COVID-19 and your super
COVID-19 is affecting our lives in many ways, most obviously on the health of people around the globe, the toll on our health system and essential service workers, and the impact on the economy and jobs of hundreds of thousands of Australians.
One element you may be concerned with is the impact on your superannuation. Here are some answers to questions you may have.
- A reminder: How is my super invested?
- Has the value of my super changed because of COVID-19?
- Should I do anything to protect my super?
- What about taking money out of my super?
- Why have markets fallen and when will they rebound?
- What about investments that don’t change value every day?
- What is AvSuper doing at the moment?
As you know, super is about saving for your retirement while you work. Your employer contributes at least 9.5% of your wage into your super and you can contribute as well.
Unlike a bank account where your money is held by your bank in return for a set amount of interest, AvSuper invests your money for you to earn returns. We invest members’ money in share markets, cash and fixed income (like term deposits) as well as areas like property (buildings, warehouses, shopping centres), infrastructure (airports, toll roads, windfarms etc) and private equity (ownership of companies).
This diversification lowers the overall risk because different types of investments do well at different times. It is the best defence against a single investment failing or one investment type performing poorly (such as now with the share market falling). Diversification lowers the risk because, no matter what the economy does, some investments are likely to go up when others go down.
The value of your super is always changing. Since February 2020 most investments around the world have fallen in value for reasons that are largely linked to the Coronavirus. This has affected the value of shares (equities), properties and even term deposits – pretty much all the things super funds invest in.
Because COVID-19 has caused many businesses to temporarily close down, with many people losing their jobs, most companies have an uncertain time ahead of them. So, the value of shares in those companies has fallen.
Many commercial properties that super funds own are likely to earn less in rent in the coming months, so their value has also fallen. Airports, toll roads and shopping centres that super funds own will all have less people using them at the moment so will be making less money, some even running at a loss.
So, for most Australians their super is worth less now than it was at the beginning of February, with the exact change depending on your particular investment choices. Each person and each super fund is different but your super might be worth between 5-15% less than it was in February 2020.
But as the economy recovers, the value of AvSuper’s investments will also recover and you can expect the value of your super will return to where it was and continue to grow beyond that. Investment markets can fall in value quickly at times, as we have just seen. They also can also rise quickly too.
AvSuper’s Investments manager, Sue Field, provides some information about our investments during the COVID-19 pandemic.
Investment market movement outline
Everyone’s situation is different so each of us has a different answer to that question. For most people who are not likely to access their super for many years the best thing to do may be to decide to do nothing. That might sound like you are ignoring the problem despite feeling a need to take action. But when investment markets fall people often lose more money by making decisions at the wrong time.
Investment markets always have periods where values go up and down. The Global Financial Crisis (GFC) ten years ago is the most recent example of a large “downturn” or “correction”. Throughout history, investment markets have always recovered and risen to levels higher than before these periods of loss. Individual companies or investments do not always recover, but the overall share markets or property markets etc do.
So, switching your super money between investments now may not be the best approach.
Because super is meant for your retirement, normally you can’t take your money out of your super. The Government has changed this rule for people who are facing difficulties with their finances at the moment. This means some people will be able to withdraw up to $20,000 of their super over the next few months (that is, $10,000 this financial year and $10,000 by 24 September for next financial year).
If you are experiencing financial stress due to COVID-19, you can apply to the ATO for us to release some of your super (you can choose how much to withdraw, up to the $20,000 limits) and we will get it into your bank account as soon as possible after the ATO gives us their approval. However, if you can avoid withdrawing your super, or just take some of your super if you really need to, that could mean you have much more waiting for you when you retire.
Since the GFC, most investment markets have produced good returns for a decade. Over history, dating back hundreds of years, markets have generally experienced “corrections” after long periods of constant growth. As the term implies, if values grow too strongly, they need to be adjusted or corrected to what is called a “fair value”. So, market corrections are normal.
One of the major factors that has led to this recent fall in markets has been COVID-19. No nation around the world is unaffected and virtually all forms of investment have been impacted in some way. The virus occurred suddenly and it is hard to predict how long it will take to disappear, and how many lives it will touch. Investors don’t like uncertainty, leading to a lot of volatility in investment markets. In the last six weeks, some share markets around the world have lost as much as 30% of their value. On particular days markets have dropped steeply and then the next day risen steeply, only to fall again the next day.
Governments around the world are taking drastic measures to deal with the virus and to support their economies. Very unusual policies and practices are being implemented, many of which we have not seen occur before, making it hard to predict how and when these decisions will affect markets.
We can be confident that markets will rebound. Through history share markets, for example, have always recovered their losses. Always. The chart below shows the Australian share market over the last 35 years as an example.
The value of shares, and many other investments like bonds, can change constantly and even rebound quickly.
But many investments like office buildings, shopping centres, airports, toll roads and the like aren’t constantly recalculated so don’t change value as fast because they are worth what someone is prepared to pay for them at a particular time. These are often called “unlisted” investments. Normally these investments will be revalued at regular times, perhaps every three months or even annually, providing an estimate of the sale value.
Because of the quick change in investment markets we have seen, assets like these are being re-valued now rather than waiting for their normal valuations. This will make sure the value of these investments are not out of step with the change in value of other investments like shares.
Your fund works with a team of investment professionals, with many years of experience. Each day they are looking at the impact of COVID-19 on your investments.
Overall AvSuper is sticking to our investment strategy at the moment. However, as different individual investments will react and recover differently, there are opportunities to protect some further losses and to make some gains in the future. This requires a lot of information, experience and skill.
Working with our fund managers and our asset consultants, Frontier Advisors, gives us literally thousands of investment specialists around the globe researching and analysing markets for your benefit. Picking through this information and advice, we are finding opportunities to make some decisions to improve outcomes for their members. Just like we normally do.
The information presented in this article was prepared with the assistance of our investment adviser, Frontier Advisors Pty Ltd. The information is current at 20 April 2020 but may be subject to change as the pandemic develops. This information is of a general nature only and does not take into account your own personal objective, situation or needs. Before making a decision about your investments, you should consider your own requirements and the details relevant to each investment option.