Superannuation to close year down 2pc after market routs

Superannuation savings have been savaged in the June market rout after sliding in May, with growth funds taking the worst hit.

Superannuation analyst group SuperRatings says retirement funds took a 0.9 per cent hit in May. Picture NCA Newswire/ Gaye Gerard.

Superannuation is on track to close the year down 2 per cent in the negative after a stellar run up last year.

Superannuation analyst group SuperRatings said retirement funds had taken a 0.9 per cent hit in May. This saw balanced superannuation balances down 0.3 per cent for the year.

SuperRatings reports growth accounts have been worst hit, down 1.2 per cent in May.

This was followed by balanced accounts, down 0.9 per cent in May.

Capital Stable accounts were down only 0.5 per cent.

However, the latest savage sell-off in equities in June has pulled down superannuation balances by a further 1.8 per cent, according to SuperRatings estimates.

The change in performance comes after superannuation balances soared 17.8 per cent last financial year.

SuperRatings executive director Kirby Rappell said the slide in super sizes was worsened by sell-offs in Australian shares, although noted hedging by some funds managers “may help that little bit”.

SuperRatings executive director Kirby Rappell.

“If you look at it over a two-year period it’s still up about 10 per cent,” he said.

The savage sell off in equities in response to the Global Financial Crisis in 2007-08, and again in 2020, as markets responded to the Covid-19 pandemic, saw many Australians delay their retirement.

Mr Rappell said it was “too early to tell” whether the sharemarket rout would continue, or what it may mean for those looking to pull the trigger on their retirement.

“We’ve lived in a period where things have been moving up so consistently for so long,” he said.

“People are becoming more aware that there are both ups and downs in the market but it also reinforces the need to have the long term views.”

Pension retirement products have not been immune from the market sell-off, with balanced accounts down an estimated 1.1 per cent.

Median growth options were down 1.3 per cent, while capital stable options were down 0.6 per cent.

Mr Rappell said it was “not surprising to see a dampening in the performance of super funds”.

“The investment environment is very challenging lately,” he said,

“However, the benefits of diversification have been clear as the volatility of super fund returns remains much lower than share markets.”

The sombre outlook on the end of year returns comes in contrast to the annual return since the beginning of the superannuation system, 7.1 per cent.

Mr Rappell said it was important to keep perspective in the face of market falls.

“Superannuation is a long-term investment and funds have delivered strong performance on average over time,” he said.

“Markets and economies go through ups and downs, and while it’s hard to see your retirement nest eggs bouncing around, it’s important to remain focused on taking a long-term outlook and trying to avoid getting caught up in the noise.”