Finance Your Super Clever superannuation moves to make the most of hard times

Clever superannuation moves to make the most of hard times

You can make some clever moves to offset superannuation losses.
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Superannuation, along with the rest of the economic world, is being seriously tested by coronavirus.

But so far Australia’s retirement savings system is holding out much better than shares.

According to SuperRatings the average balanced fund in accumulation mode fell 8.9 per cent in March and is down 10 per cent for the quarter.

That is significantly better than the 22.8 per cent the ASX 200 index has lost, and well above the stock market’s low point of negative 37.18 per cent, reached on the nadir of March 23.

Having said that, the super system is being heavily tested.

“That 8.9 per cent fall in March is the biggest monthly fall for super ever and pushes values back to January 2019 levels,” said Kirby Rappell, executive director of Super Ratings.

The effects of those March quarter falls are also being felt back through super returns because, as current year values fall, the gains made over previous years are now to a lower point.

Lets have a look at what that means in terms of fund values.

Before the crisis the average male super balance was $168,500, according to the Association of Superannuation Funds of Australia (ASFA).

That means losses of about $16,800 since the coronavirus pandemic took hold.

For women, ASFA’s data shows an average pre-crisis balance of $121,300 – and a subsequent loss of $12,130.

Those averages however include highly paid people across age groups.

It’s more sensible to look at mean balances, which discount the influence of the heavy hitters.

For men and women between 55 and 64 in the run-up to retirement, mean balances are $183,000 and $118,000 respectively.

Danger if withdrawing super

For men between 25 and 34 the mean balance is $31,000, with women’s balances slightly lower at $20,000.

Those figures are really significant because many younger people have lost jobs or hours and may be eligible to withdraw up to $20,000 from their superannuation in two lots between now and July.

For young people, doing so could have a devastating effect on their super balances at retirement.

“If you are a 37 year old and you take even $10,000 from your super now it could cost you $57,000 over 30 years to retirement,” said Robert Goudie, a certified financial planner with Consortium Private Wealth.

“But if you are in a situation where you are taking out all of your super it would be an absolute disaster.

“It has a huge compounding effect because you have no balance to grow while you start contributions again,” he said.

What to do

Firstly, if you lose your job or significant business income, make sure other options are exhausted.

“The government is giving cash flow support through JobKeeper and JobSeeker payments, so make sure you get your entitlements,” Mr Goudie said.

Then if you’ve a mortgage most banks are giving a six month holiday from repayments.

“Apply for this if you need it, but remember the interest is being capitalised and will be added to what you already owe,” Mr Goudie said.

Only when these options are exhausted should you withdraw super.

For those that are left with no option but to withdraw super, funds will be able to deliver payment in five days as demanded by the government’s measure, despite published concerns over liquidity, Mr Rappell said.

“Our research shows that most funds can meet these commitments in three to five days.”Around 4 per cent of funds could take seven or more days, SuperRatings found.

Making it up again

Putting more money into super can be an emotionally hard call at a time like this but Mr Goudie says it’s the wise thing to do.

“If you buy now you are getting in when prices are low and you will benefit as prices rise.”

For those without any surplus cash above what’s needed for living and the mortgage, the makeup of superannuation funds provides the opportunity to make some smart moves.

Most people are in balanced super fund allocations with around 50 per cent exposure to the share markets and a total of 60 per cent in all growth assets, as the chart above, from SuperRatings, shows.

Alternatively, some reflect that category by choosing allocations themselves. Here there is an opportunity to make up a bit of ground.

“If you had chosen allocations of 60 per cent growth and 40 per cent conservative, the falls recently will have pushed down the values of the growth allocation meaning you now have 50-50,” Mr Goudie said.

“If you change that allocation back to 60-40 it essentially means you are selling conservative investments and putting the proceeds into growth investments,” he said.

So while that may be unnerving it is reinforcing the asset allocation choice you made to begin with and is a smart way of buying growth assets.

The strategy works even if you have chosen to go into nothing beyond a plain vanilla balanced fund.

There you could change all or part of the allocation to growth or you could even just choose those categories for new contributions.

Those with the capacity “should continue or even increase the size of their salary sacrifice contributions and possibly direct these to a higher growth allocation,” Mr Goudie said,

The New Daily is owned by Industry Super Holdings