Super recovery still underway as outlook improves

The recovery in superannuation continues as lockdown conditions gradually ease across the country and Australians prepare for a relatively normal summer, with fewer restrictions on gatherings and business operations.

According to estimates from leading superannuation research house SuperRatings, the median balanced option returned 0.5% in October, while positive market movements in November point to continued momentum.

However, the median balanced option remains down -0.8% over the 12 months to the end of October, with members yet to fully recoup their losses since the height of the market turmoil in March. According to SuperRatings, while super has bounced back strongly in the second half of 2020, members should be wary of further market volatility as the global pandemic is brought under control.

“The super recovery is ongoing but has been faster and stronger than expected to date,” said SuperRatings Executive Director Kirby Rappell.

“There are clearly still significant risks and uncertainties, and we expect more market volatility heading into 2021, but overall members have reason to be reassured by the performance and resilience of funds’ portfolios this year.”

According to SuperRatings’ data, the median balanced option returned -2.5% from January to October, but posted a strong recovery in the second half of the year.

The median growth option returned an estimated 0.6% in October and -1.4% over 1 year, while the median capital stable option returned an estimated 0.3% in October and 0.5% over 1 year.

Pension returns fared modestly better over the month. The median balanced pension option rose an estimated 0.6% in October and -1.0% over 1 year. The median pension growth option delivered an estimated 0.7% in October and -1.5% over 1 year, and the median capital stable pension option returned an estimated 0.3% in October and 0.5% over 1 year.

Australian shares bucked the global trend in October to post a 1.9% return as an easing of restrictions, low COVID-19 case numbers, and a highly supportive federal budget bolstered sentiment. Australia was the bright spot amid a resurgence in cases in Europe and a tense US presidential election that fuelled additional volatility.

“Australia’s success comes down to three things: our response to containing the virus, the extraordinary scale of the budget measures, and our superannuation system, which serves as an additional stabiliser to the economy,” said Mr Rappell.

“Looking ahead, it really depends on what a ‘COVID-normal’ world looks like. Developments on the vaccine front are very promising, but things are still uncertain in terms of how we reopen safely and how long this will take. There will still be ups and downs heading into 2021.”

Fees used in the analysis are as at 30 Sep 2020 using most recent data available to SuperRatings at the time of preparation. Fees includes percentage-based administration fees, member fees, investment management fees (incl. performance-based fees), indirect cost ratios (ICRs) and taxes, but exclude any applicable employer rebates.

The figures in the table are quartiles across the industry for each item, so the calculated fee won’t necessarily reflect the sum of the other items for a $50k balance. But in general the calculated fee represents the total fee calculated based on the member fee, % admin fee and investment related fees and costs. The top quartile represents the cheapest 25 percent of funds in terms of fees, while the bottom quartile represents the most expensive 25 percent. The median represents the fund that sits in the middle. The table shows a considerable range in fees being charged by funds across the market, with the most expensive quartile of funds charging $695 or more, compared to $513 or less for the least expensive quartile. Members should not be single-minded about fees, but it is important to know where your fund sits and whether you are getting value. If your fund’s fees are higher than the median, it might be worthwhile checking your fund’s long-term performance and the suite of benefits it provides to see if the higher fees are justified.