Super funds have proven resilient to the turmoil that hit markets in the wake of the COVID-19 outbreak, extending their recovery through May and early June, and are on track to finish the 2019-20 financial year down but far from out.

According to estimates from leading research house SuperRatings, the median balanced option rose 2.1% in May, driven by a strong rise in share markets on the back of better-than-expected economic news and the beginning of a staged reopening of the economy.

Based on current estimates, the financial year-to-date return for the median balanced option at the end of May is -1.6%. If super funds do end 30 June in the red, it will be the fourth negative financial year for super since its inception in 1992, but also likely the mildest.

“Super members have benefitted from recent gains, but markets are still under pressure and remain vulnerable to negative news, including a potential second wave of COVID-19 infections,” said SuperRatings Executive Director Kirby Rappell.

“Funds were hit hard in February and March, and some saw that as an opportunity to raise questions about the value of super. Since then we’ve had two strong months and the critics have certainly been quieter, but we know there’s a long way to go before super balances return to a more stable footing.”

Since the start of 2020 to the end of May, the median balanced option fell an estimated 5.7%, with the 12-month return holding in positive territory at 0.5%. In contrast, Australian shares, measured by the S&P/ASX 200 Index, fell 13.9% over the calendar year to May and are down 10.0% over 12 months.

The median growth option, which generally has a higher exposure to shares and other risk assets, is down an estimated 6.8% in 2020 and is up 0.5% over 12 months, while the capital stable option fell only 2.1% since the start of 2020 and rose an estimated 1.2% over 12 months.

Accumulation returns to end of May 2020

  CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SR50 Growth (77-90) Index -6.8% 0.5% 5.1% 5.4% 7.6% 7.7%
SR50 Balanced (60-76) Index -5.7% 0.5% 4.8% 5.3% 7.0% 7.3%
SR50 Capital Stable (20-40) Index -2.1% 1.2% 3.3% 3.5% 4.4% 5.1%

Source: SuperRatings estimates

Pension returns have held up slightly better, with the median balanced pension option down an estimated 6.1% since the start of 2020, the median growth option down 7.4%, and the median capital stable option down 2.3%.

Pension returns to end of May 2020

  CYTD 1 yr 3 yrs (p.a.) 5 yrs (p.a.) 7 yrs (p.a.) 10 yrs (p.a)
SRP50 Growth (77-90) Index -7.4% 0.6% 5.7% 6.0% 8.4% 8.5%
SRP50 Balanced (60-76) Index -6.1% 0.6% 5.1% 5.5% 7.5% 8.0%
SRP50 Capital Stable (20-40) Index -2.3% 1.3% 3.9% 4.0% 5.0% 5.8%

Source: SuperRatings estimates  

Members should expect to see their super balance move around as markets deal with the significant uncertainty surrounding COVID-19, however members in well-diversified options will feel the bumps less.

“Things are changing quickly, but there are certainly some early positive signs with businesses reopening and beginning to scale back up,” said Mr Rappell. “Full recovery may take some time, but funds are well equipped to manage the short-term risks and position themselves for future growth once we start returning to normal.

Super funds ahead of long-term objective despite GFC and COVID-19

Despite the challenge that COVID-19 poses to financial markets, superannuation has proved resilient, much as it did during the Global Financial Crisis (GFC) of 2008 and 2009.

Remarkably, since 1992, the median balanced option has returned an average of 7.0% per annum, which is well above the common long-term objective of CPI plus 3.5% (see chart below).

Median balanced option financial year returns since the introduction of the Super Guarantee

Source: SuperRatings

* FYTD estimate to end May 2020

“Super members may understandably feel disillusioned after watching their balances go down through February and March,” said Mr Rappell. “But super is a long-term game, and members should be cognisant of the steady gains super has delivered over a long period of time and will continue to deliver into the future.”

“What really matters for most members is whether funds are meeting their long-term objective, and by this metric super has been an incredible success. Funds came back strongly after the GFC and there’s good reason to believe they’ll do the same this time around.”

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