Superannuation

>>>THE BIG QUESTIONS FOR 2021

Q

HOW HAVE FUNDS COPED WITH THE ECONOMIC SHOCK CAUSED BY COVID-19 AND WHAT WILL IT MEAN FOR FUTURE RETURNS?

A

round Australia’s kitchen tables, if the talk turns to superannuation, for many it’s likely to be about what a fund has done wrong or failed to deliver. Let’s face it, most people are quite disconnected from their superannuation and for some it’s as if superannuation doesn’t exist.

Ironically, this has been superannuation’s strength: let the good funds get on with investing your compulsory contributions without you meddling with potentially bad choices.

But 2020 has been a year like no other. It has tested investment strategies. Funds that had championed unlisted property before the pandemic were hailed as heroes for their high returns and then were pilloried for not foreseeing the coronavirus. Funds that invested actively into growing sharemarkets or private equity start-ups were now punished for having too little cash.

Excitable commentators poured petrol on the fire, warning of calamity when the scheme, allowing early release of super, was launched in March.

Calamity didn’t come, but the writing was on the wall. Super’s role had transformed from being only about retirement to being a pool of capital we can turn to in times of national emergency. Governments had rewritten the law and signalled they could do it again.

With so much changing, fears were rising that trustee boards might panic, switch to conservative investments and think only of the short term.

But when the going gets tough, the tough get going. Smart super funds with shrewd leadership teams knew that when the stakes are this high, their best strategy is to calm down, simplify and focus only on what they can control. They got their technology working, became more efficient, reduced costs, lowered overheads and made sure they were investing only in what they understood.

As the year progressed and it became clearer that Covid-19 was not another GFC when returns crashed to -22%, Australia’s best super funds just got on with their job. They began hiring chief technology officers, they sharpened their fees, they announced a spate of mergers. And soon they will start cutting off investment options that aren’t working. They stepped up their digital advice programs and they kept investing.

Just as the 2009 GFC led to the best decade super has ever seen, this pandemic could do the same.