It’s already been a challenging year for the share market, leaving many Australian retirees concerned about their retirement savings, as superannuation funds are expected to take a hit in 2016.
Australian super advice firm SuperRatings estimates that super funds will incur a 0.5 loss in the first half of the 2015-16 financial year, due to uncertainty in the global share market and a decrease in investment returns. This may mean that Australian retirees could see a loss on their earnings for the first time since 2011.
So far this year, the average super account has lost 2.5 per cent. This loss comes on the heels of low global interest rates, falling commodity prices, China’s economic downturn and share market upheaval.
Warren Chant, from superannuation consultancy firm Chant West, also expects a minor loss over the first half of the 2015-16 financial year, estimating that, overall, Aussies will receive an approximate 4.3 per cent return in the first half of the 2015-16 financial year with a 0.1 per cent loss projected for the second half.
He also stated that local super funds had posted healthy returns since the global financial crisis (GFC) and that members should be patient.
“[During] the GFC, the typical member lost 21.5 per cent that calendar year ,” he said. “In the seven years since then there’s only one year when there’s been a negative return.”
Director of research at financial advice company Rainmaker, Alex Dunnin, has some good advice for Aussies starting to panic about their returns.
“When you start to judge super funds, don’t judge them by one particular month or one particular quarter,” he said. “Super funds may well have a negative six months but over the year they are probably still going to be positive.”
And before Aussies break into a cold sweat over short term returns, Mr Dunnin feels that super fund members would be better served by re-assessing the management of their income and accounts.
“They should be thinking about the fund they are in, they should be thinking about whether the fund they are in actually knows what they are doing,” he said. “Have a good diversified portfolio so you are spreading your risk across different types of investments.”
Whilst many Aussie retirees may be panicking in the face of the first reductions in super income for years, they would be wise to judge their superannuation returns over the long term and not ‘jump ship’ in the short term.
Even though the share market slowdown has hurt super fund earnings, they have still posted consistently healthy returns over the last seven years, including 8.5 per cent in 2014, 17.2 per cent in 2013, and a 12.8 per cent return in 2012.
So 4.2–4.3 per cent may not be the type of return you’re used to, but it is still a positive return.
Super funds may be taking a hit at the moment, but financial experts are calling on Australians to not panic and “stay in the game”.
Anyone involved in stock-market day trading will tell you that there will always be peaks and troughs in day-to-day market earnings but, unless you are forced to sell your shares, you are playing a long-term game. The current financial climate, though unnerving, may provide a bit of a wake-up call for fund members to review just how effectively their accounts are being managed across the board.
It should also be mentioned that worried super fund holders would be well-served to seek the assistance of a good financial planner before making any changes to their retirement savings accounts.
What do you think? Are you worried about taking a loss this year? How will this affect you? Have you sought the advice of a financial planner in the wake of (or prior to) the current unrest in the share market? What advice did you receive? What advice would you give to your fellow super fund members?
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