Super returns in the red, again

The investment managers and super funds have not yet signed off on the investment accounts for the 2008/2009 financial year (1 July 2008 to 30 June 2009), but based on interim figures, the returns on a typical superannuation account are in the red for a second year.

Despite a rebound in the sharemarket from March 2009, a subsequent late wobble by the market in June and a horrendous first nine months, means that most super fund accounts will post a loss for the year. (The reason the sharemarket is so important when discussing super fund returns, is that most Australians have around half of their super money in the Australian and international share markets; and the balance in listed property, cash, fixed interest and alternative assets.)

Double-digit investment losses

Research company, SuperRatings estimates that super fund members can expect negative returns, or more correctly, losses, for the 2008/2009 year of between 10% and 14% on ‘balanced’ option super accounts: so, in investment speak that’s a negative return of between 10% and 14%.

In the previous financial year (2007/2008), the median return of a typical ‘balanced’ super account suffered a negative return (loss) of 6.4%, and a ‘growth’ super account lost nearly 10% of its value.

Although official performance results won’t be available until mid-to-late July, the expected loss of between 10% and 14% on balanced super accounts is the worst performance in super since the introduction of productivity super in the mid-1980s and the introduction of compulsory Superannuation Guarantee super in 1992.

Not so balanced performance

The two years of losses follow a boom four-year period of double-digit returns for a ‘balanced’ super account – approximately 14% (2003/2004), 13% (2004/2005), 14% (2005/2006), and 15% (2006/2007). A median return is a statistical device that simply lines up a number of super funds from the highest return to the lowest return and picks the super fund in the middle. The median return used by SuperRatings lines up 50 of the largest balanced options in Australian super funds.

Around 80% of super fund members have their super savings invested via a balanced investment option, which holds between 60% and 76% of assets in growth-style investments (such as shares, listed property and alternative assets). A balanced option is usually the default option when a member fails to exercise investment choice.

Five-year returns remain above 5%

According to SuperRatings, for the 11 months to 31 May 2009, the best performing balanced option lost 7.75% and the worst-performing balanced option lost a massive 21.93%.

Over the longer term, the returns on the balanced option remain positive (see table below) but clearly two years of negative returns have had a dramatic effect on five-year returns, considering the returns for 2004, 2005, 2006 and 2007 were double-digit positive returns.

You can find the returns for other investment options, including 100% Australian shares, on the SuperRatings website. If your money is in a pension account, you can find the performance figures for pension accounts on the SelectingSuper website and click on ‘allocated pensions’ under ‘SUPER CHOICE’.

*Balanced Fund Options with between 60% and 76% of assets in growth style investments.

^Interim Rate Returns.

All results are net of fees and tax.

Source: SuperRatings Pty Ltd.

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Copyright Trish Power

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