Super funds will have a hard time delivering the kind of double-digit returns they made in 2019, but members can still expect good results according to SuperRatings.

2019 proved to be the best year for super fund returns since 2013, with even the median balanced option (a relatively safe investment strategy) returning 13.8 per cent.

Much of that was driven by stock markets. In Australia, the benchmark ASX 200 share index climbed roughly 20 per cent in 2019 – its best year in a decade.

That worked wonders for super fund members, but SuperRatings cautioned the coming 12 months won’t be as fortuitous.

Speaking to The New Daily, SuperRatings executive director Kirby Rappell said the record low interest rates that defined the past 12 months has driven many people out of savings accounts and cash investments into share markets.

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“As we’ve seen interest rates come down, its driven really strong equity markets,” he said.

“That’s meant we’ve potentially brought forward some returns into last year.”

As a result, Mr Rappell said returns are likely to be weaker and more volatile in 2020 than they were in 2019.

But, he added, members can still expect a healthy return.

“Most funds are targeting a return of the rate of inflation plus 3 or 3.5 per cent but have been delivering something more like inflation plus 5 per cent over the past ten years,” he said.

“But that isn’t a new normal, and we’re not expecting to see those kinds of returns every year.

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Mr Rappell added that super is a “long-term game”, and day-to-day or month-to-month fluctuations shouldn’t be cause for concern.

“People need to be prepared so that if we do see volatility in the future, they have that long-term mindset and don’t get distracted by the noise.”

Expect more mergers

One thing super funds can count on for 2020 is that more funds – especially smaller ones – will start merging together.

Fund mergers can result in lower fees and better returns, and regulators such as APRA are increasingly pressuring under-performing funds to consider consolidating.

But Mr Rappell cautioned as funds become larger, the cost pressures can build, and funds need to make sure they are creating reasonable fee savings for members.

Similarly, larger funds can find it more difficult to engage with their members, and smaller funds which merge together need to find a way to communicate effectively with all of their members.

Royal commission recommendations to take effect

Financial Services Council (FSC) chief executive Sally Loane told The New Daily that “significant market shifts” are also on the cards for super in the coming year.

Much of those shifts will be driven by the recommendations made by both the banking royal commission, and the Productivity Commission’s super review.

Some of those recommendations include:

• Ensuring super funds had only one default account for new members entering the system;
• Protect vulnerable consumers against unsolicited selling for super and insurance products;
• Banning the deduction of any financial advice fees from default MySuper accounts

“The super system is still riddled with inefficiencies and hasn’t kept pace with the changing nature of work, including two million people working multiple jobs,” Ms Loane said.

“As a priority for better consumer outcomes the FSC is urging the Government and Parliament to implement the recommendations of the Productivity Commission and Royal Commission to ensure default superannuation meets the needs of all Australians,” she said.

The New Daily is owned by Industry Super Holdings