Superannuation returns record positive rebound from COVID-19

Superannuation returns record positive rebound from COVID-19

Industry-wide returns on superannuation funds have bounced back to positive territory after negative returns during the early stages of COVID-19.

The average return on superannuation funds regulated by the Australian Prudential Regulation Authority (APRA) with more than four members came in at 6 per cent in the three months to June 2020. This was a “partial recovery” from the -10.3 per cent return in the three months to March, the superannuation watchdog noted in its quarterly superannuation statistics.

However, the annual return rate to June is negative at -1.1 per cent, while the average annualised return rate over the past five years was 5.2 per cent.

The data excludes self-managed super funds, which are regulated by the Australian Taxation Office.

According to the Association of Superannuation Funds of Australia (ASFA), the 6 per cent return in the June quarter represented more than $100 billion in investment returns in the three months.

ASFA chief executive officer Dr Martin Fahy said the figures prove that superannuation has been resilient during the pandemic and the economic downturn. 

“Hard-working Australians can be confident that they are getting a fair go, participating in the economic recovery and that even with modest balances they can access the same opportunities which historically have been reserved for the wealthy,” he said.

“Ordinary Australians saving as a group in APRA regulated funds get the benefits of scale, diversification of risk, and the best investment minds looking after their savings.

“As a result, they can access a range of asset classes, support the important recovery in our economy and continue to outperform so-called sophisticated investors.”

Australia’s superannuation pool clocked up $2.9 trillion, which edged down by 0.6 per cent in the 12 months to June, the APRA report found.

Super looks up for the new financial year

Median growth super funds started the new financial year by delivering 1 per cent growth in July, after a -0.6 per cent return in the 2019-20 financial year.

Super funds are considered growth funds when they have 61-80 per cent invested in growth assets, such as property and shares.

The July result was mainly due to strong performance in the international share market, particularly the US, according to Mano Mohankumar, senior research manager at superannuation research firm Chant West.

“Super funds got off to a good start to FY2021, but there are some major hurdles ahead,” he said. “For a start, we still have no idea how long and deep the current global recession will be.”

Mr Mohankumar said the volatility caused by COVID-19 between March and June was proof of the importance of diversification in super.

“Super fund members should take comfort, however, from their experience last financial year,” he said.

“It provided a valuable reminder that they are invested in well-diversified portfolios spread across a wide range of asset sectors, and that diversification works to cushion the impact during periods of share market weakness.”

Traditional diversified super fund performance (results to July 31, 2020)

Risk category Exposure to growth assets (%) Past 1 month (%) Past 3 months (%) Past 1 year (%) Past 5 years (%)
All growth 96 - 100 1.2 5.2 -2.7 6.1
High growth 81 - 95 1.1 4.6 -1.7 6.2
Growth 61 – 80 1.0 3.9 -0.9 5.7
Balanced 41 – 60 0.8 3.2 -0.2 4.6
Conservative 21 - 40 0.6 2.2 0.9 4.1

Note: Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.

Source: Chant West.

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Learn more about superannuation

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

What is the superannuation rate?

The superannuation rate, or guarantee rate, is the percentage of your salary that your employer must pay into your superannuation fund. The superannuation guarantee has been set at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you calculate superannuation from a total package?

Superannuation is calculated at the rate of 9.5 per cent of your ‘ordinary-time earnings’. (For most people, ordinary-time earnings are their gross annual salary or wages.) So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

As the Australian Taxation Office explains, some items are excluded from ordinary-time earnings. They include:

  • Overtime work paid at overtime rates
  • Expense allowances that are fully expended
  • Expenses that are reimbursed
  • Unfair dismissal payments
  • Workers’ compensation payments
  • Parental leave
  • Jury duty
  • Defence reserve service
  • Unused annual leave when employment is terminated
  • Unused long service leave when employment is terminated
  • Unused sick leave when employment is terminated

Although the superannuation guarantee is currently at 9.5 per cent, it is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How do you set up superannuation?

Before you set up a superannuation account, you’ll need to check if you’re allowed to choose your own fund. Most Australians can, but this option doesn’t apply to some workers who are covered by industrial agreements or who are members of defined benefits funds.

Assuming you are able to choose your own fund, the next step should be research, because there are more than 200 different superannuation funds in Australia.

Once you’ve decided on your preferred superannuation fund, head to that provider’s website, where you should be able to fill in an online application or download the appropriate forms. You’ll need your tax file number (assuming you don’t want to be charged a higher tax rate), your contact details and your employer’s details (if you’re employed).

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

How does the age pension work?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.