Volatile economic conditions have seen a retreat from the sharemarket and lowered expectations of retirement income, writes Annette Sampson.
THE uncertain economy has taken its toll on Australia's self-managed super funds, with confidence levels plummeting, investment returns down, and a growing tendency to hoard cash rather than risk the vagaries of the sharemarket.
The latest Intimate with Self-Managed Superannuation report by Russell Investments and the SMSF Professionals Association of Australia found that while Tax Office figures show self-managed funds performed better than public funds from 2007 and 2009, the proportion of trustees who feel very confident they will achieve retirement income targets has halved, from 34 per cent of trustees surveyed in 2010 to 17 per cent in 2011.
The international investment climate has put managing risk at the top of the priority list for trustees, overtaking costs and returns. The proportion of trustees who now regard shares as too volatile has doubled to one third this year and self-managed funds are building a growing "wall of cash" as part of their risk reduction.
"SMSFs have long held strong cash holdings, mainly due to the fact many hold investments outside of super and for income payment requirements," said Russell Investments managing director for retail Patricia Curtin.
"But there has been an interesting debate as to whether they have been holding or hoarding cash. What we're seeing now is more hoarding through disillusionment with the cult of equities, which has more than doubled year on year. It's not surprising trustees are going back to cash."
Ms Curtin said the survey found continuing uncertainty over government changes to super was also worrying trustees. Just under a quarter of those surveyed said they were "very confident" in the super system though opinions were split on whether the tax benefits outweighed the potential risks.
The survey found some legislative changes were already impacting on trustees' willingness or ability to save. Around 40 per cent said they would have contributed more to super if the caps on contributions had been higher, with average additional savings of almost $65,000. Advisers surveyed said they also expected contributions to fall if the government bans off-market transfers of assets.
Women, the survey found, are suffering a greater crisis of confidence with 42 per cent of trustees (and almost 65 per cent of non-trustees surveyed) anxious they would fall short of their retirement income targets. Ms Curtin said this was despite the fact that women generally believed they would need less money in retirement than men.
The survey, conducted last September/October by research company CoreData, interviewed 1406 consumers, of whom 337 had self-managed funds. It also included an eight-trustee focus group and a survey of 513 fund advisers.
Frequently Asked Questions about this Article…
Why are many SMSF trustees shifting into cash and building a "wall of cash"?
The report found volatile economic and international investment conditions have pushed risk management to the top of trustees' priorities. Many trustees now see shares as too volatile and are moving from equities into cash — what Russell Investments describes as more 'hoarding' than holding — to reduce downside risk and protect retirement savings.
How has confidence among SMSF trustees in meeting retirement income targets changed recently?
Confidence has fallen sharply: the proportion of trustees who felt 'very confident' they would achieve retirement income targets halved from 34% in 2010 to 17% in 2011, according to the Russell Investments / SMSF Professionals Association report cited in the article.
Did self-managed super funds (SMSFs) perform better than public funds during the 2007–2009 period?
Yes. The article notes Tax Office figures showing SMSFs performed better than public funds over the 2007–2009 period, even though trustee confidence and expectations have since weakened.
What did the survey say about trustees' views on shares and volatility?
The survey found that the proportion of trustees who regard shares as too volatile has doubled and now stands at about one third. That shift has contributed to a stronger focus on managing risk rather than prioritising costs or returns.
Are government changes to superannuation affecting SMSF contributions and behaviour?
Yes. The report highlighted continuing uncertainty over proposed government changes to super as a concern for trustees. Around 40% said they would have contributed more if contribution caps had been higher (with average additional savings of nearly $65,000), and advisers expected contributions could fall if the government bans off‑market transfers of assets.
Are women SMSF trustees more worried about achieving retirement income than men?
According to the survey, women showed higher anxiety: 42% of female trustees (and almost 65% of female non‑trustees surveyed) were concerned they would fall short of retirement income targets, despite generally believing they would need less money in retirement than men.
Who conducted the SMSF survey and how large was the sample?
Research company CoreData conducted the survey in September/October. It interviewed 1,406 consumers, of whom 337 had self‑managed super funds, included an eight‑trustee focus group and surveyed 513 fund advisers. The report was produced by Russell Investments in conjunction with the SMSF Professionals Association of Australia.
What practical changes are SMSF trustees making in response to market uncertainty?
The article reports trustees are prioritising risk reduction: many are increasing cash holdings, reducing exposure to equities they view as too volatile, and rethinking investment priorities. Patricia Curtin of Russell Investments notes this shift reflects disillusionment with the 'cult of equities' and a move back towards cash for safety and income needs.
Call 1300 880 160
Start a chat
Schedule a call
