Superannuation returns moved sharply into negative territory over September, with experts predicting a “tougher calendar year” for super returns.

The average balanced fund with 60 to 76 per cent in accumulation phase fell in value by 3.1 per cent, according to SuperRatings.

For funds in pension mode, which rely more on bonds than those in accumulation mode, that translates as a lost 3.5 per cent in value over the month.

The September returns were weak as a result of falls in most markets, particularly Australian shares.

The SP ASX 300 index, which covers larger stocks, fell 6.3 per cent in value over the month, while the index for all stocks excluding Australia fell only 3.5 per cent.

Australian bonds fell 1.4 per cent while international fixed interest lost 3.5 per cent in value.

The listed Australian property index fell a massive 13.6 per cent and is down 21.1 per cent for the year to September.

The weaker super returns demonstrate the negative effects on investments resulting from rises in interest rates this year.

Although sharemarkets and super returns recovered strongly from the COVID-19 panic in early 2020, both have weakened since inflation concerns emerged.

Yearly returns down

The average balanced fund has actually lost 5.7 per cent in value in the September year while the previous year it rose.

The result means that the average super balance of $145,670 would have lost $8303 over the September year.

SuperRatings executive director Kirby Rappell said the first quarter of the financial year had seen volatility and overall “we are expecting a tougher calendar year for super returns”.

However “funds continue to have suffered more modest falls than equity markets, reflecting diversification in funds’ portfolios”.

Current volatility affects older fund members more than younger ones because those close to or in retirement have to cash in super investments when the market is weak.

For younger members, market volatility is only having an impact on paper, he said.

“Be prepared to see persistent volatility, while remembering that superannuation remains a long-term game,” Mr Rappell said.

Despite this volatility balanced super funds have returned an average of 7 per cent or better over time, he said.

The best-performing growth funds – the Qantas staff fund and HESTA’s sustainable fund – have returned 7.5 per cent and 7.03 per cent respectively over five years, new research from Stockspot shows.

But the picture for the worst-performing funds in the growth category has been very unpleasant.

Those low returns mean that performance is significantly eroded and leaving money in those funds will trash your retirement.

Indeed Stockspot CEO Chris Brycki advises all super fund members to check the level of fees their fund charges.

“You will improve your super balance by $245,000, on average, between the ages of 35 and 65, simply by moving from a super fund charging investment fees of 0.5 per cent per year instead of 1.5 per cent a year,” he said.

In the past it has been the for-profit retail funds that have charged higher fees while the not-for-profit industry and corporate sector have charged lower fees.

“I’d say that’s the case, although it has become less clear than it was 10 years ago.”

For-profit funds have been under pressure since the Hayne royal commission found many wanting and regulator APRA started to performance test funds.

Conversely, some industry funds had raised fees.

That has been in many cases a result of investing in more complex asset classes like unlisted assets, he said.

Those assets are more costly to invest in because they need managers that look closely at the detail of each asset while index-style investments just follow share or other market indices.

Those more costly assets have proved their value in recent times as they have fluctuated less in value than index products and some, like private equity, have generated higher returns than their listed cousins.

While many super funds are starting to merge, partly under pressure from APRA, the results of mergers weren’t necessarily positive.

“It doesn’t seem to be the case that the bigger you are, the better the returns,” Mr Brycki said.

Although some mergers resulted in better returns for members, others had not and in some situations merged funds “have actually increased fees”.

Overall, the Australian super sector is performing strongly.

Figures produced by actuaries Willis Towers Watson’s Thinking Ahead Institute earlier this year found that Australia has the second largest super sector as a percentage of GDP to the Netherlands.

Australians have retirement assets equivalent to 172.4 per cent of GDP, while the Dutch have 213.5 per cent.

Retirement assets under management also grew at a rate of 7 per cent annually.

Only the US and Ireland among developed countries had higher growth rates. But in the case of Ireland its overall retirement asset level was far lower.

The New Daily is owned by Industry Super Holdings