Challenge your fund

IT APPEARS that when it comes to superannuation, we're all a little bit more relaxed these days.

By InvestSMART · 1 Jan 2012

By InvestSMART ·
1 Jan 2012

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IT APPEARS that when it comes to superannuation, we're all a little bit more relaxed these days.

The Mercer Superannuation Sentiment Index recorded a nine-point increase in September last year to 47. That's its highest level since June 2008.

It looks as if we've all just got used to volatile sharemarket returns.

Mercer attributes that to a greater understanding of the effects of sharemarket volatility on superannuation.

In September, 77 per cent said they had at least a moderate understanding of how sharemarket movements could affect their superannuation balance and that was up from 63 per cent in June 2008.

It's a good thing that we now have a much better understanding of how performance is generated. But we don't want to become too inert.

Australian balanced superannuation funds are still heavily allocated to equities.

A report by the Organisation for Economic Co-operation and Development found that our funds have the third-highest equity allocations out of the 27 countries surveyed.

One of the few good things about the GFC was that it challenged the norm regarding equities. You've all heard that equity markets give better returns than most other asset classes over the longer term but if you're just about to retire and the sharemarket tanks, that's little consolation. A little less in equities and a little more in other types of investments is probably a good idea if you're over 55. Superannuation funds need to tailor options for members like this.

So it's still important to challenge your fund and complain, just a little, when they don't do so well or offer you what you need. The funds that engage and listen to your feedback are the ones worth being a member of.

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Frequently Asked Questions about this Article…

What did the Mercer Superannuation Sentiment Index recently show and why does it matter to everyday investors?

The Mercer Superannuation Sentiment Index rose nine points to 47, its highest reading since June 2008. That suggests investors feel more relaxed and better informed about how sharemarket movements can affect superannuation balances — but it doesn’t mean you should be complacent about risk or allocation.

How has investor understanding of sharemarket volatility and superannuation changed?

According to the article, 77% of people in September said they had at least a moderate understanding of how sharemarket movements affect their super, up from 63% in June 2008. Improved understanding can help you make more informed decisions about risk and asset mix.

Why are Australian balanced superannuation funds described as heavily allocated to equities?

The article notes that Australian balanced super funds remain heavily tilted to equities. An OECD report found Australian funds had the third-highest equity allocations among 27 countries surveyed — meaning more exposure to sharemarket ups and downs than many other countries’ funds.

Did the global financial crisis (GFC) change how investors should think about equities in superannuation?

Yes. The GFC challenged the idea that equities are always the best option simply because they deliver higher long-term returns. It highlighted timing risk — if the market falls when you’re about to retire, long-term historical outperformance offers little consolation.

If I’m nearing retirement or over 55, should I change my superannuation equity allocation?

The article suggests that if you’re over 55 and close to retirement, having a little less in equities and more in other asset types is probably a good idea. That helps reduce the risk your balance faces from short-term market drops when you may soon need the money.

What can I do if my super fund doesn’t offer the investment options I need or performs poorly?

You should challenge your fund and provide feedback — complain a little when they don’t offer what you need or when performance is unsatisfactory. Funds that engage with and listen to members are the ones worth staying with.

How can I tell whether my superannuation fund is listening and acting on member feedback?

Look for signs the fund tailors options to different member needs (for example, choices suitable for people over 55), communicates changes, responds to complaints, and shows willingness to adapt investment menus. Those behaviours indicate a fund that engages with members.

What practical steps can everyday investors take to manage superannuation volatility?

Understand how sharemarket movements affect your balance, review your asset allocation relative to your age and retirement timeline, ask your fund about alternative investment options, and actively provide feedback or complain if the fund isn’t meeting your needs.