By Sally Patten
(Sydney Morning Herald)
Superannuation fund members are on track to be the beneficiaries of a second consecutive year of double-digit returns, thanks to soaring equity markets.
The average balanced retirement fund is expected to record a rise of about 13 per cent for the 12 months to June 30, following a 16 per cent gain in the previous year. A rise of 13 per cent would be striking by industry standards.
The returns were driven by a 12.4 per cent lift in the benchmark S&P/ASX 200 Index over the past financial year which closed monday at 5395.7 points, with technology stocks and the banks the best performing sectors.
Figures from research house Chant West show that since 1993 the average balanced scheme has only returned more than 13 per cent on six occasions.
”I certainly think members should be fairly happy,” chief executive of the Association of Superannuation Funds of Australia Pauline Vamos said. ”This will propel the long-term investment returns, because of the way compounding interest works.”
The top-performing funds will post even higher gains, Chant West investment research manager Mano Mohankumar said, noting the best-performing balanced fund could show a return of 15.5 per cent for the 2013-14 financial year.
Estimates of bumper returns last year came as professional services firm Deloitte argued Australians were still not saving enough into super to finance a comfortable lifestyle in retirement. Deloitte said Australians needed to contribute an extra 5.5 per cent to 7.5 per cent of salary to super, in addition to existing arrangements, to fund a comfortable retirement.
It estimated a male would need a lump sum of $610,000 to lead a comfortable lifestyle, while a female would need $690,000. For a ”modest” lifestyle, a man would require $340,000, while a woman would need $370,000.
Chant West attributed last year’s hefty returns to booming sharemarkets. Australian shares rose 18.8 per cent, while international shares soared 21.8 per cent on a hedged basis. On an unhedged basis, they rose 20.7 per cent, dragged down slightly because of a three-cent rise in the value of the Australian dollar.
Global real estate investment trusts also had a strong year, producing a 15.6 per cent gain in the 12 months to June.
Super funds that were overweight in cash paid the price. The return on cash was just 2.7 per cent.
Ms Vamos said that despite the stellar returns, members should be looking at ways to maximise their super savings. Checking their insurance levels were appropriate and they had consolidated their super savings into a single account could help to improve returns even further. ”You will get a better uplift with a single account balance,” she said. ”And are you paying for the insurance you need?”
The strong gains in 2013-14 mean the average balanced fund has returned an annual average of 9.3 per cent over the past three years. The average annual returns over the past five and 10 years are 9.8 per cent and 7 per cent respectively, against a typical fund’s long-term target of between 6.5 per cent and 7 per cent.
”Funds are generally delivering what they promised,” Mr Mohankumar said.
He said the figures showed the benefits of being patient.
”Since the GFC low point at the end of February 2009, balanced funds have advanced 70 per cent and now stand about 25 per cent above their pre-GFC high reached at the end of October 2007.
”This strong bounce back should serve as a reminder of how dangerous it is to attempt to ‘time’ the market. If you lost your nerve during the GFC and switched to a more conservative strategy, you’d have crystalised your losses and missed out on this strong recovery.”
BT chief investment officer Patrick Farrell warned last year’s stellar returns were unlikely to be repeated in 2014-15, adding that single-digit increases were likely to be the ”order of the day” over the next 12 months.
International returns last year were driven by the US market, where company earnings-per-share ratios benefited from low interest rates and large stock buyback programs.
Boosting earnings in the next 12 months will be more difficult, given that companies have already reduced costs dramatically and revenues are not yet rising. Furthermore, the rate of buybacks is likely to slow.