Older Australian Switches to Super Fund’s Cash Option

Older Australian Switches to Super Fund’s Cash Option

SYDNEY, Australia – Older Australians who are super fund members are now rushing to switch towards cash.

Based on the report from Super funds, there is a massive increase in their older Australian members who are shifting to cash investment options from their previous balanced investments. Super funds said that the recent switch of their members is primarily due to their tightly declining account balances as the COVID-19 health crisis negatively impacting the share markets.

Hostplus, a $53 billion superannuation fund primarily catering to workers around tourism, sport, recreation, and hospitality industries, commented over the massive shift in their member’s investment choices. According to Hostplus, around $800 million of super fund accounts shifted into cash investment options. They have seen the considerable switch after both shares in the Australian market, and the global market started falling early in March.

Over one million of retirement savings of Australian super fund members are in balanced investment options. However, the majority of those accounts now shifted.

Sunsuper, another superannuation fund with more than one million members, share the same sentiments of other super funds. Sunsuper reported that out of around $70 billion worth of assets under their management, they had seen nearly $1 billion from their member accounts, which are transferring into capital-guaranteed and cash investment options.

Based on reports, the average age of super fund members now quickly making a move to change their investment options is 49. There are also more men super fund members starting to switch as they try to look for safety from the unstable share market.

Sunsuper head of advice and retirement, Anne Fuchs, commented that most of their members who switched options are now at more risk of doing financial self-harm. Their shift and change in investment options can cause lock-in losses in the stock market, she said.

Ms Fuchs further stated that the current interest is only at 0.25%, which doesn’t return enough in cash investment options to keep up with the increasing prices in other markets.

Super funds for Australian citizens come with a range of diversified investment options. These choices spread their money in different asset classes. Based on the history of super funds, there are lesser negative years compared to their diversified balanced-investment options.

According to Ms Fuchs, changing towards a much lower-risk investment like cash options can still be acceptable for Australians who are within five years of their retirement. However, she said, that shifting with an accompanying view for a long-term investment, members should discuss it with their financial planner first. Ms Fuchs noted that the switch shouldn’t be a knee-jerk reaction despite the current standing in the financial markets right now, or they might have some regrets in the coming years.

Based on some comments of super fund members, Ms Fuchs said that there are already those who shifted to cash options who are now having second thoughts. She stated that Sunsuper is now getting a lot of calls from their super fund members who are asking them if they made the right choice to change their investment to cash options.

For a typical balanced option for super fund members, there is around 50% of its funds invested in both stocks in the Australian and overseas market.

Last week, the stock market from all over the world rallied. Meanwhile, the local share market increased, but only by a modest 2% for the entire trading week. And despite the increase, the Australian market is still down by around 30% since its record high on February 20.

AustralianSuper, the largest superannuation and pension fund in the country with one over ten of Aussie workers as their members, also commented about the sudden change in investments. The biggest super fund in Australia has nearly $170 billion worth of assets, and according to its chief investment officer, Mark Delaney, there is also a considerable number of members shifting.

However, he stated that the number of members shifting to cash options in the last two weeks is still relatively small compared to the overall assets that AustralianSuper currently holds.

Mr Delaney also added that based on the history of super funds, members who never shifted despite the ups and downs in the stock market usually ends up better off compared to those who switched investment options.

Rest, which is among the longest-running and largest super fund in Australia since it launched in 1988, also commented about the issue. The chief executive officer of the not-for-profit industry super fund, Vicki Doyle, said that their advice team are now getting a wave of inquiries from their fund members. Most of their members are worried about their investments.

The members of the industry fund have their funds invested in Rest’s Core Strategy. It is a diversified investment option for all its fund members, which is a mix of defensive and growth investments.

Ms Doyle noted that their members are on the best track to experience the benefits once there is a recovery in the investment market. She also encouraged all their fund members who are getting worried about their assets to safety check the risk profile of their investment. Ms Doyle also informed members to seek advice in choosing the best investment options for them.

Meanwhile, there are around 80% of Australians who currently holds a superannuation account have their assets invested in the default option of their super fund. It usually includes growth and balanced investment options, with about 60% to 80% in growth assets like property and shares.

The default options are automatic for fund members who did not choose an investment option. It is an investment strategy for most fund members who are saving long-term for their retirement. However, in some circumstances that it is not the right option for super fund members of if they are not satisfied with their super account’s return, they can switch their investment options.

For massive super funds, there are various options types with different rates of growth assets with zero to 19% for the lowest growth rate and 90% to 100% for the highest. However, experts say to seek financial advice first before making any changes in investment options for their super funds to avoid having second thoughts or regrets when the time comes.

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