Superannuation savings to take a hit long after COVID-19

Australians’ retirement balances will grow at a much slower pace in years to come. Experts explain why and what Australians must consider.

Australians’ retirement balances are likely to grow at a much slower rate as funds look to invest in assets that can be turned into cash more quickly and equities markets continue to take a hit, experts say.

The nation’s giant $3 trillion in superannuation assets has experienced a run on accounts in recent months under the Federal Government’s early release scheme – more than 1.61 million people have accessed more than $13.2 billion.

This only equates to withdrawing about 0.4 per cent of the nation’s total retirement kitty but KPMG’s wealth advisory partner David Bardsley said “liquidity has been a big issue”.

“Funds have managed it quite well but I think moving forward they will be more sensitive for a shock in the system on their portfolios,” he said.

“For example they may look at investing in a listed real estate trust without having to own the property itself, so selling a property is much more time consuming than a listed security that is attached to property.”

Property prices could be hit in the months and years ahead from the fallout of the pandemic.

Latest figures from research house Chant West showed median growth funds (61 to 80 per cent invested in growth assets) bounced back by 3.1 per cent in April.

This come after they fell 12 per cent in February and March.

Despite this the return for this financial year to date is down by 3.3 per cent meaning $100,000 in super would now be just $96,700.

Since the introduction of superannuation in 1992 the median growth fund has

returned 7.9 per cent per annum.

Mr Bardsley said there would be a “bit of level-setting around what super returns”.

“Over the next three, four or five years it will be a bit lower than what we’ve experienced to date,” he said.

Both Australian and international sharemarkets have been badly hit before slowly rebounding and many Australian companies have stopped paying dividends in the short term, again hitting super fund members and equity investors.

HSBC chief economist Paul Bloxham said it has been a challenging time for the super industry particularly for funds who have a majority of illiquid assets.

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HSBC chief economist Paul Bloxham said it’s been a very tough time for the superannuation industry during the pandemic.

“For certain funds who might have more illiquid portfolios and greater withdrawals they will have to reframe things,” he said.

Mr Bloxham said the bigger issue for fund members was “the very large correction in the equity markets and people will need to start considering how much risk and exposure they have got”.

Under the early release scheme Australians who meet the eligibility criteria, which includes showing a drop in their incomes, can access $10,000 this financial year.

They can then access another $10,000 in the next financial year tax free up until September 24.

@sophieelsworth

Originally published as Superannuation savings to take a hit long after COVID-19