Trustees spent nearly 10 years telling their members that superannuation was an investment. Like other investments in mainstream assets — local and overseas shares, property and bonds — it could go down as well as up.
Investment experts often produce the graph for the 20th century that showed the performance of main asset classes over the hundred years. We got very used to seeing it, and found it gave us comfort. It showed that while shares were the most volatile class — that is, the share graph was the most wavy, with big peaks and troughs — over the century, shares performed much better than property or bonds.
That is why trustees included a big chunk of local and overseas shares in their investment strategies for their members. Most large funds offer members a degree of investment choice, and the high-risk, high return choice is usually all, or mainly shares.
The last year’s poor returns from shares caused most funds, even in the low cost, well managed, not-for-profit sector, to report negative returns. Members ended the year with less than they had started with, especially if they had made a high-risk investment choice.
All the signs are that at the end of the current year, many members will have the same experience. What are they to think?
There are a few facts that trustees might like to consider when planning member communications around this difficult and worrying situation. Not-for-profit super funds with representative trustees have done no worse, and often a lot better than other investments, including for profit, commercial, super products.
Not-for-profit funds operate for the sole purpose of growing members’ savings. They do not have to make a profit for shareholders, so all earnings, less tax, fees and charges go to members, who can expect to do better than those in commercially owned funds.
Although the Australian Institute of Superannuation Trustees (AIST) continues its campaign to have the Government reduce the contributions tax, the tax treatment of super is still favourable.
Compared with an individual investment, say, in residential property, super is flexible.
Members can respond to the current market by switching their super to a lower risk investment choice. In not-for-profit funds, they can do this usually at no cost to themselves. Buying and selling property involves large costs, often with little control over timing. While super funds themselves do not offer advice, most big super funds can inform members about independent advice that may be available.
Members might also like to be reminded about how their trustees go about making investment decisions. Because of their size, big trustee funds continually survey available advice in asset allocation and asset protection. They review investment mandates regularly, always looking for the best long-term outcome for members. And of course, trustees in carrying out these tasks, are totally focused on members’ interests. I can’t think of any other investment opportunity that offers these reassurances.
We all hope that we don’t have to wait too long to see the upturn in the performance of shares. While we are waiting, trustees need to be reviewing all costs as well as investment strategies, and members should be paying more attention to their super so that they can make the best decisions for themselves in a difficult climate.
Members should be on the watch for hyped up offers of better returns from sources that don’t have a sound track record, like the retail products recently exposed in research by the Australian Prudential Regulation Authority. Members should be very suspicious of strange offers from dubious sources. Before making any choice, members should get as many facts and figures as they can. While investment losses by well run funds are almost certain to be recovered over time, savings lost to high fees and dishonest and shady practices are lost forever.
— Susan Ryan is AIST’s president.
