Superannuation returns are set to be so strong they will easily make up for losses last financial year, according to new figures from Chant West.

The research house found that the median growth fund, where most Australians invest, saw returns of 1.2 per cent over March, bringing total returns to a healthy 8.1 per cent for the first 10 months of the financial year.

That 8.1 per cent return, if sustained to the end of June, would more than offset the entire loss of 3.3 per cent from the 2022 financial year.

Were it to be sustained for the June year it would put returns well above the typical long-term objective for the balanced/growth option of about 6 per cent annually.

It would mean that the average superannuation balance of $147,425 would grow in value to $159,366 over the financial year.

It would also put returns above the current inflation rate of 7 per cent.

The super fund performance in March came as a result of positive performances for both shares and bonds, Chant West research manager Mano Mohankumar said.

“Australian shares were up 1.9 per cent over the month. International shares were up 1.6 per cent in hedged terms and that was boosted to 3.2 per cent unhedged because of the depreciation of the Australian dollar over the period.”

“Meanwhile, Australian and international bonds returned 0.4 per cent and 0.3 per cent, respectively,” Mr Mohankumar said.

That was a significant change because in recent times super returns have felt the double whammy of falling sharemarkets and falling bond prices as interest rates rose.

Better-than-expected performance

Super over time has performed better than planned when the compulsory system was set up.

“Since the introduction of compulsory super in July 1992, the median growth fund has returned 7.9 per cent annually,” Mr Mohankumar said.

With annual CPI increases averaging 2.6 per cent over time that means the real return achieved by balanced/growth funds has been 5.3 per cent compared to the 3.5 per cent originally targeted.

“Superannuation continues to surprise on the upside,” said Alex Dunnin, director of research group Rainmaker.

The total superannuation investment pool has almost reached $3.5 trillion as funds under management rose 1.1 per cent to $3.49 trillion in the March year.

Total pooled super balances did better than that, rising 2.7 per cent to $2.39 trillion.

Self-managed super funds, which last decade often outgrew the whole market, lost 2.6 per cent in value to $889.5 billion.

“SMSFs are going through a big reset,” Mr Dunnin said. “Contributions to SMSFs are down two-thirds – there’s nowhere near as much going in as there used to be.”

That is because from mid-2017 transfer balance caps were introduced which limited the amount of money in tax-free pension funds to $1.6 million (soon to be $1.9 million). That made SMSFs less attractive to high net-worth individuals whose big contributions had distorted the overall superannuation figures.

APRA figures showed that despite the population ageing and more baby boomers retiring, contributions to super outgrew withdrawals.

Contributions grew 11.3 per cent to $159 billion, while benefit payouts totalled significantly less at $95.8 billion.

Superannuation payouts are growing steadily as more people retire. The sharp spike on the graph, above, demonstrates just how much money came out of the super system during COVID-19 when an emergency measure allowed withdrawals from super of up to $20,000.

Significant amounts of the $38 billion withdrawn under that measure went to gambling and retail spending, research has found.

The amount of money going into super is much greater than generally believed. The super guarantee (SG) paid to workers is 10.5 per cent and will go to 11 per cent in July.

The chart, below, demonstrates how voluntary contributions by fund members dipped from 2017 when the balance cap was introduced, but have since grown quickly. The black line entitled PCT represents super contributions as a percentage of wages and salaries.

“A lot more money goes into super than just the SG now,” Mr Dunnin said. “Overall, 17 per cent of wages and salaries goes into super.”

That is because many people are saving more than the SG through salary sacrifice and personal contributions – particularly high-income workers.

“If the government hadn’t brought the transfer balance cap in it would have been almost 24 per cent last year,” Mr Dunnin said.

Given the high levels of contributions from wealthy people it “reinforces the extra tax planned by the government for balances above $3 million is a necessary reform,” Mr Dunnin said.

That measure will apply from 2025-2026.

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