Risks remain high, but super starts new year in the right direction

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The coronavirus situation in Victoria and NSW is contributing to a high level of financial uncertainty, which means superannuation could lose some of its recent gains.

The superannuation figures for July indicate that superannuation balances continued to grow as they did towards the end of the last financial year, but they are still behind where they were 12 months ago.

While the figures for July show a positive start to the new financial year, they have not yet recorded the full effect of the harsher lockdown restrictions that were put in place in Victoria, which is expected to make things harder for funds to continue to grow next month.

According to estimates from leading superannuation research house SuperRatings, the median balanced option returned 0.9 per cent in July.

SuperRatings executive director Kirby Rappell said that markets do seem to have stabilised since March’s big falls, but they remain vulnerable to further shocks and would be contingent on how communities and economies cope with further waves and infections.

“The outlook is still unclear but based on recent performance super funds have shown they can weather the COVID-19 storm,” Mr Rappell said.

“Looking at SuperRatings’ balanced option index, the sector is 4 per cent below where it was at the start of 2020. This is less than ideal for members, but thanks to the recovery we saw over the June quarter we have already made up a lot of ground.

“Hopefully, this momentum can continue, and members can swiftly regain their super wealth.”

According to SuperRatings’ estimates, the median balanced option is down 1.2 per cent over the 12 months to July. The median growth option is estimated to have fallen -1.7 per cent while the median capital stable option is steady at 0.5 per cent.

Pension returns followed largely the same trajectory as accumulation returns. The median balanced pension option is estimated to have fallen 1.2 per cent over the 12 months to July, compared to a drop of 1.9 per cent from the median growth option and a modest rise of 0.5 per cent from the median capital stable option.

July’s results represent the fourth month in a row of positive returns for super, following the 9.2 per cent drop members experienced in March.

Mr Rappell says while the July results are promising, there is still a long way to go before members recoup their losses and the COVID-19 situation could still worsen across Australia.

“We can certainly take heart from recent performance, but we should not underestimate the challenge that we still face,” said Mr Rappell.

“Markets are incredibly difficult to navigate at the moment. Globally, we are seeing a disconnect between the rise in share valuations and the weakness in economic data.

“Meanwhile, the low yield environment will only be exacerbated by governments issuing more debt to shore up budgets and continue providing support to those affected by the virus.”

Do you think you will recover the wealth you lost due to the March drop in super funds by the end of this financial year?

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Written by Ben

5 Comments

Total Comments: 5
  1. 0
    0

    “Do you think you will recover the wealth you lost due to the March drop in super funds by the end of this financial year?”

    The loss will be replaced eventually and it depends on which super fund you are in as well as the choice of risk. Those retirees who are drawing from the fund are eligible to halve the compulsory drawdown for the current financial year and this can only assist with maintaining the balance held. I don’t think that the question can be fully answered as an average return includes both those funds which are showing a positive return and those funds disclosing a negative return.

  2. 0
    0

    I think it will take a good 18 months or more to recover. I remember it took ages after the GFC.

  3. 0
    0

    My super has already revovered all the losses of March/April and now stands higher than before the fall.

  4. 0
    0

    Super funds will still pay performance bonuses to their finance wizards ( effectively being paid their bonuses twice for the same increase in fund balances ) because the balance goes down one year and the recovery the next year only returns account balances to their prior levels. Bonuses should not be paid until balances exceed the point where bonuses have already been paid. How many times do you see a new CEO appointed to a public company after the share price has collapsed and then paid ridiculous bonuses because the share price has recovered.


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