Superannuation set to end FY22 in the red

Broken pink piggybank

With the end of the financial year fast approaching, superannuation funds are preparing to post a negative return for just the fifth time since compulsory super began in 1992.

Superannuation research firm Chant West estimates the median growth super fund is down 0.5 per cent, following a 1.2 per cent fall in April, with just weeks until 30 June.

Its research found the median growth fund was still returning 1.2 per cent until the end of April, but poor share market performance in May look set to push returns into negative territory by the end of the financial year.

It would be only the fifth time the median fund has delivered a negative return since 1992.

Read: ‘Middle Australians’ missing out on their best possible retirement

The last time this happened was two years ago in the 2019–20 financial year, when the COVID pandemic laid waste to economies around the world.

Following superannuation funds over the past few years has been like watching a roller-coaster, complete with dizzying highs and devastating lows.

After the negative returns of 2019–20, the average in 2020–21 was an eye-watering 18 per cent.

Now, as economies seek to recover from COVID, record inflation threatens to send your returns plummeting again.

But Chant West senior investment research manager Mano Mohankumar says now is not the time to panic, and that the superannuation system is built to withstand shocks such as these.

Read: Super funds required to help make your nest egg last

“Whatever the result this year, it will come on the back of the 18 per cent return in FY21, which was the second best in the history of compulsory super,” he says.

“And even in FY20, which included the COVID-induced share market meltdown, the loss was limited to just 0.6 per cent. So super funds have been able to navigate successfully through the worst of the pandemic, and members should take comfort in that.”

The incoming Labor government has said it will not be making major changes to the super system and will match the Coalition’s pre-election promise to lower eligibility for the downsizing scheme from 65 to 55.

Labor has also said it will undertake a review of the Your Future, Your Super performance test for funds to ensure it’s still meeting its intended target.

Read: Australian super funds that earnt a AAA rating

Mr Mohankumar says these changes will hopefully bring returns back, but cautioned that the drops are coming after a long high-growth period.

“Looking back over the past decade, we’ve seen an unusually strong run of returns averaging 8.4 per cent per annum,” he says.

“That’s been great, but members shouldn’t expect performance to continue at that sort of level.

“It’s not sustainable and it’s not what these funds are designed to achieve. The typical long-term return objective for growth funds is to beat inflation by 3.5 per cent per annum. That translates to about 6 per cent per annum in absolute terms.”If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Written by Brad Lockyer

Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.

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