AUSTRALIANS are losing faith in superannuation as a way of saving, disheartened by the global financial and economic crisis that is eating away at fund balances.

The Age - 24th Feb 2009 - VANESSA O'SHAUGHNESSY and LUCY BATTERSBY

AUSTRALIANS are losing faith in superannuation as a way of saving, disheartened by the global financial and economic crisis that is eating away at fund balances.

The median fund fell 1.9 per cent in January, and has plunged 15.1 per cent in the first seven months of the financial year, according to SuperRatings research.

In the 2008 calendar year, funds declined almost 20 per cent. Not since compulsory superannuation was introduced in the early 1990s has there been such a negative run - and no recovery is insight.

Yesterday, the Australian sharemarket tested its lows, with the S&P/ASX 200 Index closing at 3351.2 points.

It had fallen even lower during the day but, like other Asian markets, recovered some ground on reports that the US Government might increase its equity stake in Citigroup from about 8 per cent to up to 40 per cent.

Still, Australia's listed companies have lost half their value in about 16 months and the index remains just a few points higher than the near five-year low of 3342.7 points on January 23.

In a survey of 1000 working Australians, Mercer found more than a third rated superannuation as a "poor" or "fair" way to save for their retirement, up from 17 per cent six months earlier. And 41 per cent of people expected the balance on their next superannuation statement to be lower.

Australian Institute of Superannuation Trustees chief executive Fiona Reynolds said the financial situation was worse than the technology bubble of 2000, the 1997 Asian financial crisis or the post-September 11 market turmoil.

"Unless there is some miracle turnaround, there will be a second year of negative returns," she said, and then pointed out that the market fell about 40 per cent over the past year, while superannuation returns were down about 18 per cent.

"But superannuation is designed as a long-term investment to ride out the ups and downs of the sharemarket," she said.

SuperRatings managing director Jeff Bresnahan said superannuation was still the most tax-effective way to save for retirement.

A small percentage of people, accounting for between 3 per cent and 5 per cent of assets under management, have moved their investments to cash over the past six months.

But despite industry concerns that people were losing faith in superannuation, most people were still putting up with the short-term pain, Mr Bresnahan said.

Having examined the results of the Mercer Superannuation Sentiment survey, head of member services Anthony Schiavo said people were starting to understand the connection between the market and their superannuation.

And many more were seeking advice about how best to manage their retirement savings, or were looking for reassurance to give them confidence to stay invested.

HOSTPLUS chief executive David Elia said the youthfulness of that fund's members put it in a unique position. Members had not rushed to conservative investments, such as cash, because they would not need superannuation for another 30to 40 years.

"We are incredibly fortunate that the average age for the HOSTPLUS member is about 26 to 27, so the majority of our members still have a long-term investment horizon," he said.

Mr Elia said that while there was "no place to hide" just now, the fund foresaw problems in listed property trusts and highly geared investments, which had helped it to achieve an annualised return of 7 per cent over the past five years.

"What we didn't see, and I don't think anyone can claim to have seen this, is the extent of the subprime lending and the highly intertwined structure of both the US and global financial systems," he said.

REST Superannuation chief executive Damian Hill said that, rather than running away, it was an excellent time to invest further in superannuation through voluntary contributions. Like most things, it was best to buy shares when they were priced cheaply.

However, the simplest way to increase returns was to consolidate accounts, provide superannuation funds with a tax file number and take advantage of the Government's co-contribution offer, he said.