Superannuation has experienced a crackerjack year over 2021 with returns in double-digit territory following continued record runs on global sharemarkets.

Researchers Chant West said to the end of November the average balanced or growth fund had returned 11.7 per cent and were likely to finish the year even higher.

“Barring a last-minute capitulation, we’re on track for yet another positive result for super fund members – the 10th in succession,” Chant West chief researcher Mano Mohankumar said.

“That’s a remarkable achievement when you consider that the past two years have been fraught with social and economic disruption as a result of the COVID pandemic.”

Mr Mohankumar said the results represented a “continuing reward” for members who held their nerve and trusted their funds to navigate the crisis rather than switching their assets to cash.

“Who would have thought, at the low point in late March 2020, that growth funds would have surged a staggering 30 per cent over the subsequent 20 months?”

The unexpected rally in global sharemarkets means super balances are up nearly 15 per cent on the pre-COVID peak that was reached at the end of January 2020.

The chart above demonstrates the strong performance of superannuation over time – with the median growth fund (61 to 80 per cent invested in growth assets) delivering positive returns for all of the yearly periods measured and annual returns above 9 per cent over four periods measured.

The lowest return figure was the 6.3 per cent annual average over the 15 years to November 30, 2021.

That means that a balance of $50,000 15 years ago would have turned into $125,017 without any contributions.

But while double-digit returns in recent years have been eye-catching, Mr Mohankumar said it was important to remember that “super is a much longer-term proposition”.

“Since the introduction of compulsory super in 1992, the median growth fund has returned 8.2 per cent annually,” he said.

Beating inflation

Over that time, the consumer price index has risen at an average of 2.4 per cent – which means the real return to superannuation fund members over that time has been 5.8 per cent.

When the system was launched back in 1992, the target for real returns was 3.5 per cent, so members have experienced stronger-than-expected growth.

“Even looking at the past 20 years, which now includes three major sharemarket downturns – the ‘tech wreck’ in 2001 to 2003, the GFC in 2007 to 2009 and COVID-19 in 2020 – the median growth fund has
returned 7.1 per cent annually, which is still well ahead of that typical return objective,” Mr Mohankumar said.

Strong superannuation returns and the evolution of lifecycle superannuation products have seen them almost equal the returns of single strategy products – in which most Australians have their super stashed.

With lifecycle products, funds move from more aggressive strategies (e.g. higher exposure to shares and property) when members are young, to more conservative strategies (e.g. higher exposure to bonds and fixed-interest assets) as they age and near retirement.

“If you looked at them a few years ago, you would have thought, ‘I’m surprised that APRA hasn’t just pulled the pin on these and said they are not appropriate’,” Rainmaker director Alex Dunnin said of lifecycle products.

But their fortunes have turned around dramatically since then.

So much so that until a member turns 60 performance “is now neck and neck [with single strategy products]”, Mr Dunnin said.

In fact, as the chart above demonstrates, for those aged between 40 and 60, lifecycle funds are actually performing better than single strategy products at the moment.

Meanwhile, international comparisons pulled together by actuaries Willis Towers Watson’s Thinking Ahead Institute and US publication Pensions & Investments during the year found that Australia continues to punch above its weight in the global pension stakes.

Their review of the world’s top 300 pension funds found that 16 Australian super funds made the top 300 when it came to total funds under management in 2020.

Top of the rankings for Australia was retirement industry giant AustralianSuper with $222.1 billion in funds under management.

Sovereign wealth fund The Future Fund was next, with $178.6 billion in funds under management.

The New Daily is owned by Industry Super Holdings