Millions of Australians will have seen a decline in the value of their superannuation balances in 2008, and many are now unsure about the financial advice they have received. Teresa Russell reports
There’s no getting around it. 2008 was a very bad year for
world stockmarkets. Last year, $680 billion was wiped
off the value of Australian shares, with our S&P/ASX 200
index falling 40 per cent in 12 months. Stockmarket indices
everywhere fell by similarly sizeable amounts.
In addition to the dramatic slump, the market experienced
Although volatility and downturns are part of the nature of
investment markets, recent downturns were short-lived. Most
economists believe that today’s stock markets will stay depressed
for a longer period, making this the first prolonged downturn
in 22 years – and the first since the Superannuation Guarantee
came into being 16 years ago.
Around $1.1 trillion of Australians’ superannuation assets
are invested in the financial markets. A string of high-risk, high-
return investments have also inevitably failed in this investment
environment – erasing the nest eggs of thousands of unsus
This downturn has almost everyone’s attention.
When you need advice about financial matters, many people
turn to one of Australia’s 15,000 licensed financial planners.
Julie Berry, Chair of the Financial Planning Association, says that
people who are approaching retirement, facing redundancy or
concerned in any way about their current investment strategy
should seek professional advice about their assets and liabilities.
“Financial planning is not all about which product your
superannuation should be invested in. Someone made redundant
or about to retire may be entitled to Centrelink benefits or may
find that a lump sum payout is best used to pay down a mort
gage or invest in superannuation. A financial planner helps
clients understand complex tax implications,” says Berry, who
urges people to seek advice on their individual circumstances.
However, in the wake of the recent high-profile collapses of
Storm Financial and Opes Prime, questions have been asked
about the quality of financial advice being given to average
investors. Many were encouraged to take out margin loans or
borrow against their family homes to invest in the share mar
ket, only to see the value of their assets collapse as the inter
national credit crisis hit.
“You need to have a good understanding [about investment
concepts] and not get blinded by higher returns – which are
always associated with higher risks. People must really under
stand what they are investing in and be able to ask questions
of their financial planner without feeling uncomfortable,” says
The Superannuation Stakeholder Group recently released Super
annuation in the Context of the Global Financial Crisis, a joint
communiqué from nine of Australia’s peak industry bodies rep
resenting investment markets, superannuation funds and finan
cial planners. It says that, “superannuation has performed well
over the long-term, notwithstanding the poor performance on
the markets over the last 12 months”.
Berry agrees. “Young people should be looking at the market
as providing a great deal of opportunity, if you are not planning
to draw down in the next three to five years,” she says. The com
muniqué points out that, “superannuation has significant tax
advantages … [Contributions are] taxed at 15 per cent rather than
marginal tax rates and there is no tax on superannuation benefits
for people over 60 years.”
Michael Dwyer, CEO of First State Super (FSS) – Australia’s
eighth-largest superannuation fund with 520,000 members –
says that superannuation fund and financial planning fees are
great “barbeque stoppers”. First State Super is the lowest-cost fund in the country and also has a financial
planning subsidiary that charges a fee for its
service, which can be paid up-front or
deducted from a superannuation account.
“Research shows that people find a
straight dollar fee far easier to understand
than percentage commissions. Transparency
is critical to our business,” says Dwyer.
FSS commissioned Chant West to pro
vide a comparison of fees charged by lead
ing superannuation funds in Australia. Key
findings included the fact that, despite leg
islation, there is “much inconsistency in the
disclosure of investment performance fees
and an almost universal non-disclosure of
underlying manager fees in … private
equity, infrastructure and hedge funds”.
Research conducted by Rice Warner
Actuaries shows that the introduction of
Super Choice in 2005 has been one of the
key drivers of widespread competition.
This has seen a significant reduction in
super fees paid across all sectors since
2002, except for small corporate and self-
managed funds. Average fees for personal
super, excluding the cost of advice, are
now at 1.47 per cent.
Research for the Industry Super Net
work showed that retirees could be an
average of $60,000 better off if they pay
advisers a direct fee for independent
advice, rather than paying the adviser
With 44 per cent of Australia’s baby boomers delaying retire
ment because of a decline in the value of their superannuation,
employers should see higher retention rates among this group
and longer periods of transition to full retirement. Employers
who provide financial advice, education and information will
inevitably increase older employee engagement and retention.
The structure of the financial and investment industry will
continue to change, with an increase in not-for-profit funds and
a decrease in the total number of funds. Legislation in the finan
cial planning industry will tighten to mitigate losses similar to
those brought on by Storm and Opes Prime.
With even more of our future savings linked to the fortunes
of the stock market, this and all future market corrections will
continue to hold our rapt attention.
What it all means
Superannuation: understand options and maximise benefits in retirement through self-education, attending seminars, and/or accessing financial advisers.
Budgeting: helps you take control of your finances and manage drawdown on super.
Employment: Delay transition to full retirement if over 65 by satisfying the "work test" (40 hours in a continuous 30 day period). You get a wage and can invest tax-free into your super.
Age pension: supplement your retirement income, depending on your current income, assets and age.
Financial advice: develop pre- and post-retirement plans based on your individual circumstances using a licensed financial adviser.
Source: Superannuation Stakeholder Group