Superannuation Funds -Worst Performance Ever

According to a report at the Sydney Morning Herald, Superannuation funds’ returns have clocked up their worst 12-month return on record as tumbling share prices savage stock portfolios.

The average return for a balanced superannuation fund has fallen 11.6% for the year to the end of September, the worst annual result since the introduction of compulsory superannuation in 1992, according to fund rating agency Superatings.

For the three months to the end of September, the average balanced superannuation fund sank 3.4%, marking the fourth consecutive quarter of losses, with more bad news to come once this month’s market plunges are taken in account.

“With markets even more volatile since 30 September, the 12 month rolling return is expected to fall further by the close of October,” said Jeff Bresnahan managing director of SuperRatings in a statement.

So with Superannuation funds plummeting everywhere, are they still the tax-effective investment strategy that they’ve cracked up to be?  Well, apparantly the answer is still “yes” essentially as your Super contributions are only taxed at 15% and you can still invest those funds in a conservative “cash” rate.

Question for the floor, do you think people should be allowed to use their Super to buy property before retirement age?  Of course any other comments etc welcome for discussion..

Your Super Nest Egg. Where did it go?

Your Super Nest Egg. Where did it go?

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45 Responses

  1. I wished my super was only down 11.6%. Then again – mine is in agressive growth funds and so I expected a big hit in this climate.

  2. Well look on the bright side joni, when markets recover, which they will, they tend to do so dramatically and in a very short period of time, so you should benefit quite substantially….

    …eventually…!!

  3. That is my logic (?) too – at least I have the units, which should recover in price once the markets stabilise (he says, crossing his fingers and toes)

  4. Question for the floor, do you think people should be allowed to use their Super to buy property before retirement age? Of course any other comments etc welcome for discussion..

    NO!

    EDITOR REB: Care to elaborate TB….?

  5. Easy bubs. I am a female and so have never had any superannuation.

  6. As the cost of housing is very high I do think people should be able to use their super to buy property as follows.

    1) Only for 20% deposit to save on mortgage insurance.
    2) Only if it is your first home
    3) Only if you intend to live in it.

    This would ensure first home owners who cannot save and rent at the same time have access to the market. If this does not start we will have retirees with hundreds of thousands in super who will have to buy their own home and then be left with nothing and be on the aged pension. This defeats the purpose of super if they need the age pension as they could never save for a deposit in their youth.

    Otherwise no.

  7. Shane | October 27, 2008 at 2:53 pm.

    Shane might I add a little to this ‘first home buyer’ thing.

    Since when have young, dual-income First Home Buyers ever been ‘a charity’..a particular social group that requires that we the taxpayer need to lend them a helping hand viz hand-outs.

    It’s not First Home Buyers..it’s Non-Home Owners.

    Two imaginary families: Dual Income First Home Buyers – check out the credit card..sigh..all maxed out on the last trip treking. If they decide to buy then, hey a nice handout.

    2nd Family: Imaginary family: mother was married once before and has 2 kids under the age of 10yrs. Nice bloke she married is an excellent father to her 2 and works 50+ hours pw in the local hardware store. Ex husband doesn’t provide any support as he has been on the dole for the past 7 years.

    Nice Bloke (NB) does not qualify for any assistance in buying a house as his partner once owned a house with former partner. She walked out of the marriage 7 years ago with $2,000 cash in hand.

    The obvious answer is (shoot me), Means Testing and a limit to the cost of the house. Just a possibility is that the handout be limited to the median house price but with this not written in concrete (eg open to appeal due to special circumstances such as needing live in a particular area for a particular reason (medical).

    First does not equate with ‘needy’.

  8. Surprisingly – I’ve managed to have children. They’ll hardly qualify as needy; I’ll probably top up their savings by some margin. But they’ll get a first home buyers grant – I’ll make sure that they buy a house before they have too many assets.

    That’s the motivation of having a first home buyers grant, buy a house as early as possible and add fuel to the cycle.

    Means testing is better than not means testing, but I’m sure the basic policy is sound. On balance I think housing would be more affordable without it.

  9. Min

    I am not talking about charity or handouts. After all superannuation is the persons asset not the governments. It was traded of in lieu of pay rises over a number of years.

    I am not speaking about first home owners grant, but rather first home owners. if superannuation was permitted as the first 20% deposit we would not need FHOGS as much as it is used today and it could and should be means tested. No argument from me there.

    The FHOGS was a joke when it first started as the very wealthy were buying homes for their 1 and 2 year olds until the governments woke up and made the minimum age 18. Now there was a rich picking for the wealthy at the time.

    There will always be people who fall outside a criteria of anything set up for assistance, however maybe there could be ways and means of assistance to the group you are referring to, which by the way is an example of one of my sisters situations.

  10. Tom of Melbourne:

    “Surprisingly – I’ve managed to have children.”

    ….and this is surprising because……?

    🙂

  11. My super went backward 18% in one fund. My industry fund which I’ve been in the last 8 years was okay. I’ve been thinking of rolling the commercial fund over, but 15% exit fee doesn’t strike me as attractive right now.

  12. I managed to get the FHOGS in Australia in 2003 even when it was not my first time buying property. I had bought in London in 1996 and so was still able to qualify for the grant.

    EDITOR REB: “London?”.. why does some smart arse always have to mention that they own property in London just to make the rest of us seem woefully inadequate…

  13. New Zealanders can get FHOGS even if they own property in NZ. Just as long as you have not owned a property in Oz you qualify. To me if you owned a home anywhere on the planet then you do not qualify as it is not your first home.

  14. Basically…if we stop chucking $$$$s at people who do not need assistance then we can throw some dollars at people who are not 1st Home buyers. Hence the need for means testing and limiting the cost of the house.

    Example: a squillion dollar grant for dual income earners to buy a $700,000+ house on the canal compared with providing support to a Single Parent (not a 1st home owner but with no assets) with 3 kids trying to buy a $245,000 duplex.

    Which scenario has the most value per $?

  15. reb,

    Stupidly I sold the apartment in London in 2002 to move to Sydney. If I had kept it it would not be worth – oh dear, it is not worth thinking about.

  16. joni

    Prices are tumbling in London now so look on the bright side.

  17. Which scenario has the most value per $?

    Neither. If someons is a single parent with three kids, they’re probably already getting a lot of govt handouts already, so why should tax-payers give this person more?

    Just like buying a house, if someone can’t afford to have kids then they shouldn’t have them…

  18. Min

    I agree with you but the question was, should super be allowed to be used to buy a home prior to retirement and I agree it should.

  19. NO!

    Elaboration.

    The purpose of superannuation is to provide you with a retirement income – period…

    If you ALSO want to BUY a house then save the deposit and buy one…many people prefer to rent (Gawd knows why?)

    People have been trying to get government to allow people to use superannuation as a borrowing fund for years – particularly financial planners and advisors (no offence to those that post here) – I repeat, that is NOT superannuations purpose…

    ———————
    Just by way of explanation we own our home. We have owned two in 40 years of marriage. First took three years to save enough deposit ($1500) and then we were means tested and eligible for $500 FHBG – $12000 in 1971. We paid that off on trade wages over 11 years and sold for $57000.

    Second house we bought land $28000, built $41,000 paid off personal loan and mortgage in four years. Built two storey extension for $50000 about 12 years ago (office and upper room and deck). Home is worth just over $500,000.

    EVERY FINANCIAL EXPERT we know or spoke to advised us to borrow against the equity in our HOME and buy shares or property we said no everytime.

    Had we done that – the consequences are pretty clear.

    Good money is made slowly – X&Y Gen and some baby boomers want to take a risk and make quick money – then accept the consequences!

  20. Stuntreb – this is surprising because I found a female willing to breed with me!

  21. TB

    Well done for yourself, however you are forgetting that the change in housing prices and rental has changed the housing affordability index massively since your house purchase years.

  22. Tom @ 20 – EEK!

  23. Shane | October 27, 2008 at 4:13 pm To my way of thinking, if a person is approaching retirement, should they be allowed to draw on their super to buy a house/a retirement unit.

    The current waiting list for Public Housing in some areas is upwards of 14 years and so if a person age over 55yrs is allowed to put their Super into buying a house or a retirement villa then they should be permitted to do so.

    The moot point is of course, is this their 1st house in how many years?/are they withdrawing their super under coercion from other family members?..etc..there obviously has to be strict criteria so that people don’t rort the sytem/nor that oldies be taken advantage of.

  24. Shane, I don’t think the price of a house has changed as much as you might think.

    The typical family home of 30-40 years ago comprised 2 or 3 bedrooms, 1 bathroom, a combined living/dining room, and a kitchen. 1 TV, a carport or garage.

    Now expectations are bigger rooms and more of them – 4 bedrooms, parents retreat, family room, oversized living room, dining room, 2 or 3 car garage. Probably air conditioned with central heating. Plenty of gadgets, how many TVs? All this with no awnings to provide a natural shield from the sun

    The houses of 30 years ago are smaller than a typical contemporary apartment.

    People have become particularly consumption oriented, particularly in their housing and cars.

    If the size of housing was similar to those of a generation earlier, housing would be reasonably affordable.

  25. Well done Tom @ 20. And when is bubs due? Or is the lady just willing?

  26. Shane, the principles don’t change – I have two adult children both married, both with children – both wanted to borrow to “expand”.

    Both took our advice to “own your home” first and then use the “spare” cash to build equity and the best vehicle for that is super it covers all assest classes at 15% tax in and on earnings and at 60yo you can withdraw tax free. (Sorry, Shane, egg sucking for you I know 🙂 )

    Our kids will both own a $500000 property before they turn 45 will have had a pretty good time on the way and can then concentrate on building super for a comfortable retirement – oh! and raised five kids between them…

    …and Shane, our first home was a chamferboard on stumps – I built the fences, 70 foot driveway, concreted underneath, and lined underneath. Nothing else just a house on stumps and a block of dirt! Second house – I put in the fences both sides with help from neighbours, built retaining walls, garden walls, footpaths, tiled family room and recently laid concrete and brick water tank slab and plumbed tank etc….

    …these days people have champagne tastes with beer incomes it can’t go on forever – what’s happening now is the result of consumer greed as well as investment greed!

    PS

    If you want to make a quick quid (gamble) buy $500 worth of Metalstorm shares @ 0.039 cents (that’s not a typo that’s 4 cents each!) …don’t forget my 10% when it comes home!

  27. Sadly my son has had no opportunity to gather equity/buy property of whatever, nor the time nor the money to do any of those clever money-making things…he has been too busy serving his country in the Royal Australian Navy.

  28. Min – apologies for any confusion. I have children – 4 & 6, I’ve already been breeding. And remarkably, I’m willing to continue.

    Obviously, I’m at the more mature end of fatherhood, perhaps I shouldn’t have left is so long.

  29. TB

    The principles are the same I agree. How ever giving you an example.

    Prices in Coonabarabran have increased by over 200% in the last 9 years. Houses were around $70,000 in 2000 and are now costing $150,000.

    So if you earn’t $500 per week in 2000 you would now need to earn earn over $1,000 just to keep things in balance.

    This has not happened.

    I agree peoples expectations are different now, however my example above is based on a 3 bedroom fibro home on a standard block with a carport. Not a champagne taste I think you would agree.

    LOL yes egg sucking for me.

    Will watch Metalstorm with interest as I don’t have enough cash in my cash component to purchase any more shares until December.

  30. Tom

    Regarding house siszes and their costs see my comment to TB. I agree peoples expectations are much higher however look at my comparison for TB. It is a 3 bedroom fibro home with a carport. You know, the ones the housing commission built many years ago. these are the ones I am referring to.

  31. Gotcha..Tom..when you said ‘willing to breed’, you meant past tense rather than (wishful thinking) future tense.

    Absolutely well done re willing to continue. Go for it! The 3rd one is always extra special.

    Don’t worry about having left it so long, because if you hadn’t then you wouldn’t have had the two sweeties that you now have. Could you have done better than these 2? Of course not.

  32. …and following on from Tom’s comments re house prices

    A $12000 home in ’71 was purchased with a compulsory (government) deposit of no LESS than 25% (that was my mistake earlier it should have read $2500 saved {not $1500} + $500 grant = $3000 deposit)

    I was earning $50 – $70 gross a week in that ten year period so my $50 was 226 times the value of the house.

    On a wage of $800 today (x226), that relates to $180,800, Tom.

    However, we did purchase at the cheapest end of the market and that probably equates to $200,000 – $250, 000 these days – slightly higher but not drastically as people want to make out.

    It is the additions/extras in a house that cost the money!

    Hey, I recently paid $27,000 for a bloody bathroom renovation!

    ——————————————————————
    …and back when I was earning $70 a week as an Auto Service Advisor (my early 20’s) I could also earn $70 for two twenty minute spots singing at the local RSL! Just not every week in those days!

  33. “I agree peoples expectations are much higher”

    So why allow them access to their super so they can satisfy their expectations rather than buying what they can afford in the first place?

    One of the things that really annoyed me about the increased FHOG was the number of couples saying ‘they could buy something better’. For people like this it is fairly obvious that affordability was not really what was preventing them buying sooner.

  34. Well said PTO!

  35. Shane, the fact is that people will don’t have adequate regard to actual price of the house they intend to purchase. The factors they consider before price are interest rates and how much they can borrow.

    The example you have used illustrates that when interest rates were falling people just borrowed more, paid a similar monthly amount to when interest rates were higher, and bid up the price of housing.

    I think it you included the interest rate reductions (from the mid 90s to the early 2000s) in your example, you’d find a different level of affordability.

    Now the panic will set in because values are falling, and interest rate reductions won’t adequately compensate.

    I suppose my original point was a over simplified, though I would point out that if first home buyers were willing to purchase a home unit or apartment about the size of a house 30 years ago, they’d be suprisingly affordable.

  36. TB Queensland | October 27, 2008 at 5:11 pm
    However, we did purchase at the cheapest end of the market and that probably equates to $200,000 – $250, 000 these days – slightly higher but not drastically as people want to make out.¬¬¬¬¬¬¬

    Hello TB, re above. Just a thought. But back in the good old days when one could buy a 3br on a 1/4 acre block then it was still within commuting distance…for example, in Melbourne it would have been Bayswater or Croydon.

    These days, where do the young’uns buy cheap where they can still commute to work?

  37. Tom

    The one thing that takes in most factors is the housing affordability index.

    Check this link for 23 year low.

    http://www.abc.net.au/news/stories/2007/10/18/2062780.htm

  38. Sorry, Min, not a real estate agent…but I bet there is something somewhere…

    …and while we are talking about what’s affordable…

    …you’ll all like this link I’ll bet!

    http://www.news.com.au/business/story/0,27753,24558180-462,00.html

    Mr Trujillo is interviewed on Business Spectator tomorrow (videopod) should be an eyopener (not!)

  39. TB Queensland:

    “I could also earn $70 for two twenty minute spots singing at the local RSL! ”

    FMD! Let me guess. The best of Val Doonican?

  40. FMD! Let me guess. The best of Val Doonican?

    et tu, Brute… 😥

  41. FMD! Let me guess. The best of Val Doonican?

    Nah, I reckon Harry Seacombe.

  42. Fats Domino

  43. I found my thrill….?

  44. Just something the break the train of thought.

    The last song is telling.

    http://au.youtube.com/watch?v=10OYF8czbLU

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