COVID fails to dent super fund returns for 2020

Super funds are on track to deliver a positive return for Australians, but it comes with a catch.

EXCLUSIVE

Super funds are on track to deliver their third lowest annual returns in the past decade.

While many Australians have had a tough year financially, retirement savings have also taken a battering with new research showing just how deep the pandemic cut.

Research group SuperRatings has forecast the median balanced super fund option (which includes growth assets of between 60 and 76 per cent) will return a meagre 3.5 per cent — down from 14.8 per cent in 2019.

On a $100,000 balance this will see an increase to $103,500.

But that is still almost half of the average yearly rate of 6.1 per cent fund members have enjoyed since 2000.

It could have been worse had both domestic and international economies not bounced back successfully from the horror March quarter.

Australian super companies are set to deliver a promising return. Picture: iStock

SuperRatings executive director Kirby Rappell said given the challenges of 2020, the positive returns on retirement savings were something to savour.

“As at December 24 we have seen a return of about 1.5 per cent for month to date for the median balanced option,” he said.

“This will see nine months of positive returns since the around 12 per cent fall between February 20 and the end of March.”

But Mr Rappell said returns on cash in the bank had continued to be hit hard with falling interest rates – the Reserve Bank of Australia slashed the cash rate three times in 2020 and it’s now sitting at a record low of just 0.1 per cent.

“Cash returns were 0.02 per cent in November and 0.6 per cent in the past year and unlikely to go anywhere soon,” he said.

“This is an issue confronted by many retirees for some time as we see the challenge of generating income amplified.”

CommSec’s chief economist Craig James said 2020 had been a “rollercoaster year” and “fear of the unknown took hold in March”.

Given the challenges of 2020, the positive returns on retirement savings are something to savour. Picture: iStock

“People didn’t know what sort of effect the pandemic was going to have so everyone moved to the exit doors at the one time and we saw a significant fall in March, the sharemarket lost 37.5 per cent in the space of 22 days,” he said.

“Most of the rest of the year from late March through to now is sharemarkets in recovery mode and reacting to all the news on coronavirus.”

Mr James said there was a “degree of optimism” including the rollout of a vaccine overseas and the finalisation of the Brexit deal between the UK and European Union.

“We’ve seen the US and German sharemarkets at record highs so we are certainly clawing our way back,” he said.

“Central banks have been slashing interest rates, printing money and buying bonds and influencing the amount of liquidity and governments providing labour subsidy schemes like JobKeeper and JobSeeker.”

Both payment schemes are set to be reduced in the coming days – the coronavirus supplement has been paid in addition to JobSeeker and will be cut from $250 to $150 a fortnight on Friday.

Super may offer stretched families some relief. Picture: iStock

JobKeeper payments for workers in more than 20 hours a week employment will be reduced from $1200 to $1000 from Monday.

Both subsidies wind up completely at the end of March.

The Federal Government’s early access to superannuation scheme also resulted in more than

3.03 million individuals dipping into the retirement savings prematurely and withdrawing up to $20,000 tax-free.

Latest Australian Taxation Office figures showed $37.6 billion has been withdrawn and this will fall well short of the government’s forecast of $42 billion.

The scheme ends on Thursday.

@sophieelsworth

MEDIAN BALANCED OPTION RETURNS

2020* 3.5%

2019 14.8%

2018 0.6%

2017 10.7%

2016 7.3%

2015 5.6%

2014 8.1%

2013 16.3%

2012 11.7%

2011 -1.9

Source: SuperRatings.

* Estimated return for 2020.

Originally published as COVID fails to dent super fund returns for 2020