The Coronavirus Pandemic has exposed the vulnerabilities of Industry and Retail Super Funds, causing many Australians to consider setting up a Self Managed Super Fund to safeguard their retirement savings.
It’s like nothing we have ever seen before, an almost complete Global shutdown which Australia has been unable to escape. Dramatic numbers of job losses, entire industry shutdowns and a share market in free fall are just some of the effects Australians are feeling during the crisis now being dubbed “The Great Hibernation”. Australians are all being affected by the outbreak in different ways but one area where the majority are sharing the pain is in our Superannuation balances, with those of us with funds largely invested in the Share Market forced to sit and watch as our retirement nest eggs take a fall.
Some of the returns from the Industry and Retail Super funds balanced options aren’t pretty to watch but those numbers get even worse for those with their money sitting in more growth oriented super funds which have increased exposure to shares.
AustralianSuper’s Balanced option was down 13.3% in just three weeks between Feb 20 and March 12, the funds Share option down -22.8%. Colonial FirstChoice Wholesale Balanced Option down 16.7% and their share fund had over a quarter gone almost overnight with a loss of 25.5% over the period. Unfortunately, these losses are a common thread across the board for members of Retail and Industry Super funds, with members having no say over how their money is invested.
We spoke to Inside Super Founder Andrew Dear who is advocating for people to take an interest in their super and urging Aussies to look at all of their options to protect and grow their Superannuation balances.
“I think what we are about to witness is many, many Australian’s realising that their investment options in a lot Retail and Industry Super funds are quite limited and unfortunately it takes a drop in their Super balances to force them to really look at all of their available options.”
Andrew Dear sees Inside Super as a natural progression after two decades with the biggest names in Australian Finance and Superannuation. Mr Dear has been helping Australian’s implement the tricks of the trade to their own retirement portfolios and says for larger super balances an SMSF may be a worthwhile consideration for the everyday Mum and Dad Investors.
“A Self Managed Super Fund provides the option of investing in more sophisticated assets that are seen as less volatile and, when structured correctly, perform better over a longer period of time. It isn’t the right solution for everybody though, and it is essential that anyone considering a change seeks advice with a qualified professional. It comes down to getting the right advice and guidance that will ensure the solution offered is the right one for you, your objectives and your retirement goals. The main point that I stress to everyone I talk to is the importance of evaluating ALL your options before going down a specific path.”
Mr Dear who has two decades of first-hand experience in the world of finance, stated that he feared current members of Industry and Retail Super Funds would continue to suffer inline with the falling share market as they offered little in the way of crisis control and remained at the mercy of plummeting indexes.
“I’ve seen it all in this industry and have been assisting clients with superannuation since one of my first Advisor roles in 2002. Fast forward almost 20 years and we are still seeing the same story from Industry and Retail funds that invest members balance’s largely in Indexed Share Funds, which are great when markets are rising, but not so great when markets fall. The real risk to investors is not volatility in the share markets, but that people get scared during market downturns and act irrationally, capitalising on their losses. This is the reason why funds with high exposure to shares do not suit a lot of people.”
The Inside Super General Manager also stated that interest in SMSFs was growing dramatically but that he wasn’t at all surprised.
“Industry Funds attract members by quoting low fees and returns on the back of the share market, however when the share market falls SMSF enquiries rise as members look for alternate solutions. Furthermore, people feel disappointed when they see negative returns, but still see they are paying investment fees or ongoing advice fees. We are seeing Aussie’s from 35 – 55 , the Generation X’s really start to take a more interested look into where their Superannuation balances are being invested, what fees they are paying and starting to build a strategy that suits their particular needs.”
The current crisis is unlike anything we have seen before with the GFC in 2008 our closest point of reference, but unlike 2008 the world is at a standstill. If 2008 was an economic heart attack we might be about to experience a full body seizure. Mr Dear has said he wants to take what he learned from his time working with some of Australia’s largest financial organisations over the last two decades, particularly during the GFC, and pass that knowledge on to everyday Australians so they have a clear understanding of all their options.
“I think the biggest issue is not enough people understand that there are alternatives to Industry and Retail funds that may actually work better for them and I think that comes down to a lack of knowledge in the area and also an element of fear, or a belief that it isn’t suitable for them. During 2008 I was working in the Financial Planning industry for one of the big banks and I saw clients affected by inappropriate investments during extreme market volatility: Inappropriate investments because the investment did not suit the individuals appetite for volatility. I saw people’s lives horribly impacted. Many clients sought other options including SMSF. The GFC started in 2008 and our share market only reached its pre GFC heights late last year. A lot of my clients don’t have 12 years to wait for things to bounce back and this time around the situation looks even more volatile so it is a good time to have a long hard look at your Superannuation strategy. I would suggest that EVERYONE should be taking ownership of their superannuation accounts and looking at ALL of their available options including SMSF.”
The share Market here in Australia has lost around 30% this year and is responsible for the majority of the losses that we are seeing in Australian Super accounts. With the way the Global economy is currently being affected, analysts don’t think we have seen the end of the drop as Global uncertainty remains. Self Managed Super Funds are attractive to some as they allow investment in more sophisticated investment options like leveraged property. It is likely to become a lot more attractive to Australians looking to protect their retirement funds but again it is about finding out what is the best option for you and simply being aware of all the possible avenues.
“No one can say exactly where this will end, all we can do is help our clients find out where their Superannuation will be best invested in the immediate term but also bring the best results over the long term. Whether that is in a different Industry or Retail fund or an SMSF will depend on the client themselves and their own unique objectives. I’ve seen enough to be able to give clients an honest evaluation with all things considered, something which I’m afraid is lacking with some of the alternatives out there.”
A Self Managed Super Fund isn’t going to be suitable for all clients, however, your Superannuation balance is YOUR money and how and why it is being invested should be investigated. Like any investment, careful consideration, professional advice and calculated strategic planning is highly recommended, and you should always seek advice from a properly qualified advisor.
Special thanks to Andrew Dear of Inside Super for speaking with us on short notice.