While defensive superannuation funds made a return in August, compared to growth and balanced funds, income generated for retirees and savers is decreasing as a result of lower interest rates, according to SuperRatings.
The research house’s data found during the month of August, the median growth fund had a loss of 0.9%, and balanced funds lost 0.5%, compared to capital stable funds that returned 0.3%.
Pension products experienced similar results over the same period as balanced pension options lost 0.6%, growth pension options lost 1%, and capital stable pension options returned 0.3%.
However, over the seven years to 30 August, 2019 all pension funds made a return with growth at 11.5%, balanced at 10.2%, and capital stable at 6.3%.
SuperRatings said, while capital stable options were not expected to perform as well over longer periods, it would provide a smoother ride and might be an appropriate choice for those nearing retirement.
SuperRatings executive director, Kirby Rappell, said: “Super fund returns have generally held up well under challenging conditions, but there’s no doubt this has been a challenging year for those entering retirement.
“Under these market conditions, timing plays a bigger role in determining your retirement outcome. At the same time interest rates are at record lows and moving lower, so the income generated for retirees and savers is less, particularly if someone is relying on interest from a bank account. In the current low rate and low return environment, it’s harder for retirees to generate capital growth and income.”
Noting funds experiencing the sixth month of negative monthly returns over the past year, SuperRatings said funds were hit by the US/China trade war, geopolitical and market risks, a slowing global economy, and a disappointing Australian gross domestic product (GDP) result during the June quarter.
“There will always be negative months for super members, but the timing of negative returns can have a real impact on those entering the retirement phase,” Rappell said.
“For members shifting their super savings to a pension product, a number of down months in relatively quick succession will mean they begin drawing down on a smaller pool of savings than they might have anticipated.
“As members get closer to retirement, it’s important that they review their risk tolerance to make sure they can retire even if the market takes a turn for the worse.”