Editor's Desk 
Lens Through Super Funds Space; Members Can Stick to Long-Term Game!
Summary
- Super funds’ returns are expected to stay at the lower end of the curve for some time.
- The prospects of weak economic fundamentals and the rush for early withdrawals are heightening fears of a huge fall in superannuation contribution levels in the near future.
- Instead of losing calm, fund members can recall the unprecedented performance delivered by super funds since the Global Financial Crisis.
- Remember, super is a long-term play!
- One can stay invested in a low-fee quality fund with the right investment strategy to reap the benefits of super funds.
While superannuation funds managed to recoup losses triggered by the coronavirus pandemic by the end of FY2020, funds’ returns are expected to stay at the lower end of the curve for some time.
The possible coronavirus-induced recession seems to be casting dark clouds over the Australian super funds industry that has been demonstrating a robust growth over the past decade. It’s all about fund managers staying patient and strategising smartly on the long-term prospects of their super!
The prospects of weak economic fundamentals in the coronavirus-driven market downturn are heightening fears of a considerable fall in superannuation contribution levels in the near future.
The Australian Treasurer has recently warned that the nation’s unemployment rate could peak to 13 per cent by the end of September 2020. Besides, the Federal Government’s latest economic and fiscal update projects consumer price inflation and wage growth to remain subdued at 1.25% through the year to June 2021 quarter.
Besides weak economic projections, the rush for early withdrawals (allowed up to $20,000) from super accounts under Government’s Superannuation Early Access Scheme is expected to add further strain on the super balances already reeling from the virus crisis.
As per the latest stats from APRA (Australian Prudential Regulatory Authority), $31.7 billion redemptions have been made under the scheme as on 16th August 2020. Initially slated to end in September, the super waiver has now been extended to 31 December.
Are There Any Emerging Green Shoots?
Though uncertainty encircles the future of super industry amid potential economic threat, fund members need not lose calm and recall the unprecedented performance delivered by super funds since the Global Financial Crisis.
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Australia’s superannuation funds have grown like a shot in the past few years, performing extremely well across the globe.
Moreover, these funds have rebounded to positive territory after experiencing negative returns during COVID-19 early stages. As per APRA’s recent statistics on super funds, the industry wide rate of return (ROR) for entities with over four members stood at 6 per cent for the June 2020 quarter. This marked a partial recovery from the negative 10.3 per cent return attained in the March 2020 quarter.
Know About Superannuation – A Low-Hanging Fruit in Investment Space
At the time when others try to chase the height and the green, a wise investor first picks the low hanging fruit. As Australians are now living much longer than ever before, certainly superannuation becomes an alluring investment opportunity, which is also easiest to grab.
Also referred to as the company pension plan, it is an organisational pension plan created for the benefit of its workforce. The government puts in place superannuation arrangements to encourage countrymen to accumulate funds to support their financial needs during retirement.
Funds added by the employer are reserved in a superannuation fund or a super fund, which is managed on employee’s behalf. One of the biggest misconception people generally have about superannuation is that it’s an investment; however, it’s a type of trust containing a pool of investments.
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In other words, it invests in a broad range of asset classes, from shares and cash to government bonds and property, to produce the best possible retirement wealth. Doesn’t it look like a one-stop shop for all investments an investor usually desires?
Pros of Utilising Superannuation as a Retirement Strategy
Though an investor can invest within super in a similar manner as outside of super, the biggest drawback of not utilising it as a retirement strategy is paying more tax throughout the life and thereby having less for retirement.
However, what makes superannuation a tempting deal for retirement savings is its tax saving treatment. In comparison to the average individual tax rate of about 20 per cent in Australia, the maximum tax rate on earnings in superannuation is just 15 per cent in the nation.
Moreover, Australians’ super funds can become 100 per cent tax free source of income when they reach over 60 years of age. Isn’t it captivating?
Besides its tax-saving attribute, super is comparatively less risky and requires less investment expertise than many other investment options (subject to multiple factors though). This owes to the fact that it is managed by a fund, which decides how to invest an employee’s money. However, one can also have his/her own self-managed super funds (SMSFs), in which every aspect of the fund is self-managed.
One key thing to be taken care of to reap the benefits of super fund is start contributing as early as possible to earn potential returns.
“Even a 1% difference in expense ratio can make all the difference between a comfortable retirement and financial distress.” – Robert Rolih (The Million Dollar Decision)
Guide to Invest in Superannuation Funds
While switching between super funds to tap lower fees and better quality requires extra due diligence amidst the current crisis, escaping hasty decisions and sticking to the long-term strategy can perhaps help fund holders wade off some volatility in the financial market.
Those holding multiple funds can consolidate them into one in a recession-pro scenario, to avoid paying a different set of fees that may be biting their returns.
Additionally, investors with their super invested in Australian or overseas equity markets may choose to retain their investment in shares instead of switching to the low-risk cash option.
This strategy will not possibly let them miss on potential returns delivered by the equity market, which will eventually rebound from the market downturn. Notably, the S&P/ASX 200 index has recovered by over 30 per cent since March lows (As on 28th August 2020).
Remember, Super is a long-term play, wherein staying invested in a low-fee quality fund with an appropriate investment strategy should be the key motto for planning your retirement funds well in advance.
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