Superannuation returns are set to reach double figures for the year as global markets continue their recovery from the pandemic, boosting the retirement prospects for 15 million Australians.
Both Chant West and SuperRatings reported strong growth for the month of October.
The former reported monthly growth of 0.6 per cent for median growth or balanced funds, in which most Australians hold their superannuation, and the latter reported monthly growth of 0.7 per cent.
Both funds said funds were up 11.2 per cent over the first 10 months of the year.
As a result, unless sharemarkets collapse in the next six weeks, results for the full year are likely to remain in positive double figures.
But the 17.7 per cent annual return reported by Chant West for the previous financial year is unlikely to be replicated.
Tenth straight year of positive superannuation returns
“Despite the severe downturn in February and March 2020, when markets first reacted to the COVID crisis, the median growth fund finished last calendar year up 3.6 per cent,” said Chant West lead researcher Mano Mohankumar.
“A positive result for 2021, which now looks pretty certain, would represent the 10th positive calendar year in succession.
“We’re now 19 months on from the COVID-induced low point at end-March 2020 and growth [balanced] funds have returned an astonishing 29 per cent from then.”
Superannuation funds have recovered so strongly from the pandemic crash that they now sit about 14 per cent above the high point reached in January 2020 before the pandemic.
That means that the average balance for a male of $162,273 would have increased to $184,991 since January 2020.
The average female balance of $128,068, meanwhile, would have lifted to $145,998.
Sharemarkets push up returns
Mr Mohankumar said listed sharemarkets remain the “main drivers” of high superannuation returns.
Although Australian shares were virtually flat in October, returning just 0.1 per cent, international shares were up 5.6 per cent if hedged against currency movements.
However, a stronger Australian dollar meant the gain was just 1.7 per cent without hedging. (About 50 per cent of the offshore holdings of Australian super funds are hedged.)
The figures demonstrate the very attractive returns made by superannuation since its introduction as a compulsory award measure back in 1992.
Since then, “the median growth fund has returned 8.2 per cent annually,” Mr Mohankumar said.
Meanwhile, inflation over that timeframe has averaged 2.4 per cent a year, giving median super funds an annual real return of 5.8 per cent.
The target when the superannuation system was introduced was only 3.5 per cent.
Over the past 20 years, which includes three major sharemarket downturns – the ‘tech wreck’ from 2001 to 2003, the GFC from 2007 to 2009, and the COVID-19 pandemic in 2020 – the median growth fund has returned 7.2 per cent annually, which is still well ahead of the return target.
There have been only two periods over the past 20 years when super returns fell below the target of 3.5 per cent above inflation: After the GFC, and between 2015 and 2017.
Pension phase stronger
SuperRatings measures returns for superannuation funds in the pension phase, as well as those in the accumulation phase.
Pension returns were positive in October, with the median balanced pension option returning 0.7 per cent over the month and 11.7 per cent over the calendar year to date.
That was slightly better than the median accumulation fund.
Pension funds in a more aggressive growth option returned an estimated 0.8 per cent for the month and the median capital stable option gained an estimated 0.1 per cent for the month.
During the GFC, funds fell a massive 26 per cent, considerably more than during the COVID-19 panic.
Fund managers have shored up investment strategies by making them less dependent on the sharemarket since then.
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