Superannuation savings suffered as crisis bit

EXTRA payments into super dry up after the market crash destroyed faith in retirement funds.

Extra payments into superannuation have dropped by 55 per cent in the past two years, despite a market rebound / File

AUSTRALIANS have deserted their superannuation funds in droves, choosing to invest their savings elsewhere, having their confidence shattered by the global financial crisis and amid the government's ongoing rule tinkering.

Data released by independent researcher SuperRatings shows personal contributions to super - investments in super outside of employer contributions - have plunged by more than 55 per cent over the past two financial years.

They plummeted by about 35 per cent last financial year when the downturn was gathering pace after having dropped by 32 per cent the year before, reports The Australian.

SuperRatings managing director Jeff Bresnahan said while a reduction in contribution limits during 2007 would have played a role, it was the crisis that had really hurt super funds.

"A large part of it was because of the global financial crisis and the consistently negative returns that were coming out of super, and that would have translated into a lack of confidence by some people on continuing to invest in superannuation," he said.

"Those in and around retirement would have been asking, 'When is it all going to end?' "

Super returns were savaged during the downturn, largely because of the high allocation to equities by Australian super funds.

In 2008, the median balanced super option - the style of asset allocation employed by most default funds - plunged by almost 20 per cent, the worst year on record.

But even though super funds staged a remarkable recovery in the past six months to finish last year with double-digit returns, the associations that represent the super industry say they would not be surprised if voluntary contributions continued to fall.

"You have to recognise that if people have had their confidence damaged, that may continue on," said Association of Superannuation Funds of Australia director of policy and industry practice Melinda Howes.

The median balanced super option - where most Australian have their super - returned an impressive 12.9 per cent last year.

"This is the first bit of good news Australians have had for their super for quite some time, so if the next six months continues to be positive, which we think it will, and they suddenly get their 2009-10 annual statements showing significant investment earnings, that's the trigger for people to start ploughing money back into super," Mr Bresnahan said.

But he said there was "no way in the world" the returns would be as strong as they were over the past six months and investors should expect modest gains.

Read more in The Australian.