How much has your super balance dropped?

Many super funds have ended the financial year with negative returns. Canstar has crunched the numbers to show how much your super balance may have fallen.

Australians brace yourselves. When your super statements land the news is likely to be below par. A lot of superannuation funds have reported their returns and many are dipping into negative territory.

“The past six months have been challenging ones for fund managers. They’ve faced rising inflation, challenging global investment conditions, political instabilities, and now rising interest rates. All those volatile influences are showing up as negative returns,” said Canstar’s Editor-at-Large Effie Zahos.

Canstar crunched the numbers for the top super funds that have reported returns so far and found that the average one-year return of balanced funds is sitting at -3.67%. That means people in the 35 to 44 age bracket with an average balance of $76,084 would have potentially lost $2,792.

For those in the 65 to 69 age bracket with an average balance of $244,037 invested, the potential loss is $8,956. “For anyone on the cusp of retirement, it can be concerning to see their savings going backwards. No one wants to feel like their plans to retire might need to be put on ice,” said Ms Zahos.

Anyone who has channelled their retirement savings into growth or high growth funds – those that have 80% to 100% invested in shares and property – is likely to find their returns have taken an even deeper dive. Someone aged 35 to 44 invested in a growth super fund would have potentially seen their balance drop by $3,386 – $594 more than someone who had their money in a balanced fund.

How much your super balance may have dropped

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Source: www.canstar.com.au. Prepared on 21/07/2022. Average 1-year return based on June 2022 returns available from the top 10 superannuation fund websites, based on a $50,000 balance (based on top 10 per total assets; APRA Annual fund-level superannuation statistics, June 2021). Average super balance based on APRA Annual Superannuation Bulletin, June 2021. Returns are net of administration, investment and performance fees, indirect costs and tax. Past performance is not a reliable indicator of future performance. *Dollar Change figures based on simply applying the average 1-year return to the average super balance. This calculation therefore does not take into account other impacts on super balance, e.g. contributions.

While the results might not be great, hold off hitting the panic button and keep your retirement plans on track with our four-point plan for surviving the super slump.

1. Keep it in perspective

Granted, it is the worst performance by superannuation funds since the global financial crisis (GFC). But it’s only the fifth financial year in which super funds have delivered a negative result since the birth of compulsory super in 1992.

When you invest in growth assets it’s on the understanding that there will be some years when they will go backwards. It can be as often as one year in every five. “That’s the risk we take to guard against other risks such as seeing our retirement savings whittled away by inflation if we leave them in a bank account,” said Ms Zahos.

2. Curb the knee-jerk reactions

Tempting as it may be to race your money into cash when you see your super savings taking a hit that’s pretty much the opposite of how investors should behave.

In March 2020, as markets tumbled many super fund members switched to cash. The problem was they stayed there for more than six months and that meant they missed out on the rebound in markets.

“As hard as it is sometimes, we’ve got to be prepared to ride out the turbulence. If you switch into cash when markets are falling you’re locking in that loss,” explained Ms Zahos.

3. Take control where you can

You may not have much control over market movements but there are areas where you can take charge.

Start by checking your super statement for the fees you’re paying. Remember returns are net of fees so if your fund is out of step with others on the fee front your returns are likely to be lower.

“Balanced funds typically charge about 1% in fees. Some funds were contacting their members at the end of the financial year to let them know a fee reduction was on its way,” said Ms Zahos.”If your fund is charging too much you may want to think about switching to one with lower fees.”

4. Check whether it’s time for a change

How edgy you feel about negative returns will most likely depend on how close you are to retiring.

For younger people, the negative returns are likely to be nothing more than a blip by the time they reach retirement age. The older you are the more likely you are to feel the pain of your super savings going backwards. The good thing is you don’t have to use all your super at once.

“If you’re worried about having to extend your working life because your super fund has put in a less-than-stellar performance, check in with your financial adviser,” suggested Ms Zahos. “They can help you assess whether your investment approach is still suitable for your risk profile and your current age and stage.”

If you’ve already retired and are concerned about crystallising a loss remember the government has extended the temporary reduction in the minimum drawdown rates until 30 June 2023.

“The extension of the 50% temporary drawdown reduction, introduced during the pandemic in 2020, means you can limit the investments you might need to sell to build up your cash reserves,” said Ms Zahos.

What else to consider when looking at your super statement

While you’re scrutinising your super statement it’s worth giving a couple of other areas their annual tune-up.

Insurance

If you’ve taken on additional debt, gotten married or had a child it’s worth reviewing your insurance cover to see whether it’s adequate. Also, check what the cover is costing you.

“Be aware that under the law super funds will cancel insurance on inactive super accounts,” explained Ms Zahos. “If the fund hasn’t received any contributions in the past 16 months or if your balance is too low, for instance, it has dropped below $6,000 it may cancel your cover.”

Beneficiaries

Your super savings are not covered under your will. You must nominate the beneficiaries you wish to receive your super savings and any life insurance in the event you pass away.

“To ensure your super goes to the person or people you prefer you should make a binding nomination,” suggested Ms Zahos. “A binding nomination can be lapsing or non-lapsing. If it is lapsing it may need to be renewed every three years, so give your super fund a call if you’re unsure.”

Contributions

It’s worth checking to make sure that your employer has made the necessary super guarantee contributions. You can use the ATO’s Estimate my super tool to help you estimate how much your employer should have paid into your super fund.

“From 1 July 2022 employers were required to increase super guarantee contributions from 10% to 10.5% of your base wage or salary,” pointed out Ms Zahos. “As the new financial year gets underway, check that your employer is making the right contributions.”

Performance

If you are weighing up the performance of your super fund make sure you are comparing apples with apples. A growth fund will invest 80% to 100% in growth assets such as shares and property whereas a balanced fund will have around 60% to 80% invested in growth assets. As a result, their performance is likely to be quite different because of the underlying assets they are invested in.

As superannuation savings are meant to be for the long haul keep your focus on the long-term returns rather than zeroing in on the one-year returns.

Cover image source: Fida Olga/Shutterstock.com

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