Super fund returns move into the black

Investors are holding out for a positive return on their super this financial year, with fund balances still recovering from market turbulence at the start of 2016. The median Balanced Option returned 1.4% in April, as the market extended its recovery despite choppy global conditions. However, the financial year-to-date return remains at a fragile 1.7% — a far cry from the 9.6% returned to super fund members in 2015 — and investors are still bracing for another possible bout of volatility.

“April saw another solid month for superannuation, but the prospect of a positive financial year return is not a certainty,” said SuperRatings Chairman Jeff Bresnahan. “Following the rocky start to the year, investors are now more upbeat, and we have seen that reflected in the current market recovery. But significant downside risks and a lot of uncertainty in the global economy remain. Outside of share markets, global returns on fixed income are low and zero and negative interest rate policies are presenting a real challenge for funds seeking to achieve their risk and return targets.”

The RBA’s decision to cut the cash rate in early May came as a shock to the market, with the Board worried about low consumer price growth and the threat of deflation. Mr Bresnahan suggested “We are concerned about the impact lower interest rates will have on pension fund returns, as many retirees rely on fixed interest and cash to offset their income drawdowns. While low rates are good for borrowers, savers ultimately bear the cost, and persistently low rates will undoubtedly have a negative impact on the longevity of pension accounts.”

Median superannuation fund Balanced Option returns as at 30 April 2016 are outlined below:

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Source: SuperRatings