Super recovery could take years to return to recent highs

COVID-19 has battered super savings but previous downturns have been a lot worse, financial and market experts claim.

Duncan Hughes

Super savers are being warned that it could take several years for their balances to return to previous highs, comparing recovery to the four-year long haul following the global financial crisis (GFC).

The financial and economic battering caused by COVID-19 is so far estimated to have lost about $290 billion of the nation’s $2.8 trillion pool of retirement funds.

MySuper, or default accounts have tumbled by between 10 and 15 per cent during the past month, according to Rainmaker Information, which monitors funds.

That compares to S&P/ASX 200 losses of about 35 per cent.

“Superannuation has not been wiped out,” says Alex Dunnin, director of research for Rainmaker Information. “Sure it’s taken a belting, but that’s an entirely different thing.”

It took the ASX and MySuper funds about four years to recover to where they were just prior to the GFC, according to Rainmaker.

During the trough of the GFC, super funds averaged losses of about 8 per cent in 2008-09 and a dip of 13 per cent the following year.

Economic rebound

But after that super funds had a 10-year run of positive returns, six of which were around 10 per cent or more. This delivered member returns of about 8.5 per cent.

Shane Oliver, chief economist for AMP Capital, says: “It may take several years for shares and super funds to get back to previous highs because bear markets unfold quickly but recoveries are often slower.”

He said the main issues affecting the recovery are how long it takes the virus to come under control, how long the shutdown persists and how much collateral damage is done along the way.

“This will determine how quickly we can bounce back. If we minimise the number of businesses that go bust and support household income as much as possible, then we should be able to rebound relatively quickly. If not, it will be a lot slower,” he adds.

There are big differences between the GFC and COVID-19 crisis that will also influence how long the recovery takes.

The GFC was caused by a problem in the global financial system – sub-prime lending to borrowers who could not service the loans – that had to be corrected by governments and central banks.

“By contrast the virus crisis is caused by an external event necessitating an economic shutdown that has depressed investment markets but we should (hopefully) bounce back a lot quicker once the virus is controlled and we go back to our normal lives,” Oliver says.

‘Economic dislocation’

Tim Mackay, Quantum Financial adviser, adds: “Coronavirus is an incredibly big deal that will likely get even worse. But I still think that within 12 to 18 months we will have moved well beyond the immediate financial impact of COVID-19. In the shorter term, I do expect a period of economic dislocation and much higher than normal volatility, which means the market will be swinging up and down”.

Rainmaker’s Dunnin also urges super investors to remain confident about long-term prospects, despite the recent hard knocks.

“The 2008-10 global financial crisis is a great example. The blows it inflicted on the Australian sharemarket and MySuper products at the time seemed devastating as they took hits of more than 40 and 20 per cent respectively. But within 15 months, the ASX was posting 12 months gains of 45 per cent and MySuper was posting 12 months gains of 20 per cent. The post-coronavirus recovery could be even quicker.”

Mark Delaney, chief investment officer of Australian Super, which has $180 billion under management, says over any 20-year period there might be expected to be four or five years of negative annual returns.

“The onset of COVID-19 has led to global investment markets deteriorating rapidly,” says Delaney, who adds Australian Super’s “balanced option” (which is returning -7.4 per cent in the financial year to date) is among many funds with negative returns.

“One of the main reasons that members change investment options is in response to market volatility,” he says. “We saw this happen during the GFC. Experience tells us that this is ill-advised, and that those who stay the course are more likely to end up in a better position.”

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