Retirement not looking so super

ANNUAL superannuation statements due out in the next few weeks will give some cause for doubts about retirement savings.

Retirement not looking so super

FOR years we've been told to squirrel away money into a superannuation fund. While super experts say this long-term investment is the best way to ensure a comfortable retirement, annual statements during the next few weeks will give some cause for doubts.

Super funds in the past financial year have recorded their largest negative return - a median loss of 6.4 per cent - since compulsory superannuation was introduced 16 years ago.

It has come as a great shock to many super members after double-digit growth in the preceding four years, not least the median 15.7 per cent return in 2006-07, the highest rate in the past 10 years.

The last negative return was 3.1 per cent in 2001-02.

But the Federal Government is urging people not to panic.

Superannuation Minister Senator Nick Sherry has been warning people for months of a possible negative return as a result of the financial turmoil gripping world markets.

And his mantra is that super is a long-term investment, and over a five to seven year period returns have been good. Experts agree.

"Super has still got all the tax advantages in there and certainly is, in most cases, the best way to accumulate money for retirement and maximise your position during retirement as well,'' Jeff Bresnahan, managing director of SuperRatings told AAP.

But this sharp turnaround in super savings has brought into question fees and other charges, such as commissions, which are taken from accounts whether or not there is a positive return in any year.

Senator Sherry has put the super industry on notice that he is going to ``a long hard look'' at the system.

Industry Super Network, which represents 40 industry funds, estimates some $1 billion is siphoned off accounts each year through commissions.

Senator Sherry says fees average 1.25 per cent, but should be lower, given the maturity of the $1 trillion-plus superannuation market in Australia.

"Why have we got funds that are performing long-term more poorly than others? Now there's some complex reasons for that and that's reflected in what I would consider to be excessive fees and charges,'' he told the Fairfax Radio Network this week.

"Frankly, anyone who is paying much in excess of one-and-a-quarter per cent needs to have a long, hard look at the value of the fund to make sure that they're getting value for money.''

SuperRatings, a research organisation specialising in super funds, found the best performing fund in 2007-08 was an industry fund - Vision SuperSaver - with a relatively modest negative return of just 1.7 per cent on its balanced growth product.

An industry fund typically has no ongoing commissions or bonuses.

Compare that to the worst performer - at a massive 15.87 per cent negative return - a another balanced growth product sold locally by Baltimore-based Legg Mason, a global asset management firm.

The 6.4 per cent decline in 2007-08 has dragged the rolling 10-year average for super returns down to a positive 7.57 per cent.

Mr Bresnahan says this is still not far away from the funds' medium to long term objective of CPI plus 3.5 per cent.

So on paper, it is not as ugly as this year's result suggests.

Senator Sherry explains it like this - if you saved a dollar six years ago it would have been worth $1.70 a year ago and is now worth $1.60.

It doesn't sound a lot put this way, but if your starting figure was $100,000, you are obviously talking serious money.

And if you are one of the people who ploughed money into super in the June quarter of 2007 to take advantage of a tax break under the previous Howard government's Better Super scheme, you may feel now that it wasn't the best of timing, especially if you are about to retire.

A record $22.4 billion was put into super that quarter, three times the previous peak.

Sadly, the pain surrounding the equity market does have further to run, analysts say.

Measured by the Australian benchmark S&P/ASX 200 index, shares lost about 17 per cent of their value in the 2007-08, snared in the financial turmoil that was triggered by the collapse of the US subprime mortgage market a year ago.

The share market has taken a further 4.5 per cent knock in July.

"The last two times that we had significant bear markets, they lasted in the order of two years,'' Craig James chief equities economist at Commonwealth Securities told AAP.

"It could be another 12 months before we see the share market back up to the highs (set last November).

Australian shares make up about 32 per cent of assets in super accounts, while international shares make up around 20 per cent. Other super investments include both Australian and international bonds, as well as property and cash.

The SuperRatings report notes the funds that did best in 2007-8 have one or more of the following traits - little or no exposure to listed property, higher-than-average exposure to unlisted assets, or below-average exposure to equities.

It says that listed assets, like shares, are revalued - and often "irrationally by a herd mentality'' - virtually daily, while unlisted assets have the comfort of being more rationally valued once or twice a year.

So is this the time to start changing investment options?

Mr Bresnahan suggests not, as this can be quite a  "dangerous strategy''.

"Studies that have been done over the years show people bail out at the bottom and jump in at the top,'' Mr Bresnahan said.

"If someone jumps out of a balanced fund into a cash option, then obviously if markets turnaround fairly quickly - as they are prone to do, but no-one knows when - then you have missed all of the immediate upside.''

He advises that if you have got a strategy that has been worked out with an adviser, stick with it. "It's a long term strategy, don't have a knee jerk reaction.''