Our three part superannuation ‘recovery series’ covers some of the most common pitfalls affecting a woman’s retirement savings. Part one explored how to protect against divorce or a relationship breakdown and part two addressed making up for lost savings during career breaks. Part three looks at safeguarding your super against recession or a potential fund collapse.
The global financial crisis hit super funds hard, leaving many of us with a much smaller nest egg than planned.
And while superannuation fraud isn’t common, the collapse of super funds such as Trio Capital have left some Australian investors with little or nothing.
The 2009 collapse of Trio Capital was one of the worst cases of super fraud in Australia, affecting roughly 6000 investors and involving about $176 million in lost funds. And although the government provided investors with $55 million in compensation, those with self-managed super funds or non-APRA regulated funds suffered the worst.
Thankfully, the 2012/13 financial year was a great one for the Australian superannuation industry. According to a Chant West report, our super industry has delivered the best returns in 16 years.
“Who would have thought, in the dark days of February 2009 when markets hit their low point in the wake of the global financial crisis, that the median growth fund would have recovered by over 50% in little more than four years?” said Chant West director, Warren Chant.
“It just shows how, when sentiment is at its lowest ebb, it pays to remember that markets move in cycles and can recover faster than you think.”
Nevertheless, while things are going well for Australia’s $1.5 trillion super industry in 2013, how can you safeguard your super against a potential recession or fund collapse?
How to save your super
According to Chant West head of research Ian Fryer, the first lesson to learn is that superannuation is for the long-haul.
“Poor returns are a fact of life. They were a fact of life for a few years – in 2008 and 2009 – so a lot of people’s super balances went down a fair bit. But if you had $100,000 in your super when things were going really well in 2007 and then things went sour, now things have come back and you’ve actually got more than $100,000,” Fryer explains.
“People get nervous when they lose 10% and so they get out. They’re often the ones that are worse off. It’s about recognising that there may be some ups and downs, but history tells us what goes down must come up. If there are poor returns for a period of time, don’t panic.”
For those closer to retirement age when the market takes a turn for the worse, Fryer suggests asking the question: ‘Will I need to access my super in the next five years?’ If the answer is yes, consider putting some of your super (but not all) in a safer option that won’t be hit by further falls.
When it comes to avoiding loss through superannuation fraud or a poorly performing fund, Fryer emphasises the importance of choosing a good fund. To do this, he says to look at the fund’s track record and whether they have the scale to be in business for the long run, and to also use the various fund comparison tools available in the market.
“People shouldn’t necessarily think, ‘Oh my employer put me into this fund 10 years ago, it must be okay’,” he says.
“Everyone has a responsibility to do a bit of research and make sure it’s an okay fund. Part of that could be seeing a financial adviser, although they will mainly focus on strategy and may not provide impartial advice in terms of which super fund to choose.”
Once you’ve done your research and decided on a fund, make sure it’s an APRA-regulated fund.
“The best place to be is in an APRA-regulated fund where you have trustees who are looking after your interests,” says Cate Wood, president of the Australian Institute of Superannuation Trustees and chair of Women in Super. “You can’t guarantee no loss as some things are out of our control, but it’s best to have people working in your interest.”
However, if you do happen to lose everything through recession or a faulty fund, Fryer says it’s time to readjust your expectations for retirement.
“If it happens far enough out from retirement, it might be about putting more of your salary into your super by salary sacrificing. It’s about building a back-up.”