Super fund recovery brings FY20 returns back from the brink

From
Kirby Rappell

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 has been revealed. However, funds have performed better than previous estimates suggested, with many scraping through with small negative results.

According to estimates from leading superannuation research house SuperRatings, the median balanced option returned 0.8% 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% over the past 12 months. However, 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, although 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%, while the median growth option is down 6.7%. The capital stable option, which includes more defensive assets like bonds and cash, has fared relatively better, falling only 1.6%.

 

 

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

 

 

The response from the federal and state governments in Australia has been largely effective in containing the virus, however there is still the possibility of a second wave of infections. Victoria has recently seen a spike in COVID-19 cases, resulting in a return to strict lockdowns in parts of Melbourne.

“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 annum since the introduction of superannuation in 1992.”

 

 

Taking a long-term view, super returns have done an incredible job at accumulating wealth for retirees over a period that includes two major financial and economic crises. 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 growth to $260,647. In contrast, returns on cash would have seen their balance grow to only $158,492.

 

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