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Editorial - Superannuation e-news August 2008

Friday 1 August, 2008 by Michael Perry With the parlous state of stock markets and property sectors around the world, investors have been faced with a major source of difficulty over their investments. Most fund members who have an exposure in these areas will be unhappy when they note the current balances of their portfolios. Those in benefits stage will also face a reduction in the level of pension payments they receive in respect of market-linked pensions, since market risk is clearly borne by the pension recipient of these income streams.  On the other hand, those receiving account-based pensions may find that they need to withdraw a greater proportion of their funds than they had previously intended to draw down.
However, some recent press comments appear to suggest that SMSFs have somehow weathered the storm unscathed. But before SMSF trustees allow their egos to run amuck and feel smug about the relative performance of their super fund, we think the only comment that may seem reasonable to make is that a number of SMSFs have performed better than their managed and retail counterparts, but that is all. Trustees should not allow themselves to be carried away by any short lived euphoria because SMSF performances will still float in a sea of red. No fund is likely to have been spared the adverse impact of the current financial climate.
The rationale for adopting a SMSF is compelling for many, but these funds should not be seen as a panacea for all the ills and risks involved in the superannuation sector. The current high take-up rate, both in terms of the number of such funds and the aggregate dollar value in the sector, attest to their attractiveness. Nevertheless, readers are strongly reminded that SMSFs are not for everyone, and that all intending trustees should carry out proper due diligence before signing up.
We note with interest that Minister Nick Sherry recently indicated a preference for a new approach for assisting employees with the selection of default superannuation funds. Such funds came out of the "Choice of fund" legislation, and are used when employees fail to make a choice. His concern stems from a belief that a number of superannuation funds in the market place have consistently under-performed. This of its own may seem unremarkable, but what the Minister is obviously irate about is that this is not good practice, particularly where the funds in question are default funds and as SG is compulsory the contributions can amount to many millions of dollars. Many employees simply direct their SG and salary sacrifice into these funds, oblivious to the fact that small ongoing performance differentials become significant over a decade or more.
The Minister has floated the idea of involvement by the Australian Industrial Relations Commission in identifying default funds, using comparative studies of funds' performance. We have no argument with the Minister's intention because the more information is available for members, the greater the likelihood they will benefit. We hope this initiative proves to be successful, but future performance may not be correlated to past performance. However if the initiative stirs up competition, thereby improving the benefits to members, then more power to the Minister!