Leading superannuation research house SuperRatings estimates that the median balanced option delivered a return of -0.5% in August, driven by losses across developed markets following an accelerated interest rate response to inflationary pressures.

Another 50-basis point increase in the Reserve Bank of Australia’s cash rate saw it reach 2.35% in August, the fifth consecutive rise reinforcing the bank’s strong commitment to trying to slow runaway inflation.

The median growth option fell by an estimated -0.4%, while the median capital stable option delivered a similar negative result, with a decrease of -0.5%.

Accumulation returns to August 2022

  Monthly 1 yr 3 yrs
(p.a.)
5 yrs
(p.a.)
7 yrs
(p.a.)
10 yrs
(p.a.)
SR50 Balanced (60-76) Index -0.5% -3.8% 5.0% 6.3% 6.7% 8.0%
SR50 Capital Stable (20-40) Index -0.5% -2.5% 2.1% 3.4% 3.9% 4.8%
SR50 Growth (77-90) Index -0.4% -4.8% 6.0% 7.3% 7.7% 9.4%

Source: SuperRatings estimates

Pension returns also decreased in August, with the median balanced pension option down an estimated -0.6%. While a fall of -0.5% was estimated for the median growth option and -0.6% for the median capital stable pension option.

Pension returns to August 2022

  Monthly 1 yr 3 yrs
(p.a.)
5 yrs
(p.a.)
7 yrs
(p.a.)
10 yrs
(p.a.)
SRP50 Balanced (60-76) Index -0.6% -4.1% 5.4% 6.8% 7.2% 8.9%
SRP50 Capital Stable (20-40) Index -0.6% -2.9% 2.1% 3.6% 4.0% 5.2%
SRP50 Growth (77-90) Index -0.5% -5.2% 6.5% 8.1% 8.4% 10.1%

Source: SuperRatings estimates

Executive Director of SuperRatings, Kirby Rappell commented, “Over the month of August we have seen a slight pullback in the strong recovery in returns we saw in July. While it is a small negative result this month, this reflects the volatility across investment markets, with elevated inflation levels continuing to pose challenges across markets. Another interest rate rise impacted investment returns, though the silver lining here is that this may benefit retirees who are deriving an income from their pension accounts through exposure to cash.”

Setting a long-term strategy remains crucial, with this month’s result showing that we are see-sawing between positive and negative returns over the short term, with multiple factors impacting the global economy and investment markets. Super funds typically have processes in place to navigate these uncertain times, so setting a strategy which meets your needs and then remaining focused on the long term remains our key message.

Release ends

We welcome media enquiries regarding our research or information held in our database. We are also able to provide commentary and customised tables or charts for your use.

For more information contact:

Kirby Rappell
Executive Director
Tel: 1300 826 395
Mob: +61 408 250 725
Kirby.Rappell@superratings.com.au

Leading superannuation research house SuperRatings estimates that the median balanced option delivered a return of 3.1% in July, with funds posting a strong recovery of earlier losses. Australian and global equity markets drove the recovery, notably the S&P/ASX 300 Information Technology Sector Index posted a return of 15.4% for the month.

The cash rate rose to 1.85% with the Reserve Bank of Australia’s fourth consecutive rate rise in August demonstrating swift tightening action to quell mounting inflation pressures.

The median growth option rose by an estimated 3.5%, while the median capital stable option also delivered a positive result, with an increase of 1.9%.

Accumulation returns to July 2022

Monthly 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SR50 Balanced (60-76) Index 3.1% -1.6% 4.9% 6.6% 6.2% 8.3%
SR50 Capital Stable (20-40) Index 1.9% -1.2% 2.4% 3.7% 3.7% 4.8%
SR50 Growth (77-90) Index 3.5% -2.1% 5.9% 7.5% 7.1% 9.6%

Source: SuperRatings estimates

Pension returns also increased in July, with the median balanced pension option up an estimated 3.3%. While a rise of 3.9% was estimated for the median growth option and 2.1% for the median capital stable pension option.

Pension returns to July 2022

Monthly 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SRP50 Balanced (60-76) Index 3.3% -1.9% 5.2% 7.0% 6.8% 9.2%
SRP50 Capital Stable (20-40) Index 2.1% -1.7% 2.5% 3.9% 3.9% 5.3%
SRP50 Growth (77-90) Index 3.9% -2.8% 6.3% 8.2% 7.8% 10.4%

Source: SuperRatings estimates

Executive Director of SuperRatings, Kirby Rappell commented, “We’ve been emphasising the importance of focusing on the long-term and amid the recent market uncertainty it’s understandable that people have been concerned about the ups and downs in their account balances. This year we have seen the ongoing challenges of COVID-19 coupled with a challenging global economic environment driving the volatility. We continue to highlight the importance of setting your long-term investment strategy and the performance over the last month shows the perils of trying to time the market, with members who may have switched to more conservative investment options missing out on the bounce back.

It is pleasing to see a strong recovery over the month of July demonstrating the resilience of super funds and their ability to navigate the uncertain investment environment. While we are likely to see bumps ahead, the long-term trend for super funds has remained strong and steady.”

Release ends

We welcome media enquiries regarding our research or information held in our database. We are also able to provide commentary and customised tables or charts for your use.

For more information contact:

Kirby Rappell
Executive Director
Tel: 1300 826 395
Mob: +61 408 250 725
Kirby.Rappell@superratings.com.au

Leading superannuation research house SuperRatings has analysed super fund performance in line with the government’s performance test criteria and found that 90% of trustee directed options are estimated to pass the test based on 30 June 2022 data.

This is an improvement from the 31 March 2022 data which estimated that 20% of the options assessed would have failed the test. The volatile market over the second half of the financial year emphasised the importance of diversification and long-term strategy within superannuation investments, as funds experienced unique conditions relative to earlier periods in the eight-year assessment.

Option Type % Estimated to pass March 2022 % Estimated to pass June 2022
Capital Stable (20-40) 75% 88%
Conservative Balanced (41-59) 80% 91%
Balanced (60-76) 83% 93%
Growth (77-90) 84% 92%
High Growth (91-100) 74% 85%

The shift in the proportion of options passing the test also highlighted the impact a single quarter can have on reported performance test outcomes. Despite the limited ability of funds to improve upon eight-year performance over a short period of time, those who are close to failing the test need to ensure they position themselves as strongly as possible, as the rolling nature of the test means the test result is impacted by both performance today and from the same period eight years ago.

With the newly installed government delaying the expansion of the test beyond MySuper products until the results of the second round of assessments, and the test’s impact on the industry, has been reviewed, funds have some additional time to ensure their broader suite of offerings are in line with the government and regulator’s expectations. Of particular interest to the review should be that two funds which failed the test last year produced returns within the top 10 MySuper products for the 2021/22 financial year.

We expect that some products will likely fail the test a second time when the results are announced in late August, triggering the prevention of new members from joining these products, however with 10 of the 13 MySuper products that failed last year’s test having announced or completed mergers to date, the impact on members is expected to be minimal.

Balanced options shine in APRA’s performance test

Analysis of the SuperRatings SR50 Balanced Index using the newly developed PTiQ tool has found the median fund in the index exceeded the performance test benchmark by 0.95% (which is made up of 0.45% investment outperformance and the 0.50% underperformance threshold). More broadly, analysis of estimated results shows that Balanced options performed the best out of all option types assessed with 93% of Balanced options estimated to pass the test. Further, 69% of these options are estimated to meet or exceed the benchmark return with the remaining 24% being within the 0.5% underperformance range allowed by the test. As most Australians are invested in Balanced options the strong performance of this category should be reassuring for many fund members.

The final quarter saw an improvement in the proportion of options passing the test across all option types, however, high growth options, those with exposure of 91-100% growth assets and capital stable options, those with exposure between 20-40% growth assets remain comparatively more likely to fail the test with high growth options being the most at risk.

SuperRatings investigated the drivers of performance against the performance test and unsurprisingly found that allocations to unlisted property, diversified fixed interest, Australian and international shares had the greatest impact on whether an option passed the test or not.

The expansion of the performance test has been put on hold for 12 months, and changes to the test are likely to be eagerly anticipated; however, we believe that the test in some form is here to stay. We suggest providers remain focused on meeting their long-term strategic objectives in a manner that is consistent with passing the test. Of particular importance will be the impact of historically strong performance, given the rolling nature of the test and the short-term outlook around increased volatility and lower expected returns.

We expect funds will continue to refine their investment approach to cater for both the shifting market and to meet performance test and best financial interests duty outcomes. As the industry awaits the outcome of the performance test review, SuperRatings continues to use its comprehensive database and deep research capability to gain key insights into super fund performance and the future outlook for the industry.

We are currently in an environment we haven’t seen since the mid-1990s, of extremely high inflation and low growth, which has surprised many investors and has been damaging for those that have a low tolerance to risk, such as retirees. Despite negative returns, and while we haven’t been able to avoid the losses entirely, the Retirement portfolios have significantly outperformed the peer group benchmark, protecting retirees. The portfolio also delivered top quartile returns with less risk than the peer group over the 12 months to June 2022. In terms of total return, the portfolio remains comfortably above its Cash plus 2.4% objective over the 4-year recommended investment timeframe.

True to our investment philosophy and approach, having true diversification in the portfolios, being dynamic in how we positioned the portfolio this year, investing in high-quality strategies, and having a strong risk control, have paid off.


The information in this video is prepared by Lonsec Investment Solutions Pty Ltd ABN 95 608 837 583 (LIS, we, us, our), a Corporate Authorised Representative (CAR) No. 1236821 of Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec Research). Any express or implied rating or advice presented in this video is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision you must consider your financial circumstances or seek personal financial advice on its appropriateness. Read the Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product.

Past performance is not a reliable indicator of future performance. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from information not verified by LIS. This video may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material.

The information contained in this video is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. This video is not intended for use by a retail client or a member of the public and should not be used or relied upon by any other person. This video is not to be distributed without the consent of LIS. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the reader or any other person as a consequence of relying upon it. Copyright © 2022 Lonsec Investment Solutions Pty Ltd.

You may not reproduce, transmit, disseminate, sell or publish this video without our written consent.

Lonsec Research chatted with leading Fixed Income Managers to learn more about the sector, how they are approaching the changing investment landscape and what drew them to this sometimes overlooked, but very important, sector.

In this video, Isrin Khor, Lonsec Sector Manager of Fixed Income is joined by Anthony Kirkham, Head of Melbourne Operations and Investment Management/Portfolio Manager at Western Asset Management, and Sachin Gupta, Managing Director and Head of the Global Desk at PIMCO. The discussion focuses on the key qualitative strengths of PIMCO and Western Asset, particularly on business, people, and the process followed by a market outlook discussion.

IMPORTANT NOTICE: This video is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL No. 421445 (Lonsec). Please read the following before making any investment decision about any financial product mentioned in this video.
Disclosure as at the date of publication: Lonsec receives fees from fund managers or product issuers for researching their financial product(s) using comprehensive and objective criteria. Lonsec receives subscriptions for providing research content to subscribers including fund managers and product issuers. Lonsec receives fees for providing investment consulting advice to clients, which includes model portfolios, approved product lists and other advice. Lonsec’s fees are not linked to the product rating outcome or the inclusion of products in model portfolios, or in approved product lists. Lonsec and its representatives, Authorised Representatives and their respective associates may have positions in the financial product(s) mentioned in this video, which may change during the life of this video, but Lonsec considers such holdings not to be sufficiently material to compromise any recommendation or advice.
Warnings: Past performance is not a reliable indicator of future performance. The information contained in this video is obtained from various sources deemed to be reliable. It is not guaranteed as accurate or complete and should not be relied upon as such. Opinions expressed are subject to change. This video is but one tool to help make investment decisions. The changing character of markets requires constant analysis and may result in changes. Any express or implied rating or advice presented in this video is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. It does not constitute a recommendation to purchase, redeem or sell the relevant financial product(s).
Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If our advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Investment Statement or Product Disclosure Statement for each financial product before making any decision about whether to acquire a financial product. Where Lonsec’s research process relies upon the participation of the fund manager(s) or product issuer(s) and they are no longer an active participant in Lonsec’s research process, Lonsec reserves the right to withdraw the video at any time and discontinue future coverage of the financial product(s).
Disclaimer: This video is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this video, which is drawn from third party information or opinion not verified by Lonsec. Financial conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this video following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this video or any loss or damage suffered by the viewer or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Research Pty Ltd (ABN 11 151 658 561, AFSL No. 421445) (Lonsec). This video is subject to copyright of Lonsec. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth), no part of this video may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of Lonsec.

This video may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to Lonsec copyrighted material, applies to such third party content.

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.

With half the country in what seems never ending rounds of lockdowns and pandemic fatigue setting in, one of the last things most Australians want to do is look at their Superannuation balances and investment options. That is, however, exactly what SuperRatings is wanting us to do, as neglecting your super or responding to short term market moves can have a detrimental effect on your super balance.

SuperRatings Executive Director Kirby Rappell says, ‘We looked at the impact of switching out of a balanced or growth option and into cash at the start of the pandemic and found that those with a balance of $100,000 in January 2020 and who switched to cash at the end of March would now be around $22-27,000 worse off than if they had not switched.’

This effect of switching into cash as a response to market turmoil is also seen when looking at returns over the past 15 years. In this period, a typical balanced Super option has risen substantially, with a balance of $100,000 in July 2006 accumulating to $247,557, more than doubling in size. Those members investing in a growth option have experienced an even stronger result, with a similar starting balance growing to $254,006. Share focused options have delivered the highest returns, with the median Australian shares option growing to $276,099 and the median international shares option growing to $271,051, though these types of options involve greater risks. Over the same period, a $100,000 balance invested in cash would only be worth $151,158 today.

When considering your Super options, you don’t need to go it alone as many Super funds provide advice and tools to their members. Says Mr Rappell, ‘Most funds will offer scaled advice for free or at a low cost, with members able to get advice on topics such as contributions, investment options, insurance in the fund and the transition to retirement.’ Scaled advice is general in nature so you will need to check if your situation and goals align with the advice.
Continues Mr Rappell, ‘For members who want more tailored advice, some funds will offer comprehensive advice that will also take into account your financial assets outside of superannuation.’ While there will be a cost associated with this comprehensive advice, most funds will allow the cost of the advice to be deducted from the superannuation account, just make sure you check any costs and how they can be paid before agreeing to get the advice.
Looking at more recent returns, balances continued to grow in July. The typical balanced option returned an estimated 1.3% over the month and 18.5% over the year. The typical growth option returned an estimated 1.3% for the month and the median capital stable option also increased 0.9% in the month.

Accumulation returns to July 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SR50 Balanced (60-76) Index 1.3% 18.5% 7.9% 8.4% 8.0% 8.6%
SR50 Capital Stable (20-40) Index 0.9% 7.8% 4.5% 4.5% 4.8% 5.3%
SR50 Growth (77-90) Index 1.3% 22.7% 9.2% 9.5% 8.9% 9.6%

Source: SuperRatings estimates

Pension returns were also positive in July. The median balanced pension option returned an estimated 1.3% over the month and 20.0% over the year. The median pension growth option returned an estimated 1.5% and the median capital stable option also rose an estimated 0.9% in the month.

Pension returns to July 2021

FYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a.)
SRP50 Balanced (60-76) Index 1.3% 20.0% 8.4% 9.1% 8.5% 9.5%
SRP50 Capital Stable (20-40) Index 0.9% 8.6% 5.2% 5.2% 5.2% 5.9%
SRP50 Growth (77-90) Index 1.5% 24.4% 9.7% 10.3% 9.8% 10.6%

Source: SuperRatings estimates

Release ends


Warnings: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to “General Advice” (as defined in the Corporations Act 2001(Cth)) and based solely on consideration of the merits of the superannuation or pension financial product(s) alone, without taking into account the objectives, financial situation or particular needs (‘financial circumstances’) of any particular person. Before making an investment decision based on the rating(s) or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances, or should seek independent financial advice on its appropriateness. If SuperRatings advice relates to the acquisition or possible acquisition of particular financial product(s), the reader should obtain and consider the Product Disclosure Statement for each superannuation or pension financial product before making any decision about whether to acquire a financial product. SuperRatings research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s).

Copyright © 2021 SuperRatings Pty Ltd (ABN 95 100 192 283 AFSL No. 311880 (SuperRatings)). This media release is subject to the copyright of SuperRatings. Except for the temporary copy held in a computer’s cache and a single permanent copy for your personal reference or other than as permitted under the Copyright Act 1968 (Cth.), no part of this media release may, in any form or by any means (electronic, mechanical, micro-copying, photocopying, recording or otherwise), be reproduced, stored or transmitted without the prior written permission of SuperRatings. This media release may also contain third party supplied material that is subject to copyright. Any such material is the intellectual property of that third party or its content providers. The same restrictions applying above to SuperRatings copyrighted material, applies to such third party content.

The Retirement portfolios outperformed their respective peer group benchmark over the June quarter. From an income perspective, the portfolio continues to deliver on its objectives, generating 4.14% income (before franking) over the 12 months to June.  Pleasingly, that income has been sourced across a range of asset classes. The portfolio remains diversified by accessing a wide range of income sources from equity dividends.

Lonsec’s view remains that inflation will for the most part be transitory, nonetheless, the Retirement portfolios are well positioned should inflation turn out to be more pervasive.


IMPORTANT NOTICE: This document is published by Lonsec Investment Solutions Pty Ltd ACN 608 837 583, a Corporate Authorised Representative (CAR 1236821) (LIS) of Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec Research).  LIS creates the model portfolios it distributes using the investment research provided by Lonsec Research but LIS has not had any involvement in the investment research process for Lonsec Research. LIS and Lonsec Research are owned by Lonsec Holdings Pty Ltd ACN 151 235 406. Please read the following before making any investment decision about any financial product mentioned in this document.

DISCLOSURE AT THE DATE OF PUBLICATION: Lonsec Research receives a fee from the relevant fund manager or product issuer(s) for researching financial products (using objective criteria) which may be referred to in this document. Lonsec Research may also receive a fee from the fund manager or product issuer(s) for subscribing to research content and other Lonsec Research services.  LIS receives a fee for providing the model portfolios to financial services organisations and professionals. LIS’ and Lonsec Research’s fees are not linked to the financial product rating(s) outcome or the inclusion of the financial product(s) in model portfolios. LIS and Lonsec Research and their representatives and/or their associates may hold any financial product(s) referred to in this document, but details of these holdings are not known to the Lonsec Research analyst(s).

WARNINGS: Past performance is not a reliable indicator of future performance. Any express or implied rating or advice presented in this document is limited to general advice and based solely on consideration of the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person. Before making an investment decision based on the rating or advice, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness.  If the financial advice relates to the acquisition or possible acquisition of a particular financial product, the reader should obtain and consider the Investment Statement or the Product Disclosure Statement for each financial product before making any decision about whether to acquire the financial product.

DISCLAIMER: No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by LIS. The information contained in this document is current as at the date of publication. Financial conclusions, ratings and advice are reasonably held at the time of publication but subject to change without notice. LIS assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, LIS and Lonsec Research, their directors, officers, employees and agents disclaim all liability for any error or inaccuracy in, misstatement or omission from, this document or any loss or damage suffered by the reader or any other person as a consequence of relying upon it.

Copyright © 2021 Lonsec Investment Solutions Pty Ltd ACN 608 837 583 (LIS). This document may also contain third party supplied material that is subject to copyright.  The same restrictions that apply to LIS copyrighted material, apply to such third-party content.

The biggest challenge for investors in an environment such as the one we are experiencing now is that there is a lot of information, the environment is changing rapidly and there are many unknowns. In the past several weeks we have witnessed one of the fastest drops in markets in history, bond market liquidity has dried up, unemployment is rising, robust business models have unraveled with businesses such as Virgin Australia forced into administration and we have seen unprecedented levels of government stimulus. This follows an extended period where equity market returns were strong and volatility was at historically low levels.

Whether you are running an investment committee or speaking to clients in such an environment, going back to basics is warranted. Referring to your investment philosophy and the investment framework that underpins it is fundamental in periods such as this. Importantly, it will assist in avoiding making reactive investment decisions that can have an adverse impact on the long-term outcomes of your portfolios. This is particularly important in the current environment where there is a proliferation of news flow. On a client level, dusting off the investment philosophy and refocusing your client’s attention on your fundamental investment beliefs will help you deal with nervous clients and aid in preventing them from making kneejerk decisions relating to their investments.  If we cast our minds back to the GFC, we know that clients that were reactive and cashed out from a typical balanced portfolio locked in a loss of about 8.5% on average, whereas those that remained invested, benefitted from the subsequent rebound in markets.

At the core of Lonsec’s investment philosophy is our belief in a diversified portfolio approach across asset classes and investment strategies with a strong focus on risk management. We aim to do this through a combination of active asset allocation decisions focused on managing risk and active bottom-up investment selection focused on ensuring portfolio are diversified not only by asset class but also investment strategies. As a practical example, in the current environment our focus within asset allocation remains on valuation, cyclical and liquidity factors and market sentiment. This provides us a starting point for assessing the current environment.

From a bottom-up fund selection perspective, we remain focused on understanding the role that every fund plays in the portfolio recognising that during periods of severe market dislocation, our ‘risk control’ funds should provide some dampening against this volatility, whereas our ‘growth’ funds will more than likely suffer the full extent of any market moves.

The strength of having an investment framework will assist navigating through uncertain times as it helps understand performance drivers and ‘where to from here” scenarios. Additionally, it ensures that conversations we have with clients on expectations of portfolio performance are clear and easily understood.

For more information about how Lonsec can help you with your investment philosophy and process, please contact us on 1300 826 395 or info@lonsec.com.au.

What is it?

In September 2019, Treasurer Josh Frydenberg announced a long-awaited independent review of Australia’s retirement income system.

The review, recommended by the Productivity Commission, will examine the retirement income system’s ‘three pillars’ –

  • the age pension,
  • superannuation, and
  • voluntary savings, including home ownership.

The Commission urged the government to carry out the review before increasing the superannuation guarantee (SG) rate. The SG is scheduled to rise in stages to 12% by 2025.

The review provides an important opportunity to evaluate how Australia’s retirement income system is tracking and what reforms may be needed to ensure the system is both equitable and sustainable over the long term. The system needs to accommodate the challenges of Australia’s ageing population and more people entering retirement with debt or without the security of a home.

Who is undertaking the review?

The review will be chaired by former senior treasury official Mike Callaghan, a former executive director of the IMF, and will include Carolyn Kay, a director of the Future Fund, and Deborah Ralston, professorial fellow in banking and finance at Monash University and a member of the central bank’s payments system board. She is also chair of the SMSF Association but will step down while working on the review.

The final report will be provided to the government by June 2020.

What will the review consider?

The terms of reference are quite high-level and broad and could cover:

  • home ownership – the review will examine the growing number of non-home owner retirees and how people survive the private rental market.
  • the interaction between super and the age pension – whether the means test acts as a disincentive to saving given the more super you have, the less pension you get. Also, whether an income test as well as an assets test is needed (Australia has two tests, unlike most other countries).
  • superannuation tax concessions.
  • income and intergenerational equity, and
  • the cost to the federal budget.

What it won’t cover

Industry experts have pushed for sensitive issues to be probed, such as including the value of a retiree’s home in the means test for the age pension and aged care, lifting the qualifying age for the government pension and overhauling superannuation tax breaks for the wealthy. However, the government appears to have ruled out touching some sensitive parts of the system, such as including the principal place of residence in the age pension asset test and cutting generous super tax concessions.

Concerns

In general, the review has been welcomed by industry participants, however, most have warned against ‘changing the goalposts’ on legislative arrangements for Australians who have already retired and are already partly or fully self-funding their retirement.

The government has sought to ease concerns with Senator Cormann stating the inquiry will not lead to a ‘major wave of significant reforms’ and will present a fact base which will inform the public about where the system is at and how it operates.

There is also nervousness about whether the government will seek to use the inquiry to abandon its timetable for increasing the superannuation guarantee (SG) to 12% by 2025 and reduce the beneficial tax treatment of superannuation, particularly for large balance holders.

Lonsec’s view

Lonsec believes that whatever the government is seeking to achieve from the review should be revealed to the industry as soon as possible. This will help provide clarity to those product providers operating in the Australian financial services industry looking to deliver new retirement products and services but are reluctant to do so until they fully understand the changing regulatory landscape.

The timeframe for the review recommendations is mid-year, however as any changes to the retirement income system become likely, Lonsec will provide a summary of these and help make sense of the implications for advisers.

Veronica Klaus Head of Lonsec Investment Consulting spoke on a panel at the Professional Planner Researcher Forum in Sydney last week.

Veronica discussed the inconsistency and confusion around asset class definitions, which is one of the biggest issues confronting the industry. The way in which assets are defined as growth, defensive, etc. often lacks transparency and ultimately makes it harder for financial advisers to make the right recommendations for their clients.

However, as Veronica explains, the superannuation funds aren’t necessarily the ones to blame for the problem.

 

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