way below everyone else. Just a thought I haven't heard anyone else bring up. Unless I am missing somethng here.
    cupoftea
    15th Apr 2020
    1:55pm
    Snowflake That is a very good point
    Mariner
    15th Apr 2020
    1:58pm
    True but a pensioner is not supposed to dress up and look for a job like the unemployed would be expected to do. Also quite a few of us have our own flat, the others have not so the rate should possibly be higher. However the dole should not be without time limit either.
    Curious
    15th Apr 2020
    2:19pm
    During the GFC my capital in super had a decrease of 26.38%. This is in contrast to the COVID-19 effect on my super of 9.98% up to now. I didn't convert my capital in super to cash on both occasions. I believe that super is a long term investment for my retirement.

    Cash as a vehicle for investments or savings is only a short term medium. The low-interest-rate has turned cash into a low-value commodity. However, I remember what my mother told me about the Great Depression and WWII, where the shares were worthless, while cash was king. In other words, one needs to judge and to evaluate one's needs in different circumstances. There is no one-size-fits-all.

    If superannuation is to weather all contingencies, it should have some built-in hedges against catastrophes like a financial crisis or Coronavirus Pandemic...like investing in gold as a buffer against these downturns. The operators in the superannuation industry may argue that they already have a strategy in the financial planning, Personally I haven't seen this working in the 2008 and 2020 crises. Maybe it is time for us to sit down with our financial planner to discuss this matter.


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