Australian superannuation fund members are in for a shock when they open their 2008/09 statements over the few months, after the worst year on record for investors in 17 years.
Research group SuperRatings warned on Wednesday super funds have recorded their worst financial year performance since the introduction of compulsory superannuation.
SuperRatings expects the median balanced fund to record a 13 per cent loss for the year to June 30.
Fellow researcher Chant West is pointing to a negative return of 13.3 per cent for the median growth fund, on the back of a loss of 6.9 per cent in 2007/08.
Both companies said back-to-back annual declines are extremely rare and a clear sign of the very tough times investments markets have been through due to the global financial crisis.
SuperRatings managing director Jeff Bresnahan said 2008/09 “will go down as the worst financial year for super fund investors since the introduction of compulsory super in July 1992.”
“The global financial crisis has now been the catalyst for two consecutive poor results from our super funds,” he said.
Chant West said over the past year, and the past three years, super funds have not performed as they are supposed to.
“By that we mean that investors have not been rewarded for including higher levels of growth assets in their investment mix,” it said.
“The reality will hit home for super fund members … and it won’t be pleasant.”
However, Chant West said super fund performance over the June quarter had improved, as stock markets produced positive returns amid hopes that the worst of the global financial crisis may be over.
“The past three months show a return to a more normal hierarchy, with higher growth options outperforming,” it said.
“Whether this will be sustained depends in large part on the speed of recovery of the global economy.”
The median balanced and growth funds referred to in the SuperRatings and Chant West reports are those with exposure to a 60 per cent-plus majority of growth assets, and account for the majority of super fund members.
SuperRatings said while the 2008/09 result won’t be welcomed by fund members, it still compared favourably to a negative 46 per cent return on listed property investments and a negative 25 per cent return on the benchmark Australian stock exchange index and the US Dow Jones Industrial Average.
“Despite recent performance, it is worth reflecting on the fact that the average annual return for balanced investment options since the introduction of compulsory Superannuation has been 6.7 per cent per annum,” Mr Bresnahan said.
A $20,000 investment made in 1992 would be worth more than $60,061 today.
Based on Chant West’s calculations, investments in the median growth fund returned 15.6 per cent in 2006/07, 14.7 per cent in 2005/06 and 13.1 per cent in 2004/05.
Meanwhile, industry superannuation funds are expected to finish 2008/09 ahead of their counterparts for the ninth time in 10 years.
Chant West’s estimated growth fund returns for the year for industry funds and master trusts are negative 12 per cent and negative 13.9 per cent, respectively.