Super funds deliver members another financial windfall

Another positive year of superannuation fund returns makes it eight in a row for retirement savers, but each year of positive growth brings the next downturn closer.

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Super funds are on target for their best gains in six years and one of their strongest annual performances since 2000.

Superannuation researchers say Australians’ average super fund return will be around 15 per cent, assisted by a December surge in global share markets back to record highs.

Rising property prices and falling interest rates have also boosted returns, but super’s eight-year run of positive performance could reverse quickly if financial markets tumble.

Research group SuperRatings estimates the median balanced super fund option will return 14.8 per cent – likely to be its second or third-highest gain in two decades.

SuperRatings executive director Kirby Rappell said it was not known how long these “exceptional” returns could continue.

While Aussie shares are still down slightly this month, they recovered strongly from early-December weakness and US and British stocks are up almost 5 per cent for the month.

“We are living in a world of low interest rates, which is pushing up asset prices,” Mr Rappell said.

Superannuation nest eggs have had eight consecutive years of positive investment growth.

However, super fund returns could not keep running so strongly forever and the challenge now was to communicate to everyday Australians that these gains were not normal, he said.

“People should enjoy these returns and keep in mind that super over a 10-year period is designed to be doing inflation plus 3 or 3.5 per cent. Up to 30 June 2019 it was doing CPI plus 5 to 5.5 per cent over the 10-year period.

“We are a little more cautious in our tone.”

Rainmaker SelectingSuper says MySuper funds – where people default to if they don’t choose their own fund – should deliver average returns of 15 per cent.

Its executive director of research and compliance, Alex Dunnin, said funds were “sitting atop a rocket ship” with not only shares performing strongly but property delivering returns above 20 per cent and bonds up about 10 per cent “as a result of the interest rate falls”.

Mr Dunnin said forecasting future returns was “always fraught” but he noted that Australians were pumping $170 billion each year into their super.

“This money has to go somewhere,” he said.

“Share markets, bonds, property – this demand for assets pushes prices up.

“On top of this, companies are still expanding and investing. This makes the equities market still attractive for investors although you have to be more discerning to really spot the future performers of next year.”

This is the eighth consecutive year of super growth – although 2018 just scraped in with a 0.6 per cent rise – and advisers typically tell people to expect negative returns once every five-to-seven years.

@keanemoney

Originally published as Super funds deliver members another financial windfall