Serious Super Choices
Every employer and individual employee makes a decision about which super product to use and which portfolio to invest in – making careful decisions about super products has never been more important.
Generally, most employers and employees have learned to mistrust certain super product providers whilst becoming loyal to others.
What the public often doesn’t see is that there are a number of important factors that differentiate the good products from the bad, factors that are rarely presented in the media when the year’s best and worst returns are being reported on.
Annual reports on the ‘best’ superannuation fund and ‘dud’ funds are often based purely on annual investment returns, but the investment methodologies of funds are rarely explained – product providers may have 99% of their asset based on market valuation or far less, with the reminder based on quarterly valuation by an ‘independent valuer’. So the advice we receive about super funds is often unsound and akin to comparing apples and oranges.
Certain product providers may look good on paper but have significant exposure to illiquid assets, an issue that has been highlighted in the current crisis. Employees impacted by COVID-19 and looking to withdraw thousands from their super (especially given the government’s early access scheme) will force illiquid funds into selling assets at discounted values to meet demand.
Super providers are first and foremost trying to sell a product, and so they market their product to their target audience in an effort to kill their competition. Like any product, employers and employees need to look beyond the advertising campaign and consider the true value of the product super providers are delivering.
The current covid-19 crisis should emphasise the importance more than ever of careful service model analysis from an informed external party, as there are important factors not readily apparent to employers and employees that can hurt us in a crisis.
Employers have a duty of care to actively manage the delivery of value to the employees – super is a serious financial benefit which plays an important role in motivating the workforce, and protecting them in times of crisis, as we are currently seeing.
Market Volatility in Australia due to Covid-19
COVID-19 has caused a significant impact on our way of life – undoubtedly the world has changed, possibly for good.
The measures introduced to limit the health risk involved with the pandemic have caused unprecedented shut-downs, with the Government offering up huge stimulus injections to counter the negative economic effect.
While the impact of COVID-19 in Australia is not yet as severe as the impact in other countries, the Australian share market has tumbled in a similar way to other global markets, this is because our economy is dependent on:
- Immigration to support our workforce
- The Australian property market and the level of domestic debt
Any serious upward disturbance in unemployment can have a catastrophic effect on property values and therefore the banking sector.
Volatility in Global Markets
Whatever you might say about our domestic economy, Australia has been very robust when compared to other countries. All major economies around the world are seriously affected by COVID-19 as a health risk.
This means big challenges for countries trying to stem the flow of the virus and likely a long road ahead for countries dealing with the economic fall-out of the pandemic. The negative impacts on the world economy will undoubtedly last well beyond the end of isolation and other precautionary measures.
Economic growth globally will be negative in the next twelve months and possibly longer.
The 25% of Over Fifties
The current older generation has been through the GFC and wondered at the time if things might ever recover. Whilst the economy did eventually recover, it took many years.
Forecasters at the time were divided about the duration with some talking about the Great Depression and how it took between 5 and 7 years and others more pessimistic, saying that everyone needs to get used to single digit returns.
The GFC occurred in 2008 and it did take between 5 and 6 years to recover with investment returns since seldom behaving the way the forecasters had predicted at the time.
If you’re in this group then from a superannuation perspective, you need to talk regularly to someone who knows more than you do about how well your product provider is dealing with the current circumstances in the market and what you as employer should be doing to both protect and then grow your super asset. This will help you to make sensible decisions about super as an important employee benefit throughout this Covid-19 crisis.
The 75% of Under Fifties
Theoretically the longer an employee has before retirement, the less concerned he or she might be as this will not be the last economic crisis they will face before they retire. However with growing instability and thousands (up to a million) of Australians being made redundant, I am sure they are all as worried as the older generation.
So equally, as their employer, you can benefit from engaging with someone who understands super as an employer funded employee entitlement; irrespective of what product they might be in and in their style of investment.
Every product has their particular service model and every product promises they will optimise your employee super. Few employers know how to evaluate their current product provider as a supplier and so it’s important to ask questions and get advice from a party that understands super.