Is it safe to invest in Superannuation?
Superannuation account owners want certainty that they will have superannuation investment security. They expect that the money they invest will be there for their retirement. The question arises for them because they hear of legislative changes to the original structure of the superannuation benefits; and also of unsatisfactory investment returns.
These issues have given rise to an undercurrent of distrust of superannuation – a distrust that arises more out of misunderstanding than valid concern.
Superannuation Investment security
One of the investment risk factors to be considered in any investment situation is legislative risk. The first of the abovementioned concerns is that legislative changes will weaken the structure under which superannuation is provided. The Superannuation Industry (Supervision) Act – ‘SIS’, the taxation legislation that applies to superannuation accounts, and the rules introduced by the relevant regulators are all able to impact the security of the funds accumulated. This framework in fact, enhances the system. Subject to individual circumstances (including wealth needs, access to accumulated funds, timeframe required etc) superannuation will usually be a more tax-effective, secure investment structure than others.
In spite of all of the adverse Press that is given whenever superannuation legislation or regulations are proposed, the original strategy of having a facility by which working Australians (or more lately, Australians of working age) can accumulate funds to provide for their retirement is still sound. The funds held in those accounts in accumulation phase are secure in a number of senses in that they are:
- regulated for specific purpose;
- managed by ‘qualified’ trustees and administrators;
- protected from creditors;
- inaccessible without satisfying a condition of release; and
- subject to favourable tax treatment on their earnings.
Whilst two of these benefits change once the account is moved to pension phase, the lack of certainty about the legislative framework under superannuation accounts operate does not diminish the security of the investment benefit of these accounts.
[Protection from creditors is removed once the accumulation phase is finished; and taxation on funds in pension phase is generally speaking, not imposed. New provisions are mooted in the 2016 Budget in relation to high value accounts.]
Superannuation investment security
Whether to invest in superannuation or not, is a question being asked more frequently since the Global Financial Crisis (GFC) struck during the course of 2008. The investment conditions that have followed that event have been quite extraordinary. Whilst the first few years from April 2009 were very promising, the period since late 2013 are much more challenging. Returns for superannuation accounts are at lower levels than had been the long-term experience prior to the GFC.
The important issue to consider here, is that superannuation itself is not an investment product. It is however a very effective structure under which to accumulate wealth. The investment returns disappointment of the past several years has impacted on all investment structures reliant on market-based investments. Whilst there are some differences to be considered, a superannuation investment security feature here is that the long-term investment horizon for most superannuation accounts allows for additional time to recover. It can also facilitate a revision of the investment strategy for the account, revising the level of investment risk that the ‘member’ may be prepared to take.
Superannuation investment allocation
Losses incurred in superannuation accounts have only been incurred when members of the fund have changed their asset allocation at an inappropriate time. Whilst reallocation to provide retirement drawdowns are inevitable, with time on their side, account holders should be able to minimise any impact of market volatility, or under-performance. Any losses would have been incurred whether the investment was made within a superannuation account or as ‘ordinary’ investment funds.
An essential exercise when making an investment is to look at all of the personal variables and then make the investment using appropriate asset allocation strategies to satisfy those circumstances – whether the investment is through a superannuation account, or otherwise. Our article, ‘Investment strategy review‘, deals with the elements that need to be considered when formulating an individual investment strategy (which includes what is invested through a superannuation account).
Superannuation investment advice
Regain confidence in your superannuation – and experience the joy of knowing that you and your family have the best future available in your circumstances. Continuum Financial Planners are experienced investment advisors: our professional advisors can help you ensure your superannuation investment security. They have skills and strategies that will help you to optimise the value of your nest egg as you accumulate wealth for retirement. To arrange a meeting with one of our team, call our office (on 07-34213456), or complete our website Contact Us form.
[Originally published as an eNewsletter article in December 2011, this article has been refreshed in June 2016.]
