GETTING YOUR SUPER STRATEGY RIGHT
Written on the 13 May 2009
The Australian Prudential Regulation Authority (APRA) recorded a 10.3 per cent decline in the asset values of superannuation funds for the December 2008 quarter, raising concerns for contributors whose futures are tied to these funds. But many see this as no reason to jump to conclusions about the viability of super, as financial planning experts tell Brisbane Business News that now is a more important time than ever to make careful decisions about where to put their incomes.
HLB Mann Judd financial planning director Andrew Buchan says people are throwing the baby out with the bath water when they say things like ‘my value has gone down, thus superannuation is a bad thing’.
Buchan says investing in superannuation should not be about finding the best return, but a long-term strategy to achieve financial goals. Do not give up on super but get your underlying investment strategy right.
“Some funds do better than others due to a mix of reasons, as investment fees and weather advice is built into the product,” he says.
“The average self-managed fund (SMSF) may be performing better than an industry fund but it does not mean we should all have SMSF funds. The worst thing an investor can do is chase underlying investment classes for return – get a plan and a fund that suits you.”
“Via super you can invest across the five asset sectors which are cash, fixed interest, property, shares and alternatives. Invest into these asset classes as you feel comfortable — there is certainly nothing wrong with directing your contributions into cash at the moment.”
For those getting close to retirement the return does matter now and according to APRA it was industry funds that declined in value the least, with a fall of 8.8 per cent. Public sector funds fell by 9.5 per cent, corporate funds fell by 10.8 per cent and retail funds suffered the most, with a fall of 11.5 per cent.
But Buchan points out that people are forgetting about superannuation as an asset structure and perceiving it to be a stand-alone asset. Now is a great time to sit down and get a wealth building plan.
“This is an economic episode not seen since 1931 – understand that and focus on maximising your position. Markets will stabilise before the economy – they are forward looking – they fell before we got into a recession and they will recover before we get out of the economic woes.”
He also points out that superannuation funds have been hard done by with large falls in values and that residential property has fallen because homes are not valued quarterly.
BDO Kendalls financial planning managing director Trevor Bridger, says shares could well recover but commercial property is likely to go down over the next 12 months. But unlike superfund reports, the assets within them perform over a five to seven year cycle.
He believes the difference between industry and retail funds probably won’t matter in the long term, because current valuations are not necessarily a true reflection of real values.
“Many industry funds have not revealed how many assets they have and most retail funds have property assets which are listed as property trusts – property is unlisted, but it is meant to be valued,” he says.
“We also feel that the days of high commercial fees are passing and increasingly personal advice will be provided on a fees basis. We would favour that movement as it means that industry and retail funds will come closer than they have in the past. I think the government and regulators would favour that.”
“Our stance is that it doesn’t matter as long as people get appropriate advice to their situation.”
BDO Kendalls financial planning general manager Andrew White says if you’re thinking of investing in the share market, superannuation is a good long-term strategy as you can start investing at a higher base.
Like Buchan, White emphasises the fact that super is not an investment in itself but merely a tax-efficient way of saving. But people need to understand the mix of investments they have and plan according to how close they are to retirement.
“It depends on your life stage because if you’re in your 20s or 30s then you’ve got relatively long to go so you should try to maximise your fund’s growth, and that adds volatility. But if in a year or two you’re going to retire then you should have more income and choose a fund with less volatility.”
The May budget is expected to exact changes with aims to cut down on the level of middle class welfare, by bringing forward the tax exemption date from 2012 to this year. As of July 1 it is likely that salary sacrifice will be included in superannuation limits for Centrelink and family benefit entitlements, and pension payments will limit commonwealth health card eligibility.