Super returns overlook retirees’ GFC losses
Some retirees are unlikely to recover any funds lost during the global financial crisis (GFC) - an issue often overlooked in the presentation of superannuation performance statistics, according to Challenger Chairman of Retirement Income Jeremy Cooper.
Cooper said news of strong investment returns in superannuation funds in 2013 is good news for those still in the accumulation phase, but will have a lesser impact on more than a million retirees who were drawing down on their accumulated superannuation and also lost money during the GFC.
Cooper said the mathematics behind how superannuation has built up during the past few years works differently for people living off their super.
“A four-year average of 8.8 per cent per annum after the GFC is great if your money has been locked away, but it’s just not enough if you’ve been using your super for its intended purpose of providing income in retirement,” Cooper said.
“Because they’ve been drawing income each year, retirees are earning this sort of return on a lower capital base after being hit by the GFC. They are highly unlikely to ever recover their GFC capital losses.”
Coopers comments are a response to investment return figures released by Chant West last week, which stated that strong markets resulted in a median growth fund return 15.6 per cent over the past year and a four-year average of 8.8 per cent per annum.
Cooper stated that using headline investment returns to demonstrate the general performance of superannuation overlooks the reality of people within the superannuation system drawing on their savings in retirement.
He added that about 1.1 million Australians draw retirement income from account-based pensions which are super funds switched into drawdown mode, and that during earlier downturns super funds members were able to benefit from dollar cost averaging.
However, Cooper said retirees in account-based pensions in the draw-down phase were hit with eroding capital plus the impact of the drawdowns they needed to live on.
“I’m not advocating that investors try to time the market, but given the poor sequence of returns faced by retirees living on their super during the GFC, they may have been better off if they’d switched to defensive or conservative investment options beforehand to avoid the double whammy,” Cooper said.
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