Record Super Slump; Analysts Tip Worse To Come

The Age

Tuesday November 25, 2008

CHRIS ZAPPONE

SUPERANNUATION fund returns over the past year have tumbled to their worst on record, bringing the impact of the global credit crisis home to millions of Australians.

For the year to the end of October, the median balanced fund return dropped an "unprecedented" 17.6 per cent, according to industry group SuperRatings. The same funds dropped 6.7 per cent last month - a period in which equities fell the most since the crash of 1987.

"Australian super funds are facing their biggest challenge since the introduction of compulsory superannuation in 1992, with the fallout of the international financial crisis affecting nearly all institutions," SuperRatings managing director Jeff Bresnahan said.

Cash was providing the best return in the current environment, ranging from a gain of 7.1per cent for the top quartile of balanced funds to an increase of 3 per cent for the bottom quartile over the 12 months to December, according to SuperRatings.

October's superannuation result "shows that no one has been immune from this turmoil over the last 12 months, except those who have been nestled happily in cash", said Mr Bresnahan.

Looking at the median performances, cash turned in the top performance of 5.7 per cent in the year to October.

The median return on funds focused on Australian equities was the worst over the past year, dropping 33.2 per cent, outpacing even the median return on property-based funds over the same period, which tumbled 32.8 per cent.

Property funds suffered the steepest losses, with the lowest quartile plunging 54.3 per cent, while the best-performing property funds posted the only double-digit gain for the 12-month period with a 10.1 per cent increase.

With the S&P/ASX 200 Index dropping 14.9 per cent since the end of October, pushed down by fears that a global recession will crush growth, the losses to retirement savings look likely to continue. The All Ordinaries Index shed 648.6 points, or 14 per cent, in October. The S&P/ASX 200 dropped 582.5 points, taking it back to its biggest loss since it was formed as an index in 1992.

As superannuation funds spread their members' money across a wider array of investment classes, such as infrastructure and private property, more sagging returns are likely.

"Since superannuation funds value one-fourth of their assets every quarter, contractions in the value of alternative investments such as infrastructure and private property may not turn up on members' return statements for months to come," said Warren Chant, principal of super fund research group Chant West.

According to projections by Chant West, unlisted property values could fall by as much as 20 per cent in 2008.

"What will be interesting once all of this turmoil has washed through our superannuation system and the six-monthly statements to members are sent out early next year, is the reaction of members to their own funds," said Mr Bresnahan.

"It would be surprising if the level of switching did not increase as consumers became more aware of the divergence of returns between funds."

© 2008 The Age

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