Bull run a super confidence booster

Sure, stockmarkets have got a little bumpy since November. But the 18-month run-up prior to that undoubtedly gave superannuation investors a major boost on multiple levels.

Are you feeling more confident now about your financial future than you were, say, a year ago? Have the returns from your SMSF helped you see a few more roses five years into the future?

An interesting survey has looked into that specifically – surveying “seniors” about their outlook on life, with a major focus being on how happy they are with their finances. And there’s been a significant change over a 13-month period.

The 2^nd Seniors Sentiment Survey, completed by National Seniors Australia and fund manager Challenger, was measuring responses on three broad areas – wellbeing in the domains of social, financial and health.

“Seniors” for the purposes of the survey were over 50 years of age. More than 2,000 were interviewed, and more than 500 of those were participants in the first survey taken in August 2012.

Financially, there was a massive jump in confidence with respect to finances. In 2013, about 63% of respondents said they were very or somewhat satisfied with their finances, up around 11 percentage points from the survey conducted the previous year.

Click to enlarge

The timing of the two surveys is interesting. In August 2012, the stockmarket run had only just begun. It may well have been another false start. There was certainly nothing to be excited about at that point. The S&P/ASX 200 index had moved from a low of about 4,000 points to around the 4,300-4,400 mark. While up 10% in a short period, it was unlikely anyone had really bothered to check to see if their super balance had improved.

But by the time they completed the second survey in September/October 2013, the bull run was nearly 17 months old – and hadn’t slowed down at that time. The market had moved to highs briefly above 5,400 points – an increase of 35% over the year before. Add in 17 months of dividends and the gains were probably a little north of 40%.

(For the record, property prices nationally were also falling during that period and interest rates on cash was low and falling.)

A big confidence booster

“Many of the findings are positive, with seniors expressing better health, social wellbeing and financial wellbeing than for the previous survey. In particular, there was an increase in confidence in retirement income, reflecting improving returns in superannuation and consumer sentiment over the period,” the survey’s findings said.

Drilling down directly into superannuation shows what looks like a straight barometer for the relative health of the stockmarket during the two points in time the surveys were undertaken.

“Confidence in superannuation as an adequate income source in retirement increased from 44% in 2012 to 61% in 2013 for retired people, and from 31% to 37% for non-retired people. Confidence in income from all sources as adequate for retirement rose from 45% to 55% for retired people, and 34% to 42% for non-retired people.”

Retirement income adequacy

Among the workforce, those for whom super is expected to be the main source of income – presumably those with larger balances – were more confident about superannuation in general.

Confidence levels for overall retirement income adequacy were at 48% (up from 41%), while those who said it would only be “a source” was up from 31% to 37%.

It was a similar story with the retired. Confidence about super for those using it as a main source of income increased from 56% to 71%, while those for whom it was “a source” increased from 44% to 61%.

When it came to confidence about their overall level of retirement income, there were also similar improvements.

For the retired, those feeling very or somewhat confident in the adequacy of their retirement income increased from 45% to 55%. Amongst the workers, it also increased from 34% to 42%.

Change of government effect

It appears the change of federal government could also have been a factor. As we know, the election was held on September 7, 2013, which saw a change in government from Labor to the Coalition. This survey was undertaken in September and October 2013.

There was a major shift in thinking about the likely effect the federal government would have on their financial wellbeing. Very negative sentiment about federal government policy impacts dropped from 29% to 11%. (At the state level, it also fell, but from 19% to 13%, which was not broken down by state.)

Overall, negative sentiment on the federal government’s likely actions dropped from 62% to 42% (and from 55% to 49% for state governments).

Timing impact

The survey’s authors did flag that the timing of their questions might have had an impact on the responses. “In the year ended October 2013, the return for superannuation funds was 16.8%.” That will be “balanced” funds.

“It may also be that there has been sufficient time since the shocks of the global financial crisis for seniors to become more confident with the adequacy of their retirement savings.”

But most importantly, they pointed out the Westpac-Melbourne Institute consumer confidence survey index was at 108.3 in October 2013, up from 99.8 a year earlier. When the market started getting jittery in November and December 2013, the consumer sentiment survey quickly retreated to 103.3.

It is amazing what a good bull run can do to your overall outlook on life.

Financial wellbeing was just one of three major parts of the survey. For the record, there were similar improvements to overall happiness in the other two major areas surveyed – social and health.

Both of those areas also scored considerable improvements in the gap between surveys. Social wellbeing saw the greatest improvement and was higher than financial, while health was also an improver, though not as strongly as financial.

Does your sociability and your ticker run better with markets in a canter also?

The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: bruce@castellanfinancial.com.au

• The Australian Tax Office and Australian Securities and Investments Commission are focused on bringing down SMSF services that are advertised as ‘free’ but which lock trustees into long-term and costly contracts. “We’re paying a lot of attention to seminars, conferences, even what people are posting in bulletin boards,” said Nathan Burgess, ATO director of SMSF regulatory and income tax products at the Financial Advice in Super Symposium in Melbourne.
• The SMSF Professionals’ Association of Australia (SPAA) is calling for the government to increase the concessional cap and address the accurate costing of super tax concessions in the upcoming May budget. “In our opinion the current general concessional contribution cap level for $25,000 and $35,000 for older Australians is too low to facilitate adequate savings for retirement,” said SPAA’s chief executive, Andrea Slattery.
• Trustees need to be wary as there are gaps in the consumer protection framework for SMSFs, according to the Association of Superannuation Funds of Australia (ASFA). The comments follow the recent collapse of Charterhill Group, an accountancy firm investing in property through SMSFs, which is expected to lose its roughly 160 investors around $7 million after it was placed in administration in late January. ASIC has frozen the company’s assets and is investigating the collapse.