$40B wiped from super
Published in the Herald Sun, August 2011 by Karina Barrymore
About $40 billion has been wiped from Aussie superannuation funds this week as global share markets continue to plunge.
During the past two months the carnage adds up to more than $60 billion in lost retirement savings.
That makes Australians the biggest losers in this second wave of global meltdown, says the government's super system reform expert Jeremy Cooper.
On an individual basis, the collapsing share markets have wiped out $4500 from the average $100,000 super fund since July 1, including $3000 just this week, research company SuperRatings said yesterday.
The situation is worse for people who chose a "growth" investment option, these funds have lost about $6000 for every $100,000 this financial year, while the -shares only" option is down $10,500.
When the latest losses are extended across the entire $1.36 trillion super pool in Australia, the writedowns top more than $61.2 billion since July 1 - wiping out more than half the entire gains of the past year.
But investment and superannuation experts warn against knee-jerk reactions, as any attempt to cash out of shares or switch to another investment option is likely to turn these so-called "paper losses" into real losses.
"The time to exit shares has passed," said analyst Dale Gillham, from fund manager Wealth Within.
Neil Howard, superannuation manager for HLB Mann Judd, said: "The worst thing you can do is get out of the market at the wrong time."
But for many savers, it might be hard to keep their nerve and resist taking a loss now in the hope they can permanently re-set their savings and pension funds to less risky assets.
According to Mr Cooper, the government's Super System Review chairman, Australian super funds take too much risk.
"I feel really sorry for all those people out there thinking 'Here we go again'. For reasons completely out of their control, bang there goes another 4 per cent of their money," Mr Cooper said.
"Australian super funds are just too heavily exposed to these growth assets. Even in a balanced fund you have about 60 or 70 per cent of assets in shares. That's too much."
Average loss to a balanced fund since July 1: $4500 for every $100,000
Average loss to a growth fund since July 1: $6000 for every $100,000
Average loss to an Aussie share fund since July 1: $10,500 for every $100,000
WHAT TO DO IF YOU ARE
- No immediate impact
- All managed super funds keep enough cash reserves to pay out pensions
- Ask your fund manager to review your pension amount if you want to slow down the withdrawals
About to retire
- No immediate impact
- Don't switch out of shares and into cash.
- This will crystallise your losses
- Increase your super contributions to help make up the losses
Self-managed super funds
- Always keep at least 2 years' worth of pension payments in cash
- If you've started taking a pension, reduce your pension to minimum draw down
- If necessary, stop your existing pension and restart it at a lower level
- Take a chill pill
- No action required
- Markets cycle about every 10 years
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