Over the next few weeks your annual super fund statement should arrive in the mail. It’s worth taking a good look at what it says – after all this is your money for retirement.
Your first port of call should be how your fund balance has grown over the year. This will be based on the combination of contributions made to your fund, plus returns on the fund’s investments.
About eight out of ten Australian workers have their super in a ‘balanced’ investment option, which provides strong exposure to sharemarkets. According to research group SuperRatings, balanced funds achieved returns of around 7.5% over the last financial year.
It’s not a bad result when you consider some of the major curve balls that impacted the local – and global, economy in the first half of 2011.
The Japanese earthquake and tsunami, floods in Queensland, political unrest in the Middle East and concerns over sovereign debt in Europe – they’re all major events that have rattled investment markets. So, all this considered, balanced funds have done well to deliver a 7.5% median return.
That said, many super funds are still struggling to make a full recovery from the damage inflicted by the global financial crisis. In 2008 and 2009 the global downturn saw super funds record average losses of 6.4% and 12.9% respectively.
These losses forced many pre-retirees to delay their plans for retirement. But for the majority of working Australians with many years remaining at the coal face, the impact of the GFC will eventually fade.
To illustrate, SuperRatings reckon that $100,000 invested in a balanced super fund in 2001 would have grown to around $169,000 by October 2007 – the point when the GFC hit and markets went into freefall.
By February 2009 that same balanced fund would have dropped in value to about $127,000. Today however the fund would be worth almost $160,000 – just 5% below the pre-GFC high.
The fact that funds have recovered so strongly in the space of two years is quite remarkable. Your own super fund may be even further ahead as one in three balanced funds managed to achieve double digit returns for the financial year just ended.
Along with your fund balance, be sure to check out what you’re paying in fund fees. These will have a big impact on your final payout in retirement – and paying more fees doesn’t necessarily translate into earning a better return on your money.
Research group Canstar Cannex has crunched the numbers here, showing how two hypothetical workers – Peter and John – could be impacted by fund fees. Let’s assume both men are in their twenties, earning salaries of around $50,000. Both have their super invested in a balanced fund, which earns an average of 9% each year. Peter’s fund charges annual fund management fees of 0.75% while John’s fund charges 1.75%.
By the time they retire at age 67, Peter will have around $416,000 in his fund. John’s super will be worth $333,000. That gives John $83,000 less to live on in retirement simply because his fund charged an extra 1.0% in annual fees.