When the coronavirus decimate sharemarkets in February and early March the outlook for superannuation was bleak.
Funds were expected to crash in value and members predicted to swamp the system with emergency withdrawals of up to $20,000.
However, although the average balanced fund dropped as much as 11.9 per cent (10.4 per cent for MySuper products) from the peak of the boom to the bottom of March’s trough, things have improved since then.
Research group Rainmaker found that over April, when sharemarkets climbed from their lows, the average balanced MySuper, or default super fund, where the majority of Australians are invested, has turned around.
Rainmaker’s MySuper index reported a 2.2 per cent increase in value over April at a time when the ASX All Ordinaries index rose 8.9 per cent from its low point to its high on April 30.
When that figure is factored in, the MySuper index has fallen 4.8 per cent for 2020 and down 3.2 per cent over 12 months.
“There hasn’t been the big meltdown that people were expecting,” said Alex Dunnin, executive director with Rainmaker.
“During the GFC, in December 2008, funds fell 21 per cent so we won’t get anywhere near that.”
April shares record
Sharemarkets have driven the gains with the benchmark ASX200 index posting its best month on record in April.
“The ASX fell 36 per cent between February 20 and March 23 before bouncing back 22 per cent by the end of April,” Mr Dunnin said.
“The ASX is nevertheless still down 20 per cent from Feb 20 when the coronavirus crisis began in earnest. But super funds have fallen less than half as much as the ASX.”
That demonstrates the value of diversification in super, Mr Dunnin added.
Meanwhile, as of Friday, 1.2 million Australians had applied for the early release of $10 billion, according to Treasury. Major funds,like AustralianSuper,Hostplus and REST have seen around $1 billion each out the door.
When the government moved in March to allow cash-strapped members to take $20,000 from their accounts before September 24, 2020, Treasury predicted $27 billion would be removed by 1.6 million members.
“That rate is not as frenzied as was first thought it could be,” Mr Dunnin said.
“There are a lot of young people with small amounts in the system who may have taken out their whole balance. But the fact that the average withdrawal is below the $10,000 first tranche allowable under the government measure means that people are not by and large taking out the maximum.”
Welfare measures give confidence
“I think that measures like JobSeeker and JobKeeper which pay people a guaranteed income made people realise maybe they don’t need to access super,” Mr Dunnin added.
“There is nowhere near as much being withdrawn from the system as predicted.”
In another positive sign for the industry, Commonwealth Bank’s Colonial First State group reported that during the sharemarket rout in March, superannuation members by and large didn’t lose their heads.
The number of people changing their fund’s investment allocations jumped by a factor of three in March.
Of those who made the switch, 39 per cent moved to cash, which may have locked in their losses, depending on when they chose to sell out of growth assets.
Some go for growth
But almost exactly the same number of members switched to growth assets, with 26 per cent moving allocations into Australian shares.
That meant members were trying to buy into the market cheaply, a move which could deliver healthy profits over the longer term.
“We saw some people switching to cash, which means those members missed out on upside as markets rebounded. But we’re encouraged that many of our members also stayed the course and remained focused on the long term,” Colonial’s investment chief Scott Tully said in a statement.
“Fear of volatile markets can drive decisions that might not be in a member’s long term interests. The switching activity we have seen is directly linked to how the Australian market is performing on the day. However, selling after markets have fallen means that you lock in those losses and longer term investment outcomes may be more difficult to achieve,” Mr Tully said.
“Our data showed that while we had many super members who were spooked by the volatility, there were just as many people looking to invest after the market had fallen. This suggests there are members who understand that super is a long-term investment but are prepared to take advantage of lower prices in the middle of a crisis.”
The New Daily is owned by Industry Super Holdings