Finally, contributors are back to the balances they held before the global financial crisis.
It has been a long return, but superannuation funds have finally clawed back their post-GFC losses thanks to strong gains in equities. That means someone with $100,000 in a median balanced fund before the crash in 2007 is back to where they were (see graph).
But what a painful journey it has been, particularly for older fund members. The latest SuperRatings data shows the median balanced fund - where most people have their retirement savings - delivered 10 per cent over the 12 months to September 31, or 6.3 per cent a year for the past 10 years.
The SuperRatings research manager, Kirby Rappell, attributes the double-digit returns to a strong performance on Australian and international sharemarkets.
Overall, balanced funds are on target to achieve their long-term objective, earning 6.5 per cent a year for the past 20 years.
"If you look back to 1992, when mandatory super was introduced, super has delivered on its long-term promise of the inflation rate plus 3.5 per cent," Rappell says.
So should consumers feel better?
Mercer's latest index of global pension funds shows Australia's $1.4-trillion super system is ranked third-best in the world, up from fourth place last year.
David Knox, a senior partner at Mercer and author of the report, says the score is based on the best weighting for a pension system across all age groups, including pensioners.
However, the typical Australian super fund has more than 70 per cent of its money invested in growth assets, which is high by world standards. The best scores went to countries with between 40 per cent and 60 per cent of their pension savings in growth assets.
A sharemarket crash prior to
retirement can be devastating.
Knox says taking a life-cycle approach to super is best for most people. Asset allocations vary with age. As members age, growth assets are reduced and safer assets (bonds and fixed interest) increased.
"Someone rolling over their super at 65 and planning to live off their allocated pension for the next 20 years might reduce their exposure to growth assets to 50 per cent," he says. "At over 70, it might be appropriate to drop that to 30 per cent growth."
Over the past 20 years, super funds have changed from defined-benefit schemes to defined-contribution schemes, shifting risk from the employer to the employee. Knox says until the early 1990s only a third of people had super. "The introduction of mandatory super in 1992 changed all that. Everyone gets at least 9 per cent across the whole workforce," he says.
But that shift means being "disengaged" is not an option. In the aftermath of the GFC, members discovered that investment labels meant little. "Balanced" funds lost a third of their value because of a heavy exposure to equities "capital stable" options went into the red and "cash" made losses (read more on this in Money's Super Quarterly next week).
Moving on
After a decade at the helm of Money I'm moving on. It's been an extraordinary era that brought with it property spruikers, easy debt, shonky debentures, fly-by-night broking firms, tax driven agricultural schemes, derivative trading for moms and pops, vanishing super money and conflicted advice. Money's dedicated team of specialist writers will continue to help you make the most of your money and alert you to the traps. If there is one lesson to be learnt from this decade, it is that no one cares about your money as much as you do. So don't be a muppet.
Frequently Asked Questions about this Article…
How well have median balanced super funds performed recently?
According to SuperRatings, the median balanced super fund returned 10% over the 12 months to September and has averaged about 6.3% a year over the past 10 years. Over the past 20 years balanced funds have averaged roughly 6.5% a year, meaning many funds are on target to meet long‑term return objectives.
What drove the strong superannuation returns that helped funds recover post‑GFC?
SuperRatings research manager Kirby Rappell says the double‑digit recent returns were largely driven by strong performances on Australian and international sharemarkets. Those equity gains helped many funds claw back losses from the Global Financial Crisis — for example, someone with $100,000 in a median balanced fund before the 2007 crash is now back to that level.
How does Australia's superannuation system rank internationally?
Mercer’s index of global pension funds ranks Australia’s $1.4 trillion super system third best in the world, up from fourth last year. Mercer’s senior partner David Knox notes the ranking is based on an optimal weighting for a pension system across all age groups, including pensioners.
Are Australian super funds too heavily invested in growth assets?
The typical Australian super fund has more than 70% of its money in growth assets, which is high by international standards. Mercer’s best‑scoring countries tended to have between 40% and 60% in growth assets, suggesting Australia’s allocation is on the aggressive side for a national pension system.
What is the life‑cycle approach to super and how can it help my retirement planning?
A life‑cycle approach means adjusting your super asset allocation as you age: reducing exposure to growth assets and increasing safer assets like bonds and fixed interest. Mercer’s David Knox gives examples: someone rolling over at 65 planning to draw a pension for 20 years might reduce growth exposure to about 50%, and if a fund’s growth allocation is over 70% it might be appropriate to drop that to around 30%.
How has the shift from defined‑benefit to defined‑contribution super changed retirement risk?
Over the past 20 years many funds moved from defined‑benefit schemes to defined‑contribution models, shifting investment risk from employers to employees. The introduction of mandatory super in 1992 broadened coverage—before the early 1990s only about a third of people had super—so employees now carry more of the investment outcome risk.
Why is it important to stay engaged with your superannuation, especially after the GFC?
The article warns that being disengaged isn’t an option: after the Global Financial Crisis, investment labels proved misleading. Balanced funds lost about a third of their value due to heavy equity exposure, some so‑called capital stable options went into the red, and even cash options suffered losses. Regularly reviewing asset allocation and risk settings is important for everyday investors.
What practical takeaway should everyday investors remember about managing their super?
The key lesson from the article is that no one cares about your money as much as you do. Stay informed, review your super strategy (including asset allocation and life‑cycle settings), and don’t assume default labels guarantee safety—be proactive rather than passive with your retirement savings.
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