Super funds on cloud nine

SUPER fund members are set for their ninth year in a row of positive investment returns but there are growing concerns the party won’t last.

A growth spurt since April has pushed average returns for a balanced superannuation fund to 9.2 per cent for 2017-18, well above the long-term average return of 7.4 per cent.

Research group SuperRatings says about one in five balanced funds will deliver savers at least 10 per cent growth this financial year, largely thanks to Aussie shares touching 10year highs this month.

SuperRatings CEO Kirby Rappell said funds were performing well above their objective of achieving 3.5 per cent above the CPI inflation rate (now 1.9 per cent) but members had to “temper expectations” as it was not a new normal.

Super funds generally expect to experience three or four negative years in a 20year period.

However, there have been just three negative years in the past 25 years, two of which were during the GFC. Mr Rappell said forecasting financial markets for the year ahead required a crystal ball, and any growth that was CPI plus 3.5 per cent would be a good result.

Super looked shaky in March, with its financial year return tracking below 6 per cent, but the bounce-back for Australian shares – which has occurred despite bad news flowing from the banking royal commission and Telstra shares diving – led the rebound.

“Aussie shares have had a pretty good May and June,” Mr Rappell said.

“May was 1 per cent higher and June is about 3.3 per cent.”

Certified financial planner Patrick Canion (left) said most default super funds held at least 30 per cent of their assets in Australian shares.

He said no one knew what would happen next on financial markets.

“The world economy will do what the world economy will do,” he said.

For example, China’s share market was in a bear mode and had fallen more than 20 per cent this year amid trade war fears, while the US economy was strong but that would not necessary flow through to more rising share prices.

Mr Canion said continually rising super funds “will stop at some time – we just don’t know when”.

He said some people were suggesting the global economy was fundamentally changing to be less volatile, which would lower the chances of negative years for super.

“I’m not convinced, so enjoy it while it lasts,” he said.

“Don’t take it for granted.”