The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.
Good morning and thank you for joining us in today's webcast, we note that these continue to be unprecedented times and we we know that many of you have actually been affected or your families affected, not just by COVID and the lockdowns we've experienced, but also financially and perhaps with your employment. What this webinar will do today is reflect back on the last three months, particularly around the impact that COVID has had on investing within your superannuation. But we'll also start to think about where opportunities are starting to emerge, particularly with the new financial year ahead of us.
And simple steps and strategies that you can take to make sure that your super is still on track or gets back on track where you've required to to withdraw some money from super. My name's Joshua Van Gestel, I'm the National Education Manager at Sunsuper. And 'd normally be travelling around the country at this time talking to many of you face to face with my colleague and very, very good friend, Ruth Weaver. Good morning, Ruth. How are you?
Good morning Josh and good morning our Sunsuper members. It's wonderful to see so many of you able to join us live this morning. Josh and I have been very much looking forward to today's webinar, so I hope you enjoy and you find it valuable.
Thanks, Ruth. So we'll just do some housekeeping before we get started. Firstly, you would have been placed on mute when you came in to today's session. If you did want to ask any questions, you'll actually see that there is a chat icon down the bottom right of your screen. We do have one of our staff moderating those questions this morning and we'll certainly try and get to those towards the end of the webinar. Should also note that a number of you have submitted questions when you registered for today's webinar. And we will be addressing those themes throughout the presentation this morning. The other thing to be aware of is that if you suffer any sort of technical issue, if there is something that you need to have looked at, you'll actually see that there is also an "i" icon on the bottom right of your screen. And by clicking on that, you can actually talk to one of the tech support staff and they'll try and assist you as best they can. Before I hand over to Ruth to introduce what we'll be talking about this morning, I'd just like to advise everyone that has joined us that today's presentation is of a general advice nature only. We have not taken on board your personal circumstances. So it's really important that as we go through and discuss, discuss concepts and strategies that you think about how they apply to you. We encourage you, if we raise anything with you today that you want to seek further support or guidance on, that you give us a call on 13 11 84 or visit us at Sunsuper.com.au. I'll hand over to Ruth now to take us through what we'll be discussing this morning.
Thanks, Josh. When we think about superannuation, regardless of how little you know or how much you'd like to know about Super. It always does boil down to three particular questions. Getting an understanding of what's going into your superannuation account in the form of a contribution. What's happening to that money when it's actually in the super or in the form of investment earnings and what kind of things are coming out of the account? And we refer to things like premiums and taxes and fees, etc.
Today, we're going to start talking about investment earnings. And what many people don't realise is when you get to retirement and you're actually spending your superannuation, the majority of the money that you're spending is actually investment earnings and not contributions. So it's really important that you understand how your superannuation is invested. Josh is going to talk us through how Sunsuper invests our member's money and what options you have to get engaged and pick your own investment choice if appropriate.
Now, investment earnings are wonderful and they're a very, very powerful way of accumulating wealth. But you cannot earn money on nothing. Something does need to go into the account for them to work, and that's the contributions. We're also going to talk about how money ends up in your superannuation account and what role you as a member can play here. Because it's important to understand the way you contribute into superannuation and the benefits you get for doing those contributions will be very different for everybody. And primarily will depend on your current income. And then lastly, like any financial product. We're going to talk about some of the money you might see coming out of your account. We're going to focus today on the insurance premiums. We just want to highlight what insurance might be attached to your superannuation. What changes have happened in that space recently. And just some tips to help you ensure that if you have your insurance there, that it is appropriate for you.
And Josh, I think it's fair to say that if you get a good understanding about how those three things are working and you set it up, so it's appropriate for you, you're off to a great start to making sure that the benefit at the end is as good as it can be for your retirement.
Absolutely. And I think the other thing to consider, especially around that investment piece, is that your superannuation is a long term investment. For many of us, our retirement is some time off. So it's important that, as Ruth said, we just talk about briefly what has happened over the last few months, but what the long term implications or impact is of that. And in fact, where there are opportunities in the times ahead. The first thing that I think it's important to to clarify here, and this is something that we've seen throughout this crisis, much like we saw with the GFC, that it actually makes people aware for the first time, perhaps, as to how their super is invested.
So what we've seen is a lot of people for the first time have realised that their superannuation balances can go down. And that's largely been driven by what's been happening on the share markets. But by the same token, what we've also seen is that people perhaps think they have this really high exposure to shares. And it's important to to reflect on that for the average superannuation member, whether they're with Sunsuper or elsewhere, they probably have about 50 per cent or less of their money actually exposed to the share market.
They're actually diversified across a whole range of assets. Now, the other thing to note, though, with these is within those asset classes, whether it's property or infrastructure or shares that we've mentioned, they would actually be holding thousands of different holdings within those. So it's not as if all your money is invested in one particular share or one particular section of the share market. It's actually diversified right throughout that asset class and also globally. To try and illustrate this, I've got here our balanced option and our growth option.
And these are two of the options that a lot of our members are in. If I look at a balanced option, for example, probably about eight in 10 of our members is invested in the balanced option. And you can see from this chart that the balanced option has about 50 percent exposure to Australian and international shares. And then it also has some exposure to things like private capital, which is companies that aren't listed on the share market, property that Sunsuper holds on on our members behalf as well as infrastructure.
If I then compared that to the growth option, what you can see is the growth option has significantly more exposure to both international and Australian share markets and also more exposure to private capital; again, companies that are not listed on the share market. Now, this is important that although we've seen volatility over the last few months, particularly on the share market, we've got to look at how this actually flows through to your super. And what I've got here is someone that invested ten thousand dollars just prior to the GFC 13 years ago and looking at how that money would have actually grown over the time since and noting that there's no additional contributions going in here.
All we've got is a person who is making investment earnings upon investment earnings over that 13 year period. And as you can see, if they're in our balanced option today, even after the falls that we've had both during the GFC and COVID, they will currently have about 19 and a half thousand dollars in their super. If, though, that same person invested that money purely in the Australian stock market, and I've got here the ASX 300, so the 300 largest companies on the Australian stock market, they would have had a much more severe downturn in both the GFC as well as the COVID market reaction. And they would now have about sixteen thousand dollars in in share investment as opposed to the 19 and a half thousand in super. This is where diversification comes in very, very handy and where it does its work. The other thing though, is that it's that important exposure to the share market, although it has suffered, that it's that exposure that as you can see, the 10 year cycle between both the GFC and COVID that we have this amazing recovery. And that's where share markets in the recovery they have actually drives those earnings into your superannuation along with the other assets you diversified in.
How is this translated? Well, Sunsuper's long term performance is incredibly strong and these numbers are showing the balanced option and the growth option I've already discussed compared to the 50 largest superannuation funds, our peers, in the market. As you can see, Sunsuper has over 10, 7, 5 and 3 years significantly outperformed our peers. And long term investment is what we're here for. It is what we're focused on. And I don't want to be too simplistic about it that, although we have seen a market downturn over recent months, our focus continues to be on what we're doing for our members in the long term and what we're going to achieve for their retirement and into retirement. And even, if you look at that one year figure we are seeing with the tentative signs of a market recovery over the last month or so, that that has translated to those negative results that super funds were posting during February and March. They are starting to recover.
Josh's right there. It is important when you're looking at your investment strategy in Super that you don't forget about the long term nature of it. I've worked in Super Now for 14 years and I think there is two peak times that I recall where we saw a significant spike in members switching in between investment options. And a lot of it was done from panic. And that was probably no surprise to anyone listening. The GFC and most recently and the COVID-19 pandemiC. That's where we saw quite a lot of panic type switching.
And it's OK to switch your superannuation investment strategy, but it is important that the investment strategy that you have in place for super is appropriate for your stage of life. So if you think about those who are younger and have many years of a recovery ahead if needed, their super balances are usually a lot smaller as well,so the stakes are lower. You've also got to look at your innate appetite for risk. I know in my own household at home, I am much more inclined to accept risk for a financial decision than my husband is, who is a lot more conservative when it comes to money matters than I am.
And that's something that's quite personal to people. And that risk may also change as you get older. I think what's interesting and what we've learned recently and I'm sure, Josh you agree with this, is people think they have a good appetite to risk until something like what's happened recently actually happens and the panic sets in. So you've really got, this is a great time, I think, to assess what your real appetite for risk actually is. And it's important as well to look and consider what your financial goals are.
And they'll change. When you're young, your goal for superannuation is probably likely to be grow it and to maximise it as much as you can. And that goal might change as you get older to be more of a protective nature and to protect what you've grown. Now, if none of those three things have changed recently our enduring advice at Sunsuper is that your investment strategy probably shouldn't need to change either. However, if you do want to search some of the information on Sunsuper's different investment options, the website is a great port of call.
Sunsuper has 20 different investment options to try to choose from. Josh highlighted the default options that we've got, which falls into our diversified options. So we have a number of diversified options which really vary on how we split those assets within the different asset classes available. Now, some people might be very drawn to a particular single asset option, like just cash or just shares, just property, for example. And those two are options for you to invest your super.
And then Sunsuper has both actively managed options where we engage fund managers to try and outperform the market, if you like, as well as index passively managed options which basically just mirror the markets and we hold the stock. If you feel like your current strategy is not appropriate for you or you'd like to look at the other options and make a switch. I would refer you directly to the Sunsuper mobile app. It is a wonderful tool that is going to allow you to transact in lots of different ways with your superannuation.
And I'm actually going to refer to the mobile app quite a few times throughout today's webinar, because each time we get to a call to action, you can actually implement it through the mobile app. You will be asked how you want to invest your current super, but you'll also be asked how you want to invest your future superannuatio. Sunsuper does not charge members to make an investment switch either. Refer to Sunsupe.com.au/investments to get updates on what's been happening in the markets, get an update of what the current returns have been and also some commentary on all of the options that are available for you to choose from.
Now, I'm going to take a slight sidestep now away from investments before we hand back to Josh to wrap up the investment section. Now, most of you listening will be very aware of the government's response to the financial difficulties that many people faced during the COVID-19 pandemic. And one of the solutions the government proposed to help people financially was the early access to superannuation.
And this has been very popular to date. We've had almost 2.3m applications around the country to access superannuation early, which has amounted to nearly 16 billion dollars worth of monies that have left the superannuation system. There is another opportunity to apply for ten thousand dollars from the 1st of July, right up until the 24th of September. For those who may not have already applied this financial year or might be in a situation where you have to apply for a second time next financial year.
Let me draw your attention, though, to the little disclaimer on the bottom around eligibility. We have had a lot of information flow through in the industry this week from the ATO who have basically suggested that they are going to start looking for trends around people who may not have been eligible to access. So just to make sure that if you are going to access next financial year for the first time or even the second time that you do meet those eligibility criteria, anybody that has applied already will know that the process was quite simple, there was no requirement for proof, but that does not necessarily mean that you won't be asked for that down the track. Again, all the applications for early access to superannuation will be done directly through your MyGov account as opposed to the super fund. But, Josh, I think you'll agree early access to superannuation has been a wonderful solution for people, but it doesn't come without a price.
Absolutely Ruth. And I think even I was watching a report last night that was talking about when early access was set up, that it was very much targeted towards casuals and sole traders who probably weren't going to benefit from things such as Job Keeper. But what we have seen is that a great many people have made access and and I'm not disregarding for a moment that they didn't need it. We know that so many people out there are suffering financial stress. But it's important when you consider making access to super or I would actually say if you were just wondering whether to make an investment change to your super, that you just think about what the implications of those choices are going to be. What will happen is if you withdraw from super, and we are again seeing information on this start to flow through the media, or if you do make an investment change, firstly, you're locking in any short term loss. And I'll come to this in one moment. But what I'm effectively saying is if you take that money out at the low of the market, then you're not going to recover that money. And that goes to the second point, just as we saw in the 10 years following the GFC, as we see the market recover when we come out of COVID, if you've made an investment change or if you've withdrawn that money from your super, you're not going to actually reap the reward of that market recovery.
And the third thing to consider, and I'll get Ruth to talk about this in a moment, but the third thing to consider is that it's also going to mean you miss out on the the ability to have compound interest. It is a wonderful way to have your super grow. But by making an investment change or withdrawing money, you're actually going to diminish that.
Now, just to cover off a few points , and this picks up a bit of what I've discussed earlier. What I'm saying here is if a person had $300,000 that they invested just prior to the GFC and they've just let that roll out in our balanced option, which is shown in dark blue there, or the growth option which is shown in orange, what that would actually be worth today. And again, as you can see, there has been those periods of downturn both in the GFC and more recently with COVID. But if that person, for this illustration, I'm going use the GFC, if that person decided to move from the balanced option or or the growth option and instead invest in cash, what will actually happen is that they have not got that benefit of the recovery.
And to be frank, after 13 years, they have just made their money back. Now, this is also the same when it comes to withdrawing your money from super acknowledging many will need to do it. But just be aware of the implication that you are going to effectively be crystallising the losses you've made. Pulling that money out and not having that market rebounds. This is also what's being noted very much in the media of late about the impact of withdrawing super now, particularly for younger people and how that will play out for them in the future.
Remembering this ability for compound interest to work for you. So taking twenty thousand dollars out now as a 25 year old could in fact, cost that person close to retirement, more than 55,000. Even for a 45 year old, someone of my age, that if we took out twenty thousand dollars now, when we look to retire in 20 years or so, we would actually see that our balance is going to be about fifteen thousand dollars or more worse off. That is because we've missed out on that compound interest and the earnings recovery. An I';ll just hand to Ruth to explain this a little bit more.
Yeah thanks, Josh. Look I truly believe there's no product that emulates the power of compound interest better than superannuation because it is the longest investment strategy that you will ever invest in. And this graph here shows somebody who has contributed 2000 dollars to their super and has a starting balance, if you like, of 2000 dollars and makes the contribution of two hundred dollars a month for 10 years. This is somebody that we would class as catch up what we would prefer to see in superannuation and what works better in superannuation is the person who starts with the same balance of 2000, but spreads that contribution out over a longer time frame. So rather than playing the catch up with the two hundred a month, spread that out of one hundred dollars a month over 20 years as opposed to the 10 year cycle. What we see at the end of that because of the compounding interest, the difference there is almost twenty six thousand dollars. So the purpose of this slide is to highlight that, yes, you can put more money in later, but the catch up and the loss of earnings because of compounding interest is very, very difficult because the secret ingredient or the key ingredient is time. Now, as I said earlier on, investment earnings are incredibly powerful and so too is compounding interest. But they can't work on thin air. Something those need to go into the superannuation account for you to earn the money on. I'm going to talk here about the contributions and how money ends up in your superannuation.
There are two main ways we contribute to super. One is called concessional contributions. They're referred to as concessional because they're taxed at 15 percent on the way into superannuation, which for many of us is lower than our own personal tax rates. Those types of contributions are made up of what your employer puts in, the nine and a half per cent, what you might ask your payroll department to salary sacrifice for you, or what you might do personally independent of an employer; your own personal contribution and wanted to claim as a tax deduction.
Those three contributions must sit within the limit of twenty five thousand dollars. Otherwise, you'll be penalised by the ATO. The other type of contribution is very independent of the workplace. It's your own personal, what we call after tax contributions or non concessional because there is no equation of tax here. We're putting money in from the bank account, we're not claiming the tax deduction, there's no tax benefit. Again, there's different reasons why you might choose to make an after tax contribution. And Josh will cover some of those in a moment. But I think, Josh, it's fair to say that regardless of how we talk about before and after tax contributions and set the rules and the limits, there's always a quirk to the rules isn't there?
Absolutely, Ruth and I think the thing that gets to people most about superannuation is there are a lot of rules and there's always a lot of changes. And I think what Ruth and I very much want to do is to try and simplify that for you. So if we do pick up on one thing that Ruth said that that before tax pool, so money from your employer or money that you put in that you claim as a tax deduction, it does have an annual limit of 25000.
But we saw a change a couple of years ago, which we think is actually going to benefit a lot of people now who are being impacted by COVID and perhaps seeing that their contributions from their employer are reducing if they've seen their working hours or salary reduced or if they've actually had to leave the workforce. What the government recognised was you used to get these twenty five thousand dollar limit and if you didn't use it, so in this case, let's say a person didn't use ten thousand dollars within that, they basically lose it.
They wouldn't have any access to it. The government has then put in place that, since the 1st of July moving forward, if ever you have this unused amount, you can roll it forward. You can catch up on it later. So, particularly, as I said, if people are now in in a situation where they're seeing their contributions are reducing, that doesn't mean you're going to lose an opportunity in the future. It means that you can just move it forward.
So what that may mean is that for this financial year in this example, that ten thousand dollars has flowed in on top of the 25 this year, which means that you've got more capability or capacity to put money in. And if I roll these forward from five years in this example, what you've seen is that a person not making their full contribution each year or their employer not making a full contribution each year actually gives them at the end of this five year period, $70,000 that if they're in the position to contribute, if they're able to contribute, they absolutely can take advantage of that. So the important thing here with this slide is to say that although circumstances might mean at the moment that you can't contribute. That doesn't mean you're going to miss out on the opportunity. It is going to move forward for you in the years ahead as we see people and their employment recover. As Ruth also noted, there are three opportunities where these are in particular around where you make personal contributions that aren't claimed as a tax deduction except for the first one.
But this is where the government effectively puts in a kicker. And these are important now because, again, people are saying that their salaries may be reduced, they might be seeing that their employment is being reduced and it might give them access to opportunities with their super that they haven't previously had. This might be in the current financial year or in the next financial year. The first is that if you earn less than thirty seven thousand dollars, any contributions that have gone into your super account that have had that 15 per cent tax withdrawn that Ruth has talked about will automatically have that tax refund You don't need to do anything, it will happen automatically for you. If you can if you earn less than thirty seven thousand dollars, up to forty thousand dollars and your spouse makes a contribution into your super of three thousand dollars, then your contributing spouse will benefit by receiving what is called a tax offset. It effectively reduces their tax bill. The last one is that if you earn, again, around that forty thousand dollar mark up to about fifty five thousand dollars and you make a thousand dollar contribution into your super, the government will put in up to five hundred dollars.
Now, these amounts might sound small, but I think to give it some real life, I might just hand back to Ruth to give you an example of how she's actually used it.
Yeah thanks, Josh. I've used this government co-contribution myself for many years. I had three kids in quite a short period of time. And during a seven a seven year period, I either wasn't working at all or I was working part time. So my income was quite low. I was able to set up a direct debit on my superannuation account and contribute twenty dollars a week into my super whilst I was on maternity leave, for example. And at the end of each year, that would mean over a thousand dollars was contributed from myself. And I was I was rewarded with a the five hundred dollar co contribution from the government. Over seven years I contributed seven thousand and I received over four thousand dollars from the government incentive. Now, that might seem underwhelming over a seven year period; Eleven thousand. But let me refer back to the early examples we used around compounding interest and the power that that has. And the key ingredient being time; that money is now invested for the next 30 years. And I genuinely think it's going to have a significant impact on my own retirement savings at the end.
And this is a strategy that I have actually used as well with with my own wife, with Tash, where we've made sure that she's contributing to her super to get that co-contribution and I'm contributing to her to make sure that her super is growing and having the benefit of compound interest. But likewise, I am getting that tax offset out of it. So this brings us to the next slide, which is thinking about, well there's all these contributions types which one should I use?
Well, this isn't a hard and fast rule, but it's meant to just illustrate that your decision as to how you contribute may in large part be determined based on how much you're earning. So just to try and highlight those options we've shown that if you earn less than thirty seven thousand dollars, if you put anything in pre-tax through your employer or where you claim it as a tax deduction, you will see a tax refund on a portion of that back into your super.
So effectively the tax you pay out of super is far reduced. If you earn less than forty thousand dollars and your spouse puts money into your account as a post-tax personal contribution, they'll get the tax offset. If you earn more than forty eight thousand dollars this is where you start to think about salary sacrifice. This is the point where your income is taxed at a rate higher than the superannuation system. So by making these contributions to your super and having that tax advantage, you actually see that you're going to be better off.
Lastly, if you're earning less than fifty five thousand dollars, this is where you think again about making a personal contribution and taking advantage of the government co-contribution. Now, again, this isn't meant to tell you what is right for you. And it is important that you just think about what contribution type you you would be best to follow, certainly thinking about what your capacity might be as well.
And and example here, which we use an example of somebody who may have access to the ten thousand dollars withdrawal for super and then somebody who many to access that for the second time.
And just how being smart about how you would contribute that money back into superannuation. We have an example of somebody who is going to contribute a thousand dollars a year back into the superannuation system. But as Josh said, you've got to be very careful about how you do that. If you are eligible for the co-contribution, instead of having to make a thousand dollars over a 10 year period. Because of the government's kick in that would only take you six years as opposed to tend to recover that 10000. The 20000, again, assuming you pick up the full government co-contribution, it would only take you 13 years to recover that 20 as opposed to 20 years at a thousand dollars a year. So it is important that you understand, based on your tax rate, what's the most effective and the most rewarding way for you to get money into superannuation. Now, again, I want to go back to the mobile app I referred to earlier on. There will be some of you here who might be concerned about the twenty five thousand dollar limit, wondering how close you are to that.
The easiest, quickest way to see that is actually directly through the mobile app. You can select concessional contributions and we will tell you what the difference is and what gap you've got left for this financial year. If you want to make a contribution into your superannuation, again you'll be able to access your own personal BPAY and reference number through the mobile app. I should draw your attention, though, to the time of the year. I know we are very close to 30 June right now.
Most people have already made contributions to Super and have finished up for the financial year. If, however, there's anybody listening that has forgotten to do that or didn't realise that you still had capacity. My advice to you would be to act sooner rather than later. The monies do need to be in Sunsuper by 30 June. So it's not that you make the contribution, we do need to have them receipted by 30 June. And if you're making that by BPAY, it might be it might be smart to make sure you do that before the weekend to ensure that we do receipt the money by by 30 June.All right.
Right, thanks, Ruth.
Now, we do just have a couple of minutes of the presentation remaining before we go into Q&A. So if there are questions that we've raised that you'd like us to address in the Q&A, certainly I encourage you just to use that that chat icon on the bottom of your screen. The last thing that we are wanting to talk about very briefly is thinking about your insurance, because what your insurance will do is not just give you protection, but it's also important to make sure that that insurance is adequate.
And what I mean by that, and to a point Ruth made earlier, to have this insurance in your super, there is a premium that is deducted from your account balance to fund it. So it's important that for that premium, you know its value. What are you getting for it? And are you actually happy with what you're getting for it? You wouldn't buy something without looking at the price of it and assessing whether it's right for your circumstances.
So if I can put it to you this way, there's generally three types of insurance that are offered within your super very quickly and briefly. We've got total and permanent disablement cover, which will actually pay out a benefit along with your superannuation in the event that you can no longer work due to a severe illness or injury. You will also have death cover. And death cover again will be paid out with your account balance to your dependents. And I'll get Ruth talk about that in one moment.
Now, in both of these cases, it is important that you really think about how much you need. And I'll come back to this point one second. The third type of insurance that you can apply for is called income protection. And this will be paid to you after you've been off work for a certain period, generally about 90 days. And what it will do is start to pay a part replacement of your income if you're off work for a short term, such as due to recovering from an accident or an illness, but something that you will recover from as opposed to total and permanent disability, which is considered non-recoverable.
So how much do you need? Well, what you need to think about is this very simple formula. And I would suggest this might direct you to our website for some more information. Firstly, you need to make sure that your debts are covered if you have your insurance paid out. That death cover on TPD, you want to make sure it will cover off your mortgage or your loans or your credit card debts. You also want to account for future expenses.
So in my case, it is very important that should something have happened to me yesterday that my six year old son still be able to go to school until he gets to university age, if that's what he decides to do. So I've made sure that my insurance, if it's paid out, will actually look after his school fees until he's finished school. I also wanted to make sure, in my case, that I'm providing some replacement income for both my wife, Tash and my son Jonah.
If something had happened to me yesterday as the main breadwinner in our family I don't want Tash to be forced to go to work. I don't want her to have to look for full time employment, especially in the current market. So I've made sure that there is enough cover in my insurance to give Tash effectively about six years of my wage. Why have I chosen that number? Well, at that point, Jonah, my son would actually have entered into high school, would be more independent and would allow Tash to actually think about her options.
I subtract from that the assets and savings I have. And that tells me how much insurance I have. I can then see through the mobile app what that is going to cost me and I can see the value of that. I can say that that cost justifies the peace of mind that I'm getting for my family.
And I think it's important that after you go through an extensive exercise like that and get your insurance, that you don't forget to take the final step. And that final step is making sure that you tell the trustee of the super fund who you would like that money to go to in the event that you've passed away. What many people forget is that your superannuation is not an asset under your estate, which basically means it's not covered by your will. So if you haven't told a super fund who you would like your superannuation monies plus the insurance monies to go to, please do so.
There's two ways of doing that. You can log into your account online or directly through the Sunsuper mobile app and nominate a preferred beneficiary. That's a great guide to the trustee as to what you'd like to happen. But it can be disputed. The way around that is to nominate a binding beneficiary. A binding beneficiary is a legally binding arrangement between you and the trustee that the monies must be paid to the dependents that you've nominated. It will expire every three years, but we will prompt you a couple of months in advance to make sure that it's always relevant. All of that information, as Josh said, is visible through the mobile app or your account online.
And the binding nomination form is something that you will need to print and sign and either email back to Sunsuper or post it back to Sunsuper and we'll update that on your account for you. Now, to just wrap things up from my end, I have mentioned the mobile app quite a few times today. I'm a very big advocate of it. I have it myself and I love using it, it is so convenient. Sunsuper member numbers are also 10 digits and many people can't remember those. The mobile app is a four digit pin and so convenient to be able to access all of that information. You can switch your investment options through there, you can get your details to make a contribution, update your beneficiaries and check out or cancel or apply to increase your insurances all through there.
Finally, for those members who are familiar with the Dream Rewards program and may have used this, it is a fantastic discount service that's available to Sunsuper members who can basically get some significant discounts on everyday items from some of the big retail providers in Australia.
And Josh, I think, you know, I know I'm a great user of the Dream Rewards program and getting my discounts and is often a conversation we have on a Monday morning about how much money I've saved. And you tried to convince me to put that into superannuation.
Thanks, Ruth. I would like to thank Ruth for joining me this morning. Ruth and I usually see each other on a regular basis. We are very dear friends. And the fact we haven't seen each other for some time, Ruth is actually in Brisbane and I'm down here in cold Sydney at the moment. Ruth and I lament the fact that in normal circumstances we would have both actually been in far north Queensland right about now.
So just to wrap up and we do have some questions that have come through, so we'll move to those in one second. But if I can just give you a checklist to think about not not just now, but into the future, as you see things return to normal in some capacity for you actually develop. Please stay connected with your funds. Get the mobile app. We find that people with the mobile app are more attuned to what their super is doing and more confident, confident and comfortable with what their super is doing and how their investments are going. When you have capacity, when you're able to, do think about contributing, particularly for those of you who may have been forced to actually make a withdrawal from your super. If you do see employment change. Think about the opportunities that might be presented to you, including from the government. And please ensure that your insurance is appropriate for your needs. On that note what I'll do is Ruth should have some questions being put in front of her. I'll hand over to you, Ruth, to move to Q&A. For those that have joined us we do welcome you to stay online for the Q&A, but we also appreciate some of you have very busy days and may need to get going. So to you, thank you for joining us. We'll now move into Q&A. Thanks, Ruth.
Thanks, Josh. I have the lovely Kristy here who's going to read out some of those questions for us.
Okay, great Ruth. So, there's quite a few questions here around the spouse contributions. So I just more the mechanics of how they go about doing it. I know we touched on it in the in the session, but how they go about making the contribution and what the offset is that applies for the for the contributing spouse.
Okay. So the offset is up to a maximum of five hundred and forty dollars. That depends on the income of the spouse you're contributing for. In terms of doing it, well, every year that I've done it for for Tash, I simply do it through our website and it is very easy and very simple. And the website, if you actually go to Sunsuper.com.au/contributions actually has some additional information on how that 550 dollars is calculated and how you can go about doing it.
Ruth, are you happy with that?
Yeah, that's fine. And I guess the point is another point is you may want to do that for a spouse as part of a different super fund, and that's absolutely perfect as well. You don't both have to be in the same super fund and you're able to just advise the fund that the reason you're making that contribution is for a spouse contribution.
Great. And there's a few questions around insurance inside Super versus outside super, so just concerns around whether it's better to have one or the other. And things around underwriting say, can you just sort of broadly talk about insurance inside and outside?
Absolutely. So there is a number of things to consider. I think the main thing about thinking about your insurance inside super is you're not having to pay for the premiums out of your hip pocket. It's coming out of your superannuation balance. The other advantage of having it in super is superannuation funds usually have applied what's called a group premium. So we would actually see that our members have the advantage of being in a pool of over one point four million other members. And so the insurance is actually determined based on that pool rather than just based on you as an individual. So it means that some people can get access to insurance at a lower rate. And the other thing with that is that with Sunsuper, like most other super funds, unless you're under the age of 25, when you become a member, these insurances are given to you automatically. So it's really only if you're wanting additional insurance where there would be an underwriting requirement.
If I just think about outside super for a moment, the advantages outside super is there are tax differences on payment, which we probably don't have time to go through today. The other thing is, though, that outside of super, there tends to be more options. Superannuation is quite restricted because of the legislation that applies to it. And the only other thing that I would say around insurance outside of super, particularly income protection, that if you have that outside of super it is tax deductible. In your own income tax return. Ruth, again, I don't know if you want to.
Yeah, I'd agree with you there Josh. I think inside super can be very cost effective, but you are limited in how you can move to personalise that. It's a product that's very similar for everybody, whereas outside super you can shop around and get something that might be more appropriate. One common issue that we're coming across a little bit or questions that people are asking us recently is around the expiry date, the expiry of the insurance. So superannuation funds will have a certain age where the insurance is no longer valid; it's generally around 65. Whereas outside of super, you may be able to pick a policy that will protect you beyond that age. And whether or not you still need it that age is another question. But it does mean that outside of super, you probably have a little bit more possibility to personalise it more for yourself.
Just before we hand back to you Kristy, I think I'll just point out at this stage, we've got just a couple of minutes left, so we'll probably only be able to answer one more question. For those of you who have submitted questions and provided your email address where we haven't yet responded or where we don't; we'll make sure that we come back to you. So, Kristy, I might just hand to you for one last one, if we could.
Yeah, thank you Josh. And yes, there's plenty of questions that we will make sure we get back to you. And also a common one that's coming through, which I'll just address, is asking for a copy of the slides. And is this recorded? Josh, am I correct in that this presentation today is recorded and will be available?
Absolutely.Everyone who is registered for the presentation will receive a copy probably within the next day or so.
Wonderful. So one, I'll probably just finish on an investment question that there's a common question that's come through. Can you just touch on the difference between active management and indexed management options? So there's quite a few questions around what does that mean? And if you can just elaborate generally what the differences are.
Yes, absolutely. So the I think the key way of thinking about it, and I'll use shares here as the example around a share index option and a share active option. And what you think about is we've got the ASX 300 that tracks the the Australian stock market and the share index option, or if we think in about an Australian share index option, what it will do is mimic that share market. So it will be invested in those top 300 companies. It will look and feel about the same weighting of the share market.
And what that means is as the market goes up, it will follow the same market movement. So if the market goes up one per cent, it will generally go up by the same amount and vice versa if the market goes down. So the index option basically tracks the market. As a results of that you do see that index options can be cheaper because there is less work involved in actually manage those managing those. If I compare that to an active investment, though, again, looking at shares, what active managers are doing is there will still be a large component of that investment that is passive; that is going to track the market. But what our investment management team and investment managers will be doing is actually looking at if there are opportunities for them to outperform the market. So either to achieve a better than market return or if the market goes down, to not go down as substantially. So I think the best way of thinking about it is active investments allow some degree of movement and activity and as a result of that activity, they do have a bigger cost to them, then a slightly larger cost to them than index options. But likewise, as I said, they still have a very large component that are effectively an index managed component that are tracking the market.
Wonderful. Thanks, Josh. And so I'll let you guys I'll let you guys close.
Thank you, Kristy. Okay, Ruth.
Just to make a comment., there's also been some lovely comments made about how wonderful this morning has been and how easy it has been to follow. So well done to both of you.
Thank you so much.
Thanks Kristy and thanks to you for your support and help this morning. Ruth I might just hand to you for a closing remark and then I'll close off the session.
Thanks, Josh. And for those of you still on the line we do appreciate you taking the time to to join. Josh and I have we've really struggled over the last three months. We are people facing we generally do this kind of thing face to face and in rooms where we get to eyeball our audience and really pick up on the vibe. So it's been very challenging for us to try and adapt to this new environment. But we've been overwhelmed by the numbers of people who have been crying out for information and wanting to engage with their superannuation. And my last note to you would be continue to engage. Talk to us and keep your super relevant because it will be so relevant to you when you get to retirement.
Thanks, Ruth. And again, it is wonderful to see you over digital. I would endorse what Ruth has said, but also just on behalf of Sunsuper, thank you for your continued membership. Thank you for being with us. We are here to look after you and your retirement savings for the future.
And we do wish you and your family very well in these uncertain times. And we do hope, particularly Ruth and I, that we will be back out seeing you soon. So thank you for joining us this morning. And take care. Thank you.
Watch our Preparing for retirement in uncertain times online seminar
The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.
Good morning and welcome to today's special webinar. We really appreciate you taking the time to join us this morning. Now, as we know, these are very unprecedented times. And as we have been saying at Sunsuper, for some time throughout all of this, our thoughts are certainly with our members who are struggling at the moment, who may find themselves in financial stress or have had a change in employment or circumstances. We're also acutely aware of what the situation is, particularly for our older members who may be approaching retirement and have had to start thinking about whether they actually change their retirement plans.
In research that has been released this week, we've actually seen that prior to COVID approximately 54 per cent of people aged between 65 and 70 actually plan to retire at some point in the next 12 months. Now, that COVID has occurred that number has reduced from 54 percent to 39 percent, meaning a lot of people are uncertain what COVID has actually done to their retirement plans and may be uncertain about the steps they can take to manage that and to actually get back on that retirement path.
So what we're going to do today is actually go through simple steps and strategies to assist you as you move along your retirement path both into and throughout your retirement. What we also want to do is reflect on what has happened over the recent months and what that implication, what the implications are from that. My name is Joshua Van Gestel, I'm the National Education Manager here at Sunsuper, and I'm actually presenting to you from a very cold Sydney this morning. I'm joined by a dear friend and also by Sunsuper's Education Specialist Ruth Weaver. Good morning, Ruth. How are you?
I'm very well Josh. I'm delighted to be with you all today. It is also quite a chilly morning here in Brisbane for any Brisbane viewers, as you'll be well aware. Thank you very much. So many of you for joining us live today. We've been looking forward to this session. So I do hope you enjoy it and find it valuable.
Thanks, Ruth, and we'll pass back to Ruth in one moment. But before we do that, just a few pieces of housekeeping.
What we do say to you, though, is in regard to any questions that you may have if they are urgent and you need a response, so we need to take action quickly, we encourage you to either to call us on 131184 or or you will receive a survey from us and within that survey you'll have the opportunity to request call-back. Before I do, hand back to Ruth though to take us through what we will be discussing today, I'd just like to highlight that today's session is of a general nature only. This presentation is general advice. So if it actually raises any questions for you, raises any thoughts or concerns, then we encourage you to either give us a call on 131184 to go through those or get on to our website at Sunsuper.com.au. And on that I'll have over to Ruth.
Thanks, Josh. Now, planning for retirement can be a really exciting time, but it is important that you plan and to plan your retirement effectively there are some key milestones that you will reach and they're all age-Based. So I thought we'd start today by introducing what those milestones are and the opportunities that might exist when you reach those milestones. And essentially, our seminar today will cover all of these as we move through. Now, the first milestone you'll reach will be preservation age.
And in layman's terms, preservation age is essentially the age you can access or start to access your superannuation. Now, if you're fully retired at preservation age, you will be able to access all of your superannuation and some of it you will be allowed to access if you're still working at preservation age. Preservation Age currently sits at 57 and is moving to age 60. So if you're born after the 1st of July 1964, your preservation age will be 60.
Now, 60 is an interesting age because another opportunity goes actually peak pop up at age 60 and many people are not aware of this. If you change your employer or you change jobs at the age of 60 or beyond, in other words, you terminate one employment arrangement and go into another, you actually unlock your superannuation. So in other words, changing roles from the age of 60 or beyond unlocks your superannuation and you now have full access to it.
Both of these points are important, particularly in today's environment, where many of our members maybe experiencing some some level of financial distress because of the COVID- 19 pandemic. You may have lost your job or had a reduction in working hours. And it's just to highlight that if you are at preservation age, or 60 and beyond, there may actually be opportunity to look at accessing some of that super separate to the government's early access scheme.
Now, 65 is another interesting milestone. Sixty five essentially means that regardless of whether you're still working full time or part time, you have full access to your superannuation. It is not a condition to around whether you're working or not or retired. Full access at 65. And then the last important age to note is age 67. 67 is currently where we're going to have the age pension age sit. So you may be 66 at the moment and qualify for age pension, but it is moving to age 67.
All of those ages are really important when you're planning for retirement. But there is one age on there that I haven't mentioned, and it's probably the most important age. And that's actually your retirement age. You may decide to retire in between some of those ages. So you might, for example, pick 63 as your retirement age or 64 as your retirement age. So it's really important you understand what's happening at those key ages for you to make sure that the plan in place is relevant.
Now, when you have a superannuation account, it is part of a journey. And we often say that there's three stages to that journey. The first stage is what we call accumulation. That's where many of you listening today probably still sit. That's where we call our Sunsuper members in the Super Savings account. So that's where you're at, your superannuation contributions going into us. And you might be also contributing into your super at that stage. The end of the journey is where the retirement income comes in.
You've retired now. You're taking your superannuation. And you might have moved that money into a retirement income stream account. At Sunsuper that will look and feel exactly the same as your super savings account has looked. Except you are now drawing money out of that account as opposed to contributing in. I like to sometimes say that Sunsuper can be with our members from the cradle to the grave. We are there right throughout, building super, right into retirement as you're drawing down, enjoying retirement.
But there is a really interesting stage in the middle. And that light blue stage in the middle is what we refer to at the transition to retirement. That stage will kick in when you reach the preservation age. And that's a really important stage of transitioning into retirement because some really nice strategies can start to kick off here. And Josh is going to talk to us about one called Transition to Retirement now.
Thanks, Ruth. And as Ruth mentioned that period where you're transitioning to retirement does provide really great opportunity in terms of the strategies it affords. But I think also picking up a point that Ruth actually spoke to, we do know that people are suffering financially at the moment. So that point actually also allows you to, if you are still employed, as Ruth said, start accessing your super to effectively supplement your income. And how it works in in really basic theory is that what you actually do is you take part of your superannuation savings and you move it into an income account.
Now you can speak to one of our team and they can actually help you to work out what what balance you want between the two. So how much you would keep in your super savings account and how much you may want to move to and a Transition to Retirement account. And the important thing to note about that income account is firstly that you can continue to invest it in the same way you're investing your superannuation account. There's no difference there. It looks and feels the same in the way that you have investment choice and what you choose to do with it.
But the other thing to point out is you can actually have your super account and your retirement income account invested in different ways. It's not that you have to have the same investment strategy on both.
What you can then do, and this is something that Ruth alluded to, is that you can then receive a payment from that retirement account or from that income account, rather. And I'll come to that in one moment. But the important thing is that if you find you are withdrawing income from that account and you don't actually need it, one of the strategies available to you might actually be just to re-contribute that back to your own account. Or in fact, if you've got a spouse, you might actually want to make it as a contribution to their account, which will come back to shortly. At the point you retire permanently, what effectively happens is we close down that superannuation savings account and what you are given is a retirement income account. So much like Ruth has said, what we're really doing is just doing steps through here. We've got a savings account that we then move to a transition to retirement account if you choose. And then at that point of retirement, that transition to retirement account or that income account basically switches over. Now, it's very, very similar to the income account I've just gone through.
But it just has a couple of differences. Firstly, the investment options available to you here are reduced by one. OK, so you no longer have access to what we call our life cycle strategy. The other thing that I should point out with both of these is that there is a minimum income requirement that you have to take out. But with the transition to retirement account, there is a ceiling. You can only take out so much. When you start a retirement account, as Ruth said, your money becomes fully accessible. You can basically take the entire account balance at any time, either as income or as a lump sum. Now, there is an age consideration here that might actually be part of when you decide when your retirement age is going to be. And that is that up until the age of 60, anything that you withdraw from your super through an income account, that is going to have a tax element to it, potentially, that you will be paying tax on.
However, once you turn 60, anything you withdraw from your super either is income or a lump sum becomes completely tax free. So you do see that a lot of people might actually wait to start to take an income or lump sums from their super until they've reached the age of 60 to reduce that tax implication.
Now, I talked about these draw down requirements and what the government basically says is if we are going to give you that Tax-Free status, if we are going to give you that reduced tax under the age of 60, then we require you to take out a minimum amount. Now, the important thing, this has been in the news a lot in the last couple of weeks, is that as a result of COVID, the government has halved the minimum that you need to come, that you need to withdraw.
And what you can see here is those minimums are actually based on your age. The maximum applies only, as I've already mentioned, when you've got a transition to retirement income account and that maximum limit is 10 percent of your account balance a year that you can withdraw in income. You have the ability to change your income to be any amount between that minimum and maximum. You also have the ability to tell us the frequency of the payments that you that you once received.
That can be fortnightly, monthly, quarterly, annually. It's how ever you want to manage that income. And you can just request that we do that for you. One other thing that I should note, and I'll come back to this shortly, is that when you start an income, a retirement income account, the investment earnings on that account are tax free. When you're saving your super, when you're contributing or when you go into a transition to retirement account, the investment earnings on those are actually taxed at 15 percent. The moment you permanently retire, not only if you're over the age of 60, do your payments or lump sum become tax free, but your income earnings, the investment earnings also become tax free. And I'll hand back to Ruth and we'll actually deep dive into some of these elements.
Thanks, Josh. So just to finalise there a few details about the income stream product. I did mention that Sunsuper is from the cradle to the grave, if you like, type of super fund that can be with you right throughout the full journey. We really value our members who are entering into retirement, and we want to make sure that you have an equal opportunity to benefit from some of the low cost fees that you have enjoyed as you've been accumulating super.So, Sunsuper last year went against the grain of most of the financial industry and we were able to announce to our income stream pension members that we were reducing the admin flat based fee from $208 a year down to $78 a year. We recognise how important this stage of your retirement is and we want to make sure that our income stream members are one of the most competitive products on the market, which they are. Now Sunsuper members will also benefit from the Sunsuper retirement income account. And in essence, what that is, it's a bonus that may be applied to your income stream when you enter that phase.
Essentially, income streams, as Josh alluded to, they are taxed differently to superannuation stage. So we want to make sure that our pension members are getting the benefit of that tax saving rather than the fund itself. And then lastly, Sunsuper members, regardless of what stage you're at in your Sunsuper journey, will have access to the Dream Rewards Program. And essentially, that's giving you some great discounts to items from some of the leading retailers in the country.
So make sure that you're aware of what they are and use those, because if that can be some great savings to benefit from through the Dream Rewards program. OK, so moving on from the Sunsuper income stream, which may be part of your income stream when you're in retirement. So when you've retired, your income might come from many sources. One may very well be from your Sunsuper income stream. But don't forget, there is also the Centrelink age pension.
And I mentioned at the beginning the age pension will kick in at age 67 for most of us. OK, and before that point, you might be relying solely on your superannuation. And I think it's important to acknowledge that having superannuation and having a good superannuation balance, it's not just about having lots of money in retirement. It also gives you a lot of financial freedom about when and how you retire. Because if we look here at the age pension.
First of all, we know that if we have no superannuation or no financial assets, we are handcuffed to the age pension, which means we essentially have to work till age 67. And when we look at the rates the age pension offer, for a single person at the moment the full age pension rate is just over 24 thousand dollars a year. And for a couple, that's 36 and a half thousand dollars a year. Now. That's a safety net. That will do the basics for most people, but it certainly won't give you a lot of freedom and will require quite stringent budgeting in your life, which at retirement might not be what you want to do.
Now, when it comes to eligibility for age pension, Centrelink will use two ways to determine whether you're eligible for some or part or all of the age pension and the two tests that they actually use are the income test; so they will look at what sources of income you have generating into the household and then the assets test. And you might not be surprised to know that the worst result will determine how much age pension that you will benefit from.
Josh, do you want to go into a little bit of detail on the income and asset test for us?
Absolutely. Thanks, Ruth. Now, it's important to note that when you reach that age pension age and you go to Centrelink, and the first question they will ask you is actually around your assets and your income, Centrelink will look at everything, okay?
They will look at everything that generates income, whether that's employment, investments, annuities, superannuation. They will also look at, though, all of your assets. The only thing they do not look at is your principal residence. So if you own your own home, it is ignored for the purpose of the age pension assets test.
So when I go through these figures, just remember that it doesn't include your principal residence where you own it.
So as Ruth said, there are two tests, the income test and the assets test. They will do the income test first. And what they'll look at is firstly, whether you're a single person or whether your partnered. And there's a threshold that they actually look at on a fortnightly basis. But to try and provide it a bit more clarity to you, what I've actually done, he is annualised it.
So if you earn under the threshold there of about four and a half thousand dollars a year for a single person or about eight thousand dollars for a couple, if you weren't under that threshold, you will get the full age pension under the income test. If you earn more than the cutoff in all income; so, again, employment, investment income, whatever is coming into you. If you earn more than about fifty two and a half thousand dollars a year or eighty thousand as a couple, you will receive no age pension if you receive.
If you have income that you receive, that is between the threshold and the cutoff, then you'll receive a part pension. Okay so, the pension basically decreases over the threshold as it approaches the cutoff. So if you do pass that test, if it does determine that you will get some age pension, they will then apply the assets test. And the assets test has actually been changed significantly over recent years. What the assets test does is not just look at whether you are single or partnered, but it will also look at whether you are a homeowner or not.
And again, the assets that you have under the threshold means you will get the full age pension. If your assets are over the cut off, you will receive nothing. And if your assets are between the two, you will get a part pension. Now, as Ruth said, the age pension is a safety net and the government is trying to make sure that those who receive it are the ones who are most in need. Now, the majority of Australians who reach age pension age do receive some pension.
And I think it's important. I'll hand back to Ruth in one sec to to look at where superannuation comes into this, but I think it's important to note that the age pension may just be a part of your income, as Ruth alluded to. And what your super can do is actually give you some self independence and self income reliance that you're not dependent upon the age pension. So, Ruth, I'll hand to you to answer the million dollar question.
Do you really need a million dollar dollars at retirement? I think in between Josh and I, I think we've clocked up more than 30 years experience in the superannuation industry. And I doubt a day has gone by where we haven't been asked that question. And it's a really difficult one to answer because it really depends on so many personal factors. What age would you like to retire for example. Are you retiring as a single person or as a couple?
And also, the most important question, what kind of a lifestyle would you like to live in retirement? So essentially, we're asking the wrong question. We need to start the equation at the income level. Once you're able to determine what age you'd like to retire and what income you'd like to retire on, we can then work through and see what kind of a superannuation balance you might need to sustain that. Now, we looked at the age pension as the basis that will be there as a safety net for everybody.
But obviously, the role of the superannuation is to try and increase that and to try and improve that lifestyle of age pension, which we class at Sunsuper as doing OK. Sunsuper has categorised different lifestyles and essentially where we see that we want the bulk of our members to set is in the doing where lifestyle. We want our members to be able to do well in retirement and enjoy their retirement. So that may mean, yes, getting age pension. But your plan here will be to have enough superannuation to pay on top of the age pension so that you can retire and do well. Now, some people will actually be quite okay on a comfortable lifestyle because that's the lifestyle that they're used to or that they're happy with. And obviously, there will be others who would prefer to have a more premium lifestyle because that's what they're currently used to. Remember, when you're looking at these numbers, we're talking net figures here OK.
So when you are considering what your current income is, if you're still working, you've got to factor in what your current net income is to give you a bit of a starting point as to what your current household income is. People very often forget to net the numbers out. So if we want to get you to a doing well lifestyle, how much money would you actually need to get to that stage? If we factor in where current age pension rates are at the moment. Now what it actually translate to from a balanced perspective, and this comes from ASFA, which is the peak body, the peak policy research and advocacy body for Super. So a lot of research has been done here. And essentially they actually have asked people who are currently retired. What would you class as a comfortable lifestyle or are doing well, lifestyle, if you like. And these are the figures that current retirees have declared as doing quite well. And remember, they are net figures too. So to achieve that, as an individual, you would actually need five hundred and forty five thousand dollars in your super fund to be to be able to achieve a doing well lifestyle and as a couple, that would be six hundred and forty thousand dollars. Now there's a lot of assumption behind that modelling. So you've got to be careful. Remember, it assumes that you retire at the age of 65. It is assumes you own your own home. But what's really important is it assumes that Centrelink rates are pretty consistent based on what they are today. A lot of those factors will be different. It's also important to remember that those numbers are based on today's dollars.
So if your 20 years from retirement still, those numbers would need to be considered dramatically. And so when we move on, I think, Josh, you're now going to talk about and some opportunities and understanding how we can maximise that lifestyle.
That's correct. Thanks, Ruth. So, as Ruth said, it's important that we aim to for the amounts shown on the screen. But I would just point out one other factor too to think on here. Those numbers are based on you not living beyond your life expectancy. So those numbers are based on if you're a female, that you will live until you're about 85. And if you're a male, you'll live until you're about 83. So if you do come from a family that's got a history of longer life, if you yourself are very healthy, then you need to actually ensure that there's more than those numbers that are shown because you want to make sure that that number last with you for much longer.
So, as Ruth said, it's important that you're considering achieving that number if if you need more than that, that you consider the opportunities that are actually available to you. And we'll go through these now around contributions. It's also important, especially in these times, that you understand how you're invested and how that investment is working in the long term. Ruth and I find that a lot of the people we talk to almost think that their investment journey finishes at the point of retirement.
And the truth is that you could be in retirement for 20 or 30 years. So it is still important to consider the long term nature of the investments that you've got, and we'll also go through that.
But if we think about contributing for a moment, especially now that we're seeing tentative signs of the market starting to recover, that it's an opportune start thinking about do you contribute and seeing that as the market recovers that that will actually help grow your super faster. And that is something that we will come back to in about five minutes or so. But there are a number of ways that you can contribute into your super. The first is what we call pre-tax or before tax contributions, which are referred to as concessional.
These are any amounts that your employer puts in on your behalf, including anything you've instructed them to salary sacrifice. But it also includes anything you can contribute that you then claim as a deduction in your tax return. All of those amounts combined can not exceed twenty five thousand dollars. If they do anything in excess of twenty five thousand dollars will just be taxed at your normal marginal tax rates.
We then have after tax contributions and this can be money that you put into your account, which you don't claim as a tax deduction, or it is money that goes into your account from a spouse. Now, the advantage of these post-tax contributions is depending on your income, the government may actually give either you or your spouse an additional kicker, and we'll cover that off in one second as well. The last opportunity that you have, and this is one of the newest opportunities the government's introduced, is that once you have retired, if you sell your family home, you are able to put up to 300000 of the proceeds of that home into your super.
Now, the important thing I would note here, and Ruth will come back to this, is that does have age pension implications. So you've got to be very careful before you use that strategy that you consider what what impact it could have on your age pension. Before I do hand back to Ruth though, I mentioned that the limit that you can have for those pre-tax contributions is twenty five thousand dollars a year. And it used to be a case that if you didn't use that, then you lost it. So, what I've got here is a person that has that twenty five thousand dollar limit, they only use fifteen thousand dollars of that limit that year; the ten thousand dollars they didn't use they would have previously lost. New legislation means that since the 1st of July 2018, that twenty five thousand dollars will now rollover for up to five years. So those unused amounts will be available to you later on. Very important, especially in the current climate where people's employment circumstances or income circumstances may have changed and they're not contributing as much as they otherwise would. The opportunity will still be available to them in the future. Now, I'll hand over to Ruth just to talk about some of those government benefits that can apply.
Thanks, Josh. So there's two main contribution strategies I want to have a quick chat about now. And it's it's where the government can actually incentivise you to contribute. We're talking here about after tax contributions, so not connected to an employment arrangement whatsoever. It's your own personal contributions. The first one is called the Spouse Contributions. And many of you will be familiar with this. A spouse contribution is essentially where there's an incentive for the higher income earner in the household to contribute to the lower income earner or the non income earner in the household.
Essentially, what it means is if you can ask your spouse to put three thousand dollars into your account for you, you as the higher income earner may benefit from up to five hundred and forty dollar offset when you do your tax return, the benefit is the lower income non-working spouse gets the three thousand dollar contribution and the higher income earner there gets the tax offset. To do that, you would you would log into your account, get your BPAY details and make a BPAY payment or any F.T. into the superannuation fund and then advise the fund that that three thousand dollars with from the spouse. And that's both then claims the tax deduction for you. That's a lovely little incentive That's quite popular when people are nearing retirement, particularly when couples don't retire at the same time; one might have stopped working before the other. Also, the government co-contribution, the government co-contribution is targeted again to lower income earners. So if you're working and you're earning less than forty thousand dollars a year, it is really important you're aware of the benefit of the co-contribution.
Essentially, it's where you would make a contribution on your own part into your superannuation fund up to a thousand dollars. If you earn less than forty thousand and you put a thousand dollars into your superannuation, well, then the government will top up your super with five hundred dollars after you've lodged your tax return. Now, remember again that the personal contribution, you log into your Sunsuper account, you get your biller code and reference number from online and you can make the payment. I do need to draw out that if you are going to engage in either of those two strategies to get the benefit from this financial year. You're quite aware of how close we are now to 30 June. So I would say if this is something you want to do within this financial year, the clock is ticking. That money would need to be in Sunsuper before 30 June, which is next Tuesday. So essentially, you would want to be making those contributions today or tomorrow at the latest to ensure they are receipted with those by 30 June. OK, and we might come back to that later. if there's questions on it. But just quickly, to cover off, Josh pretty much covered off this concept where contributing to superannuation can get very difficult when you get over the age of 65, particularly after tax. However, if the reason for wanting to put a lump sum into super after 65 is because of the downsizing of a home, well, then that's something you can do up to three hundred thousand dollars.
But be very, very careful with a strategy like that. As Josh mentioned, it can have implications. One of the first things Josh mentioned in today's session was when we're looking at age pension and they assess us, the principal place of residence is not an asset for Centrelink purposes. If you sell your principal place of residence and you have an extra three hundred thousand to do something with, that 300 will be assessed by Centrelink. Just be careful with a strategy like that and you get some advice.
Thanks, Ruth. And the other opportunity that comes up as you approach retirement, as you go into retirement, and as you are actually retired is to think about your investments. Now, there is a significant amount of information on our website at Sunsuper.com.au around investments and also reflecting on what has occurred over the last few months. So I'm just going to touch on some of the key elements of what you can find there and what you might want to seek out some additional information on.
Firstly, it is at times like the GFC and then COVID where people become very aware of how their superannuation is performing. And it's important that people are aware that depending on the investment choice they make, their super will be diversified across a whole range of assets and these assets themselves will be diversified. So if I use shares, for example, we won't just be investing you in the Australian share market. You also have access to the international share market.
We wouldn't just be investing you in one part of that market. You would actually be invested in a wide range of companies on the stock market. As well, depending on the investments that you choose within your super and your income account, you might have some exposure to private companies. Private capital companies that are listed on the stock market, numerous properties that Sunsuper owns on your behalf, both here in Australia and overseas. Again, across different areas;commercial, industrial, residential, age care facilities.
We also have infrastructure projects right around the world, including transport as well as other infrastructure around utilities. Again, it's important to note that you are invested in thousands of different underlying assets and although Sunsuper invest these on your behalf, you do have investment choice. You have access to 20 investment options that you can choose from, and I'll just focus on a couple of those.
Now, the reason first that it's important that we talk about diversification is because what it does is provides benefits from market growth, but it also provides protection from certain sectors of the market or from any one sector of the market. So if I look at how we have performed against the ASX 300, so the top 300 listed companies in Australia, what you'll see is that if you invested 10,000 dollars prior to the GFC and that was in our balanced sorry now retirement option, you would now have just under eighteen thousand dollars in your balance.
And that doesn't take into account contributions you may have made over that time. If, though your money was invested in the ASX, you would actually have less than sixteen thousand dollars from that original investment. So what you can see is that diversification still gives that market opportunity and that market growth. But it does offer some protection from any single market, especially the share market. Depending on the investment you choose there will be different exposures to these assets. The balance option has about 50 percent exposure to share markets both in Australia and internationally. The retirement option has about 30 per cent exposure. The retirement option also has greater exposure to conservative assets like fixed interest and cash. This is then again important because what I'm showing here is how both the balanced option and the retirement option have actually charted since just before the GFC and obviously the retirement option. Having a different exposure means that it didn't benefit as much as the balanced option, but still it has performed incredibly strongly.
Now, if, though a person decided to make an investment change just at the bottom of the GFC, as we've seen many members now do as part of the reaction to COVID, what that will do is lock in that loss. And in this case, over 13 years, that person has just made back their original investment. And this is why it's important, especially in current markets, that you maintain a long term view where ever possible. We do understand that members change investments. We do understand that members feel the need to do so. But we do ask you to also consider the long term nature of your superannuation. The other reason why this is important to consider, and this is showing the investment performance for someone who has not started a retirement income. But let's look at someone who has and what I've got here is a person who started a retirement income account with three hundred thousand dollars just before the GFC. And if we track that person, even with withdrawing five, six per cent of their account balance each year in income, you'll see that they have returned back to their position thirteen years ago.
So in effect, their retirement income has been paid out from the earnings that they're making. If, though that person started their retirement income and then decided to move to cash, you would actually see a much more dramatic impact. And the reason for this is cash investment simply don't earn as much as that minimum income withdrawal rate that you're required to take. And this is in part the reason why the government has halved those minimum withdrawal rates to allow people to actually have less coming out of their pension account and seeing that recovery try and assist them with remaking up some of what they have lost. Now I won't go through this in detail, but what we do do at Sunsuper, and this was as a reaction to the GFC and we have seen the benefit of this as I've just shown on those slides, that when you reach the age of 55, we progressively move you from the balanced option to the retirement option where you have not selected an investment. So this is our default option.
It's called the lifecycle strategy. What we do is each month move part of your balance in the balanced investment and move that to the retirement and cash options. It means that as a 55 year old you've got that 60 percent or 70 percent exposure to growth markets, shares, property, private capital. But that by the time you reach 65, we've reduced that exposure to closer to 40 percent, still giving you the benefit of market growth, but giving you additional peace of mind and additional comfort.
So how has it performed? These are showing the performance for both our balanced option and the retirement option over the 10, 7, 5 3 and last year. And this is why it's important to really think about the long term investment purpose of super. If you react to the markets that we've seen in the last few months, and we acknowledge that has not been good, but if you react to that, you miss out on the long term performance, noting that over the last 10 years, Sunsuper has still returned for our pension members, well in excess of eight per cent in the balanced option and about seven per cent for the retirement option.
And this is, after all, fees and all taxes that are deducted from your account. So this is the real return that is provided to you. I'll hand back to Ruth just to make some closing comments on the investment process.
Thank you, Josh.
Just very quickly, there's no right or wrong way to invest your super or your income stream account, but it is important that regardless of what strategy you're in, that it's appropriate for your stage of life. Okay. And we're talking there around the time frame that you've got to recover from things like we've just seen COVID-19 etc. but it it's also appropriate for your own innate appetite to risk. I know in my household I'm much more inclined to be comfortable with taking risks with money as opposed to my husband, who is a bit more conservative.
And that's a very personal thing. And also, finally, that it's still appropriate for your financial goals. What is it that you want that investment to do for you? If none of those three things have changed recently, our enduring advice at Sunsuper is that chances are if they haven't changed, your investment strategy may not need to change either. However, if you do want to talk more about investments or you want to learn more about it, there is a lot of information on the website Sunsuper.com.au/markets. And you're most welcome as well to contact us on 131184 for more information on the investment options you've got. Now, just to wrap up from me, because I know there are some questions coming through about contributions in particular, so I just want to wrap up by saying we recognise that Sunsuper, that the COVID-19 crisis has impacted people in very different ways, but more so for those of you that were close to or are approaching retirement. And things may have changed, your work status may have changed. You may now need to lower your income expectations for retirement, for example, because your balance may not be where it was. You may have had an impact on that OK? If your super balance has been impacted, it might mean you've got to go and have a relook at what your intentions were for retirement, maybe having a look at what income levels you were hoping to achieve at retirement, will a slight shift there and change things for you?
For those of you that are close to retirement, it's always important to keep connected with your superannuation. There's no time more important to be engaged with your super than when you're very close to retirement. Particularly in that transition stage when you've reached preservation age. OK. And then lastly, a change in financial circumstances may have actually opened up new opportunities. We mentioned the spouse contribution, which might be the first time now you're eligible for perhaps a change in income has meant you're eligible now for the government co-contribution, which you may not previously previously have been eligible for.
And then finally, a reduction in your balance may have actually changed your eligibility to some age pension, as Josh referred to earlier on from the income test.
Now to wrap everything up, to figure out where you sit with everything and how close to the retirement plan you are, how on track you are of what you want to achieve, we do have an excellent tool on the Sunsuper website. It's called the Sunsuper Retirement Forecaster. It's a very user friendly tool.
It requires a couple of information pieces from you to be plugged in. And what it will do at the end of that is show you, based on what you said you would like to achieve in retirement and the age you'd like to retire, it will show you whether you're on track to achieve that or not. If the answer is you're not on track to achieve it, it would prompt you to some good and strategies that might help improve your situation. Now, again, all of this is available on the Sunsuper website. And that retirement forecaster is an excellent call to action, and I would recommend it's one of the first things you do after today's session just to get a feel for how on track or off track your retirement plans might be. Josh, I'll hand back to you now to close off.
Thanks, Ruth. Now, as I said up front, we are going to open up to questions in a moment. We'll welcome Kristy back in a sec. But please do call us on 131184 if there is anything you really need immediate support with, please ring our team. They can talk to you about anything we've covered today. And they will do most of that, actually at no cost to you. So please take up that opportunity. Likewise, you'll receive a survey from us and that survey will allow you to request that someone contact you. So that is another way that you can actually get in touch with us. But I would also recommend where you've got your own financial adviser that you absolutely talk to them about what we've been discussing with you this morning.
Now, Kristy good morning. Welcome back.How are you?
Very well Josh, thank you. And with plenty of questions coming through, which is fantastic.
Okay. Well, we're all yours.
So one that's quite common and maybe just to clarify is superannuation, how much you having your super counted towards the asset test when you apply for Centrelink?
Yes it is. All all financial products, including superannuation, are included within the assets test. It's important to note, though, that the government does treat different investments in different assets in different ways. So they will take into your account, take into account your balance, but they also take into account the income that it generates.
Wonderful. And just also getting a few questions whether this session today will be recorded. Yes, it is. You will receive a copy of today's presentation and the recording over the next day or so as well. So I'll address that one.
Another one that's coming through and quite common, we see in the workplace and through who we're talking to, people who retire and then decide they want to go back to work and they just want to know, does this negatively affect them? What's the impact of doing this if they've started a income account?
Well, there actually is no real impact and this is quite common now, we do see people transition in and out of retirement quite frequently. I think the day of black and white retirement, working full time, retiring full time is almost gone. People do tend to retire more than once now. If you have an income stream set up, that will depend on your age. If you're over 65, it will pretty much be irrelevant as to whether you're in and out of the workforce the income stream won't change. But if you're under the age of 65, it could change slightly. Josh mentioned that there's a product called Transition to Retirement; looks and feels very much like an income stream, except there is one slight difference, and that is that you are capped at withdrawing 10 per cent from that product if you're at work. So there is there will be some implications around how much you can draw out of the product. If you are withdrawing in and out, if you're going back to the workforce, you will again be limited to the 10 per cent. The product itself, though, will look very similar over the age of 65 there won't be any relevance there. No impact.
And I think just picking up on something Ruth said that the reality is retirement income is going to be employment income plus income from your superannuation account plus potentially age pension that you can still when you reach age pension age, depending on how much you're earning from employment, you could actually still be working while you're receiving the age pension. So retirement income can actually be a combination of all those things. And as Ruth said, we are seeing more and more people just entering and leave and re-enter the workforce.
The thing I would point out is that the only impact from my perspective would be obviously the sooner you start drawing down your super, the shorter the amount of time that that will that will last for. So that's the only consideration. But likewise, if you at some point in the future decide you want to turn your retirement income off, you can actually convert it to a superannuation account. The only implication there is the investment earnings in the super account will be taxed at 15 per cent in the retirement account they're tax free.
And Josh, I just there's a question just to your last point. So if you can just clarify, are your investment earnings taxed in the transition to retirement account as well as the super account?
Yes, they are. The only point that the investment earnings become tax free is when you start a retirement income account, when you've you've actually retired.
Okay, great. And there's a few other questions that we've got here around contributions and specifically after tax. So perhaps some of our members, they might be at a period where they're receiving lump sums, whether it be from sale of property or inheritance. How can they, they just want to know, can they get that into their income account if they've started one? Or does it have to go into back to superannuation?
That's a common question, actually. Very often we will see people who are starting income stream accounts are of that age where inheritance is quite common, a common thing. Unfortunately, you can't contribute into a pension account or an income stream. That's the one difference it does have with superannuation, it's a one way traffic system. Money can only go out of a pension. Your options there, though, are that you can just open up another superannuation account and still contribute it in. And then you will essentially hold a superannuation account alongside your income stream account.
Then you have the option to blend them together, which is a little bit of administration, but you can essentially get it done. It's just not quite as simple as lodging directly into the income stream. You will need to get that fed into a superannuation account. Remember, there are limits as well for after tax contributions. It does sit at one hundred thousand per person per annum. But there is also an ability to use the next two financial years' worth.
So essentially, if you're under the age of 65, you can get three hundred thousand dollars of after tax money into the superannuation system. OK, once you hit 65, that gets a bit trickier. You need to be able to meet the work test and you're limited to one hundred thousand dollars per annum. So a little bit of a stuff around with admin, but essentially there is a way you can do it, just not directly into the income stream account.
And what we'll do, Kristy, just because we are coming to time, we'll take one more question and then we'll close up. For anyone whose questions we're not able to get to today, we will respond to you over the coming days. But if it is urgent, particularly around contributions, again, we encourage you to give us a call on 131184. So can we have one last question, please Kristy?
One last question. So, we talked about the balance transfer cap; how much you can have in a retirement income account of one point six million. Can we just, we've had a couple of questions on how is that split? What do you do with the excess money? So if we do have some members in that privileged position where they might have a little bit more, what do they do with the excess that they may have?
Yep, great thank you. So, yeah, the one point six can be used to start your income account. If you have more than one point six million, then what's in excess of that one point six can just sit in a superannuation account. You can with withdraw lump sums from it. What the government's effectively saying here is remember that especially when you're over the age of 60, that you're in retirement income account is getting tax free investment earnings. And if you're over the age of 60, you're also getting anything you withdraw out tax free.
So all income is tax free or lump sums of tax free. So the government is really just wanting to put a limit on that tax concession because it obviously costs the government bottom line. So they want to make sure that people aren't putting these huge amounts of money into a tax free financial product. With that money, that excess that's in your superannuation account, as I said if you've retired, you can just withdraw from that. And we would probably suggest that you do take lump sums from that rather than your retirement account. If you're over the age of 60 anything that you take out of that super account will again be tax free. The only difference is that excess amount in your super account is going to have the investment earnings taxed at 15 percent. Likewise, if you want to actually invest that access elsewhere, you can do so, noting that superannuation will still be the most concessional taxed environment for it.
Wonderful thanks Josh. Thank you Ruth.
Thank you. And I would like to again thank everyone for joining us this morning. I will pass to Ruth to close off after I just make a closing remark. And that is that we are very aware of these difficult times. We are very aware of how concerned a lot of our members are, especially as they approach retirement. But know that at Sunsuper, our full focus is actually on looking after you, looking after your investments and ensuring that in the long term, as you are both entering into but living your retirement, that you have the best possible retirement that we can provide for you.
Personally, I'd like to thank you for joining us. Ruth and I would normally be travelling the country, we'd actually be up in far north Queensland at the moment; much warmer than where we both are. And we do miss seeing you. And we look forward to hopefully seeing your faces very soon. Ruth, I'll hand to you to close this off.
Look, everything Josh just said is very true; we do look forward to getting back to see your face to face. Well done to everybody who has managed to stay on the line and managed to get through that hour. It's very information heavy, it can feel overwhelming. Please don't feel bad if you didn't digest it all, contact us. As Josh said, we have so much support available at Sunsuper. We want to talk to you and we'd love to engage with you.
And it's in your hands now. So please make contact and good luck with everything. Thanks for joining.
Watch our latest COVID-19 and your super webcast
Watch the update on how financial markets are responding to the ongoing COVID-19 situation, how we are continuing to safeguard your super, how we’ve responded to your requests to switch your investments and access your super, and the opportunities ahead for a post-COVID-19 environment from Sunsuper’s Chief Executive Officer, Bernard Reilly, and Chief Investment Officer, Ian Patrick.
The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.
Hello, and thanks for joining us on this episode of the New School of Super Sunsuper's webinar and podcast series covering investment markets, money matters and making sure you live your retirement dreams. Now, for those of you that don't know me, my name is Anne Fuchs and I'm the head of advice and retirement here at Sunsuper. And the team and I come to work every day to help more members get great quality financial advice so that they can live the best possible retirement.
Now, normally, for those of you that watch our webinars or listen to our podcasts, you would know that I'm normally joined with my partner in crime. The extraordinaire chief economist extraordinaire, I should say, Brian Parker. But we brought out the heavy hitters. I keep on saying, sorry, Brian, don't hold it against me. And before I introduce them, I just want to have a personal reflection. It was two months ago that we filmed our last webinar for you. And I know sitting in this chair, I felt pretty stressed out and pretty nervous because they were extraordinary times and there was so many questions we didn't have answers to that we know you that we know you our members were thinking about and asking. Today, I sit here and I don't feel that stress, which is which is really great news, and whilst it's not sweetness and light out there, there is light on the horizon. And I'm so excited to be able to introduce our very special guests today that will be able to talk to you about what we do know to give you comfort that your retirement savings are with the fund that really is a safe pair of hands.
But before I introduce them, I just want to point out that the information we're providing today is just general information only. It's not personal financial advice, because nothing can replace personal financial advice to help you make the best decision for your hard earned retirement savings. So please don't act on anything off what we say today. And if you have further questions or want advice, please call us on 13 11 84.
So, it's my very great pleasure to introduce, I would describe as the two heavy hitters of Sunsuper, though I'm sure they hate me saying that. Bernard Reilly, our Chief Executive Officer. Hello, Bernard. Are you there? Houston. Excellent. Houston, we have liftoff. Technology is always a bit nerve wracking. And we have Ian Patrick, our Chief Investment Officer, hello, Ian.
Hi there Anne, how are you?
Very well. Ian, I think, has the best vocabulary of any CIO in Australia. So I hope you impress us with some wonderful vocabulary today.
So, Bern, before we get into some questions, maybe just a welcome from yourself to our members and other employers and advisers that might be watching.
Thanks Anne, good morning, all. Welcome. As Anne mentioned, since we last got together two months ago, a lot's changed and I think a lot of it for the positive if I think about what's happened in markets, which I know Ian will cover. If I think about fund has done on behalf of our members, to being able to meet the early release requirements, and we'll touch on some of that, I think in the Q&A. So a lot's happened. We're really pleased to be here, last time we met I think I was my study at home and here I'm in the office in Sydney today. So it feels like we're slowly getting back to some normality so it's great to be able to be here, so thanks Anne.
And it's probably a relief, you're probably relieved that your son is not hitting the printer button or the dogs are barking; all of these things that happen with live webinars.
In the real world.
The real world. And Mr Patrick, Ian hello, how are you? So, a personal reflection from you; what has it been like to be the CIO of one of the biggest funds in the country at a time like this? Are you sleeping at night?
I am sleeping at night. Though quickly as a sidebar, talking of live TV, it pops up on my screen, virus protection and I went, oh, not another economic event, but of course, it wants a restart because Cybercrime is everything today. So, but anyway back to sleeping at night. I think it is a lot easier, as you mentioned earlier, to sleep at night now, because of that light that we are conscious of at the end of what appeared a couple of months to go, ago to be a very dark tunnel. But the reality is we're not out of the woods yet. I think the level of optimism that pervades markets is justified to a degree by the return to some degree of normality in a range of activities , the pick up in some economic activity that we see. But as we know, optimism can get ahead of itself. And I think we're still on a reasonably testing path to seeing world economies recover to the levels that were evident in 2019. And we will see investment markets reflect that ongoing uncertainty in the months ahead. So sleeping but wary at the same time.
Well, you certainly don't have, no bags under your eyes, sir. Which is which is a good sign, you look fit and well. Now the path to economic recovery, and I know two months ago the phones were ringing off the hook at Sunsuper with members panicking that their money was gone. And we've seen this huge, huge bounce back of the stock market, this huge rebound. What should our members be looking for in terms of the signs for economic recovery? And is this just a blip or should, you know what, should we be feeling a bit more optimistic?
I think one of the major takeaways in this conversation is the fact that markets anticipate future economic activity. And so at the depths of the market rout in March, what you were seeing was in anticipation of that severe economic contraction and significantly higher levels of unemployment. As we've seen markets, as we've seen economies start to relax some of those restrictions and, as I said earlier, that degree of activity come back to some level of normal. So markets have anticipated a better world. So before we've actually seen whether it's Google Maps searches or driving instructions or pickups in manufacturing activity, actually hit levels that are 50 percent of what they were before the crisis. The investment markets anticipate that future improvement. And so we've seen the markets shoot up. Now, the caution in all of that is if you look at Google map searches, they may be at levels 40 percent higher than their absolute lows in the height of the lockdowns. But some manufacturing activity and certainly sectors like tourism and others that are dependent on human to human contact or relationship at some level, those are still severely depressed. And it's uncertain in areas of tourism and the arts, how long it will take for that activity to come back. And so as a consequence, that anticipation of markets is well founded in that there's data to support some turn of the bottom. But as I keep saying to people, whether we talk about a U or V recovery, it doesn't matter. What one needs to think about in reality is what the slope of that V is on the return or the U is on the return. And how long it will take to get to the level that it was at when it started the downward trend of the V. That's the challenge and I think we're still going to see markets bear some of that into the future, despite the optimism that's been evident more recently.
Ian how are we positioned with all of this market volatility? There was some media this week about excellent performance of superannuation funds I saw. Maybe it's worthwhile putting into context for our viewers how the impact of the stock market activity has impacted our performance and what they should expect.
And I might do that Anne if that's okay in the context of the balanced option, because the balanced option is where the vast majority of member money is invested, it's a well diversified portfolio and range of assets. And it's hard to sit here today and realise that the balanced option is only, and I say only reservedly, and the only one percent down, negative one percent return, since the first of July 2019. Back in the middle of March it would have been hard to anticipate a return on a financial year basis of anything close to zero. So the downdraft was rapid and and meaningful. For instance, the balanced fund was down over 10 percent, just over 10 percent in March alone. But it has recovered through April, May and June to date markedly to get us to the position where only one percent down.
And I think that's partly a reflection of that faster return to some level of activity that we talked about earlier. In relation to how funds more generally have performed, Sunsuper's performance has, over that eleven month period, slightly lagged the industry fund averages or equivalent options. We are quite comfortable with that because we feel we've been proactive in revaluing our unlisted assets so that members that transact between different options do so at a realistic price for those unlisted assets. And we're also confident that the strategy that we have in place today, which is positioned to take advantage of a rebound in credit markets and a rebound in the cyclical sectors in the share markets that have been depressed by the fears around COVID's impact on economies. Those should deliver good returns going forward.
Ian, you mentioned unlisted assets and in previous podcasts of the New School of Super, we've done deep dives with Brian Parker about different assets, and some of our members might be aware that we invest in things like airports, for example. Maybe it's useful to just explain the impact of these types of investments have had on our performance, upside and downside and equally, too, with liquidity and people drawing money out of super at the moment.
So I'll start I'll start with the performance question. And the first point is many of these assets are economic assets. They reflect what's going on in the economy to some level. And one only has to think there of airports, of ports that unload and load containers onto ships and and therefore reflect and world trade and toll roads.They are part of the economy. And so as a consequence, when economic activity is down, those assets receive less revenue all things being equal. And that ultimately impacts on the value at some level. But within those unlisted assets, there are also assets that are not as economically sensitive. And examples of those are contracted assets where by the electricity transmission grid or whatever it happens to be, is made available for an ongoing contracted payment. And therefore, whether there's more electricity or less electricity transmitted doesn't affect the owner's revenue strength. And so there have been different impacts of this economic environment on those unlisted assets. What we want to do, as I said earlier, in valuing them, is ensure that they adequately reflect the economic realities so that members are transacting at as realistic a price as we can get. The downdraft on returns has been most dramatic for private equity assets because those are companies that are active in economic activity each and every day. And as you might imagine, much more market, although not as much as the share markets, much more market for economically active assets like airports and retail shopping centres that have seen the effects of lockdown.
Conversely, logistics warehouses in industrial estates have done well because typically they're used by online retail companies and other other activity that is not as badly impacted by lockdowns. In terms of the prospects for the future, we've already seen some of those assets recover some of their value as people have reflected the shorter and shorter term effects of a return to some degree of economic reality. In terms of liquidity, we have more than ample liquid assets. Unlisted assets that are more difficult to trade at short notice make up around 30 percent of our portfolio. That means we've got 70 percent that are readily tradeable and readily available to meet member obligations. And as a consequence, liquidity has not posed a problem for Sunsuper at all.
Final question, if I may, Ian. There were a number of members I remember during that period that were switching to cash because they were just an incredibly terrified and probably not necessarily grasping the long term nature of super. What are your reflections and also advice to members that are still thinking about what they're invested in? And should they be switching any words of wisdom to share?
I think history has shown us, and ample academic literature will demonstrate, that being invested through a full market cycle in assets that are exposed to risk is the best way of generating a meaningful return above inflation. So something like the balanced option or the retirement options that have 50 or 70% in growth assets. Now, that means there has to be some recognition of volatility through that period because those growth assets do respond to perceptions of what's going on in the broader economy. Holding on through those periods of volatility tends to deliver the best long term outcome for members. It is very difficult to time the peaks and troughs of markets, exceedingly difficult. And as a consequence, for any member that has a meaningful horizon of 5, 7, 10 years, remaining invested through the period is the best advice. Now, individual circumstances might indicate a less risky investment orientation, short term needs or whatever. But those are generally informed by some form of advice and to the extent that somebody is worried about their investment strategy, as you know, we always advocate they seek advice.
Thank you. And certainly Brian Parker always says on our podcast that if he knew when it was the peak of the market, he wouldn't be the Chief Economist at Sunsuper, he'd be sitting in Tuscany drinking Chianti, so it is an incredibly hard thing to do.
Bernard, if you're still on the line, I might I have a number of questions to ask you that have been sent in from our members. And the first is actually in relation to early release. And if you have any words of wisdom to carry on from Ian's words of wisdom about what should members be thinking about and considering in respect to the next tranche of early release and accessibility of super, if they are experiencing financial hardship.
Thanks Anne. I wasn't sure if you're going to give me a chance to say a few words, Ian was doing such a good job. I think when you think about early release, so the current first tranche finishes on the 30th of June and members have been eligible to apply for the second tranche from the 1st July through to the 24th of September this year. And so I would encourage members, and we've seen already around 200,000 members through to the end of last week have applied and been successful through the ATO to get access to early release. So we've seen a lot of members take that up. And our take on that is clearly that members are experiencing difficulty at the moment, financial difficulty, and therefore they need access to this money. I would encourage you, should you have taken the first tranche or should you be thinking about applying for the second tranche to just consider your needs.Consider the fact that that money, once you take it out of Super it will no longer be there. You may need it to spend today, which is important, and you should access it if you need it. But then you think about the compounding benefits, in particular if you're young, around the fact that that money won't be there to grow for you over time. So the balance you have over time could be significantly lower. So I'd encourage you to think about that, I'd encourage you to look at other ways of accessing funds, to other government programs as well. And also, I'd encourage you to think about seeking advice as well. As Ian mentioned, we always encourage our members to seek advice and in this instance this is no different. And your financial position is different to everybody else's, so therefore, seeking advice ;either coming to Sunsuper or going to an adviser if you have one, your own adviser clearly, a discussion maybe would be a good thing for you to undertake before you actually apply for early release.
Early release two has been quite at an opportunity for the scammers, the crooks online hasn't it? Hasn't it Bern? And what are the the learnings or insights, reflections around early release and the scamming that's been going on in super?
Anne we've seen some of that in particular, we've noticed a lot of that in the media around examples of people having their super scammed. And I think the important thing here is to protect your personal information because identity theft is how this is happening. And so if I think about it in two ways, firstly, I think about it from the responsibility that you, as members have or as individuals have in fact, just to protect your own personal details. And therefore, that reduces the ability for someone to steal your identity and then try and scam. On the fund side we have cyber security, I think we've probably got some of the industry best cyber security in place, so we look at these things on an ongoing basis. We make sure that we are ahead as we can be ahead of the curve. A couple of things I need to point out, really, Sunsuper would never contact you and ask you for your password, so if you receive a call from someone who says they're at Sunsuper asking you if your personal details and your password, that is not us. So think very clearly you shouldn't give anyone calling you that information. And if they do call you, you should then contact us and let us know. Equally, if you find that you have been compromised, and this does happen to all of us from time to time, we encourage that you also contact us and let us know that that's the case, so that we're aware that your personal details have been compromised and we can make sure we take that into consideration. Any time you call us, we make sure we verify your identity before we actually take any action on your behalf. So hopefully that will give you the comfort that you're in safe hands, your super's in safe hands with us, but also, you know, there's some responsibility for individuals to also look after that detail that you have as well which is personal and private to you.
You've been CEO for six months. Seven? Who's counting? No one's counting. So, wow I mean, you couldn't have seen what was going to happen. I mean, when you came in, you would have thought, oh, you know, I'm seeing Sunsuper through a merger or potential mergers. Forgetting COVID, these are extraordinary times in super. Are there any reflections from you about consolidation of the industry? And then also what is happening with the QSuper merger?
Sure, so firstly one of the, as I mentioned in a couple of different forums, some of the attractions for me joining Sunsuper was the high quality team that's in place across the board. And I think the COVID situation's really demonstrated that to me, that your super, my super, is in safe hands with the team in place Sunsuper. And the other aspect of what was attractive to me was that the consolidation and the change that's going on in the industry, an industry that I've had exposure to now for over 30 years. And to be able to have a role to play in that was a great opportunity for me to come back in and look at the role that Sunsuper can play as a consolidator as part of the industry going forward. So I'm still very confident about our role going forward as the industry, I think is going to continue to see merger activity. I think what's really come out of the COVID situation is a couple of things around importance of the strength of your investment team. I think it really, the importance of your member offering, the fact that we have our own administrative capability has meant we've been able to pay members their money when they need it. So we've been able to pay over 99 percent of members funds within five business days.
And we are one of the only funds in the country to be able to do that. And I think that reflects the strength of our organisation. As we go into continue the discussions with QSuper, that it's taking a little bit of a backseat in March and April of this year, just given that our focus on being able to deliver for our members through this process. And now we're refocusing on that. And as I look at it, I can clearly continue to see the value behind why a merger might make sense. We've got to really go through and look at all the detail and make sure that that is the case. And then it comes to the Trustees so our Trustees need to vote that it is a member's, our members', best interest. QSuper's Trustees' equally need to do the same thing on behalf of QSuper members. And then the combined boards need to vote on behalf of a combined fund. So there's a lot of way to go yet. I'd say it's promising at this stage and it's something we are continuing to focus on.
Just quickly, though, from our members, I think some of them I know now advice team, members have asked, why would why would you do it? What are some of the high level benefits around why a merger, on the surface, looks like a great opportunity?
A couple, I think, from the perspective of membership base. So if I look at our membership base, which many of you probably be aware of, 1.4 million members, we've got younger members which have a lower balance. QSuper have higher, older members with a higher balance. And when you combine those two, you actually get a very nice distribution of membership across the economy. Secondly, if I look at the work that QSuper have done as it relates to retirement, that's something that I as I look at our membership base as it grows today, our membership base, I think there's a real opportunity to be able to offer more services to our members at that later stage when they are at or in retirement. Equally, I think as I look at our breadth, say we've got 35 percent of our members are outside of Queensland today. At the moment, Qsuper have 100 per cent of their members in Queensland. And so to be able to increase the breadth of our membership base across the country, I think is a good thing in particular. If I look at what's happened as a result of COVID-19 while the entire economy is suffering here, it is suffering great in different pockets more so than others. So to have the diversification of members across the entire country from a member base, is a good thing as well.
All of this leads to stability and the ability to have scale and lower fees for members, which is which is what we're in the business of doing. I think lastly, last question Bern before we move to final comments. Question without notice, if I might, around super in general, and if you're happy to roll with it and there is a bit of noise about superannuation. You think superannuation is still as relevant for young people and old people as it was when it was created a number of decades ago?
Most definitely, if anything, I'd argue it's going to be more relevant in the future. And we can't forget we're only now seeing members retire who have had super for entire working career. They're just starting to retire now. And so they're going to start to see the full benefit of having saved, of having a savings scheme, which is effectively for their retirement through their entire working career. And so I think those members very clearly going to see the benefit of that today and in the future.
I think with our younger members, I think it's really easy to put super to one side and actually think of it in particular when you've got when you're working, you're focusing on raising a family or you're a new job, I think it's really easy to ignore the importance of super. And we do tend to see our members when they hit around the age of 45 and start to focus on super, because they're thinking the timing isn't as far away as it used to be. I can tell you it's an older member, so is working; it's something that I'm clearly focused on today. But I think it's important to think about the future. And our members need to continue, no matter their age group actually, they need to continue to think about their future and savings in super, which is tax advantaged, is a great vehicle for you to be able to think about retirement, save for your retirement. So I would definitely think that that while I think there's more interest in super today given early release and market volatility. I hope that interest from our members continues in the future. Because I think working as partners with the fund very clearly where we can help you grow that retirement balance for that it's ready for you to use when you retire.
And I would echo those sentiments and point out to any of our younger female viewers that women are still retiring with 50 percent of the balance of men and we are the fastest group of homelessness in this country. So just paying that little bit of extra attention money is security, and we need that more than ever as women in this country. Ian I might, if it's okay, throw over to you for any closing remarks that you'd like to share with members.
Ian are you there?
Yes, I am.
Any closing remarks, I couldn't see you it made me a little bit nervous. Any closing remarks to share with our members before we sign off today?
I'm glad you asked your question without notice because it prompted me to think about the investment advantages of super. And there's a phrase that goes around at the moment "Build back better". As in as we build back economies, how do we do better for our collective future? And quite frankly, I cannot think of a better way to do it than through superannuation because of the power of the pool of assets that your money, my money, Bernard's money and our collective members' money can make in scale to economies and to markets.
And without that, we will have a much more fragmented and a much more expensive capital market process and system around the globe. And so my parting remark is, I think super or very effective investment reasons is as good a long term outcome as we could hope for. And I certainly hope it survives. That's before we get to the cultural orientation within funds like ours, where we know we're investing on behalf of members and we come to work every day just to do that. Not to or anything else, it's about ensuring members get the best retirement outcome.
That was s so eloquent and lovely, that makes me happy to hear you say that Ian, and I know many of our members would feel that same happiness to hear you say that.
Bern as CEO what message would you like to leave with our members as we sign off today?
Thanks Anne. Firstly, I would like to thank you for joining us. I hope that through the, I know the last couple of months have been difficult and I and I think that we say that across the entire community, how difficult it has been and as Anne has mentioned I think we've still got a little way to go before we get through to the other end of the tunnel or over the bridge, whatever analogy that you'd like to use. But I want you to be aware that the team at Sunsuper are here for you, we continue to be here for you, we will continue to be here for you on the phone, through the web, through these webinars. And we are clearly here to deliver on those investment opportunities that we have that we're demonstrating for you every day and Ian mentioned that the team are here everyday to do that. And our member team are here every day to answer your calls. And our team are available for advice throughout this entire difficult period, so I encourage you to reach out to us as an organisation who's here to help you through this which really clearly is a difficult time. So thanks for joining us.
Thank you, Bern. If you need to call us, that number is 131184. And if you have a financial adviser, we always encourage you to speak to them as well because they can provide you that important advice around your Sunsuper account.
So we look forward to you joining us again on the next School of Super webinar or podcast, I'm not really sure, and I'm certainly looking forward to my partner in crime, Brian Parker, joining me again soon on the hot seat.
Thanks for investing the time to hear us today. And we look forward to you joining us again. Goodbye.
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Watch the webcast to find out the factors that will determine success in an uneven global recovery, how market volatility is influencing Sunsuper’s investments in listed and unlisted assets, and what you should consider if you’re thinking about making a change to your investment strategy, or accessing your super early.
Our education presenters can help you understand the process for early access to your super and considerations for planning for your retirement in the current environment.
The latest on the COVID-19 situation
Despite some solid gains over the past two months, major share market indices are still below their February highs. In fixed income markets the improvement in investor confidence has reversed some of the ‘safe haven’ demand for government bonds that was evident in March and prompted a recovery in non-government bond prices.
As expected, economic conditions across much of the world have deteriorated as measures to limit the spread of the virus severely disrupted economic activity.
Governments and central banks across the world have taken (and continue to take) aggressive policy measures to reduce the impact of the crisis on economic activity.
Here in Australia, we have experienced a recession with output and employment falling sharply. The policy response has been unprecedented. And while unable to prevent the recession from occurring, it has certainly cushioned the blow on both households and businesses and will help to underwrite the recovery.
Latest evidence suggests that infection rates have declined to very low levels in many countries, even in some of the previously worst affected. Here in Australia, only a small number of new cases have been reported.
The economic impacts of coronavirus
We are beginning to see the beginning of an economic recovery in a range of economies in response to the gradual lifting of restrictions and aided by the strength of the economic policy response. However, the timing and speed of the economic recovery will vary across countries, depending on a range of factors, including the size and effective implementation of fiscal and monetary policy efforts, and the underlying resilience, structure and flexibility of individual economies.
Here in Australia, while economic conditions are extremely difficult, the economy has performed better than earlier expectations, due in no small part to the success in containing the COVID-19 outbreak as well as the economic policy measures put in place.
We are also likely to see a great deal of variation across industries. Some of the worst affected, such as airlines and cruise ship operators, seem to be obvious potential laggards. Moreover, should moves to relax restrictions be followed by a resurgence in infections, the risk of a renewed downturn in economic activity – either because of re-imposition of restrictions or because of the adverse response of households and businesses – increases significantly. While much of the reported economic data will remain very weak in the near term, we expect that the economic news that will emerge across the world and here in Australia over the coming months will show a gradual, drawn-out and uneven recovery. The recent strength of world share markets has surprised many given the current state of the world. However, it is important to remember that financial markets are forward looking: much of the adverse economic news we are seeing now had already been reflected in sharply lower share prices and bond yields. This means that while bad economic news still has the potential to unsettle markets, financial markets are looking ahead to the post-COVID-19 recovery.
Watch and listen to more from our Chief Economist
Read the latest on Sunsuper’s investment strategy from our Chief Economist
Sunsuper Chief Economist Brian Parker recaps Sunsuper’s investment performance over the past quarter, explains the impact of the coronavirus outbreak on the global and Australian economies, and outlines Sunsuper’s investment strategy amidst the current uncertainty.
Watch the latest on the COVID-19 situation from our Chief Economist
Sunsuper Chief Economist Brian Parker speaks with ABC Weekend Breakfast on the economic impact of the COVID-19 outbreak, particularly its effect on members’ super investment. (Video credit: ABC News - 7 April, 2020).
Watch our webcast recordings
In this special New School of Super webcast, Chief Economist Brian Parker discusses the latest on the COVID-19 situation and answers members’ questions, including how long we think the crisis will last, how we invest your super, and the implications of moving to a more conservative investment strategy.
Our Chief Executive Officer and Chief Investment Officer discuss the latest update on the COVID-19 situation and how markets are responding, how we are continuing to safeguard members’ super investment, and the government support available in relation to super.
[00:00:03] Intro: Welcome to the new School of Super. A fresh look at money matters, your super and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs.
[00:00:18] Anne Fuchs: Hello and thanks for listening. Welcome to the New School of Super, Sunsuper's s podcast series covering investment markets, money matters, your super and helping you achieve your retirement dreams. Today with me is Brian Parker, Chief Economist here at Sunsuper and the man who knows so much about economic markets. And it's incredibly important that you do, because we have a very special episode today, Brian.
[00:00:41] Brian Parker: We do indeed, good to be with you Anne.
[00:00:43] Anne Fuchs: For those listeners who don't know me, my name is Anne Fuchs, and I head up Advice and Retirement here at Sunsuper. So, as I said, we are talking about COVID-19, coronavirus today for our members and listeners. Before we do that, though, Brian, you need to give your very special general advice warning.
[00:01:00] Brian Parker: I do. And as always, before we start, I need to let you know that what we're gonna be talking about today is general information only. Any advice does not take into account your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we discuss. You can also get a copy of their product disclosure statement from a website or by calling us on 13 11 84.
[00:01:22] Anne Fuchs: Thank you, Brian. Look, if you that what you just said then about seek advice before acting, I couldn't stress that enough. Right now, I know that many of our members are moving more than I'm certainly comfortable with moving to cash as a reaction to what's happening in the economy before seeking financial advice, which worries me a lot. So should we just recap where we are as at the start of March in what a very uncertain economic times. Brian, could you recap for us?
[00:01:49] Brian Parker: Okay, the coronavirus that started in China, is continuing to spread across some other countries around the world. Firstly, the I think it's important to acknowledge that the economic impact of this is going to be severe, certainly in China, but not just in China. Through impacts like the impact on supply chains across the world, impact on travel and tourism and in Australia's case, for example, education exports. The impact outside of China is also going to be quite severe. Now we have seen infection rates for coronavirus actually start to come down, actually come down very, very sharply in China that the latest figures show that infection rate, virtually stalled, which is clearly very,
[00:02:30] Anne Fuchs: however, in Italy, they're going up and the country's shut.
[00:02:32] Brian Parker: But exactly, but slowly, slowly, slowly the country is actually coming back to work. So when you look at the
[00:02:38] Anne Fuchs: China or Italy?
[00:02:39] Brian Parker: China, let's talk about Italy and Iran elsewhere, but for the time being, if you look at what's happening in things like property sales, if you look at things like the consumption of coal for electricity, you are starting to see activity come back online. You started to see people go back to work. This is gonna be a drawn out gradual process. But it seems to be the case that the worst of the economic impact in China at least, um, has come to an end, and we're starting to see this gradual recovery.
[00:03:09] Anne Fuchs: And if I could booknote that before we go to the other countries that obviously Australia has a vested interest in the economic prosperity of China because that was what gave us the stimulus to claw away out of the last recession.
[00:03:21] Brian Parker: Well, there are other factors in play that back then backed up. But the bottom line here is that yes, Australia is quite severely affected as a China is a major export destination. It's a major source of tourists. It's a major source of students for universities and other schools. So clearly the Australian economy is gonna be very adversely affected by this, especially during the March quarter, but that we think that impact is likely to persist for some time.
[00:03:44] Anne Fuchs: Okay, so if we go to the impact on Italy, Iran and the United States and there are varying degrees of responses here, extreme responses in some respect. The United States doesn't appear to be much that President Trump is acknowledging it's that much of a problem yet, while Italy is in lock down.
[00:04:04] Brian Parker: Yeah, it's look, the responses have been, have vary from country to country. I think the important thing to bear in mind here, though, is that the bad news, if you'd like, is that I think infection rates are going to get worse before they eventually get better. So when we look at what's happening in Italy, where you know, Italy has shown, Ah, big surge in infection rates on you've also seen the surge on fatalities there. But make no mistake about this. The official response has been in some countries has been very aggressive and appropriately so. In my opinion, the response in the United States has been has been slow up that it is getting underway, and when you put all that together, it does. It kind of reinforces the point that this crisis is going to come to an end. At some point you will see infection rates decline not just in China, but you'll see infection rates declining elsewhere as the response from the health authorities actually does take effect.
[00:05:01] Anne Fuchs: it's obviously, the Northern Hemisphere is coming out of their winter, which means that people generally start becoming healthier. Is things warm up a bit, however, were just about to hit into our flu season in the southern hemisphere and in Australia, so surely they might be in some parts going through the worst of it, but we're just heading into it.
[00:05:22] Brian Parker: Well, that's right. And certainly the Northern Hemisphere moving into summer actually does is good news for them. Thea Other piece of good news out of that is that we have clearly been forewarned about this, that we've had plenty of early warning. We've seen what's happened in the Northern Hemisphere, and so we've We've been, well, forewarned to actually do something about it ahead of our winter. If you look what I think, what the authorities here in Australia we're doing. It's pretty clear that the authorities are taking some pretty significant steps to try and make sure this is controlled.
[00:05:53] Anne Fuchs: I do feel very much for communities all around the country in regional Australia who rely on tourism and have also had their their environment ravaged by its by bush fires or by floods. And the compounding impact on all of this is absolutely devastating for regional Australia.
[00:06:12] Brian Parker: Yeah, very much so, and it's important to bear in mind that at least, and I know this is gonna sound a little harsh, but please bear with me in an economic sense. coronavirus is a much bigger deal than the bushfires were. But certainly for a lot of these regional areas to be faced with coronavirus and the impact that has on tourism and on the economy in general at a time when they're really just starting to get out, get out of the impact of the bushfires is it is a double whammy. There's no doubt about it.
[00:06:37] Anne Fuchs: that. So just over 10 years ago, we had the collapse of Lehman Brothers and then that global financial crisis and Australia avoided a recession. Uh, there is talk that this time around, we're not going to be able to avoid the recession and certainly with well and truly kissed the surplus goodbye. What do you Are you brave enough around making any predictions which I know is very challenging at the moment around whether we will head into a recession and how long and what the impact on the deficit will be.
[00:07:05] Brian Parker: Okay, well, firstly, I think it's fairly clear that we will end up with a negative result for Australia's economic growth for the March quarter. The economy has taken such a hit that we are likely to see GDP shrink during the March quarter for the June quarter, and really, it's just so uncertain. It's just depends on the speed of the recovery and global growth. It depends on just how fast the government can get assistance out to affected industries and to workers, for example, who have to be either laid off, people who have to go to quarantine or whatever. These people are going to need financial help in order to maintain a level of spending and and to live
[00:07:44] Anne Fuchs: well to pay the rent.
[00:07:46] Brian Parker: So really, it's important. I think, that government assistance in this I think the government's any sort of fiscal policy or government response here has to be firstly, yes, very well targeted. But it's gotta be in sufficient size and delivered fast enough to really cushion the blow. And so because we don't know what that's gonna look like it it's really hard to know just how much of an ongoing impact this is gonna have on the Australian economy in the June quarter or the September quarter. My best guess at this point is that we get away with out of recession, but whether we just just avoid one or not is gonna be cold comfort to people who are really been adversely affected by this.
[00:08:21] Anne Fuchs: So before we get into what's all of this mean for our members and their retirement savings? I guess if you could just high level contrast the difference between the last big your economic shock, the world experienced with which was really a bunch of investment bankers taking way too much risk and creating misery and have it for the rest of the world versus are biologically induced chaos. This from coronavirus. What are their...I guess the markers our members need to understand around the difference in those two events. And how then we, then claw our way out of it into recovery?
[00:08:55] Brian Parker: Okay, there's a lot to unpack there. Firstly, if I look at how the world was going into the GFC , and you're right, Look, the GFC was caused by way too many people in way too many countries doing way too many dumb things.
[00:09:11] Anne Fuchs: And greedy?
[00:09:12] Brian Parker: why too much borrowed money and that was the problem. We don't And I'm not saying that we don't have people out there now doing bad things, doing dumb things with borrowed money. We do but it's nothing like the kind of scale that we saw pre GFC. And I think the main takeout main thing to note first is if I look at the underlying health of the economy as we were going into this crisis, I think the world was in better underlying health, and it was, so the fundamentals are better than they were then. We don't have the same sort of financial excesses. If you like that. We had pre GFC we didn't have a bank system that was vulnerable.
[00:09:51] Anne Fuchs: So we have a buffer
[00:09:53] Brian Parker: that I can. And I think they look so the underlying fundamentals of the economy a better going into this crisis that it was going into the GFC, a financial crisis when it hits, takes years to unwind. Whereas when you have a health crisis like this it tends to be a shorter, sharper shock to the economy. At least that's the more recent example. Things like SARS, for example, that people do tend to focus on Yes, you. The hit to the economy was relatively short and it tended to rebound quite quickly. I think it's gonna be more challenging this time around, but you will see a recovery, and the recovery is going to be somewhat faster, I think, quite a bit faster than we saw post the GFC.
[00:10:34] Anne Fuchs: Okay, so if we translate this to people's retirement savings and, I said at the start of this episode, I am worried about members causing financial self harm by moving to cash when they may not need to. Just as a reaction to a lot of the hysteria in the media.
[00:10:51] Brian Parker: Look, that's a good question
[00:10:53] Anne Fuchs: more of a statement, Brian.
In episode 30, Brian covers the global response to the crisis to date, how Sunsuper’s default investment option aims to protect members’ superannuation savings in challenging times, and the importance of members seeking financial advice before making any changes to their super investment strategy.
[00:00:03] Intro: Welcome to the New School of Super. A fresh look at money matters, your super and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs.
[00:00:18] Anne Fuchs: Hello and thanks for listening. Welcome to the new School of Super Sunsuper Podcast series covering investment markets, money matters, your super, and helping you achieve your retirement dreams. Today we have a special guest. Andrew Fisher Sunsuper's, Head of Asset Allocation one of our most important roles here at Sunsuper when it comes to managing and growing your retirement savings. And here today he is talking about how is a fund we are responding to this extraordinary event of coronavirus and your retirement savings for our listeners who don't know me. My name is Anne Fuchs, and I'm the Head of Advice and Retirement here at Sunsuper. And our job is to help our members achieve their retirement dreams through great quality financial advice before we get into it, Andrew, welcome, firstly -
[00:01:05] Andrew Fisher: thank you very much Anne
[00:01:06] Anne Fuchs: now I'm gonna let you off the hook because you're sitting in the illustrious Brian Parker, Chief Economist chair today. And he would normally do our general advice warning. But I won't subject you to it, I might do it for you. So before we begin is always just to let you know that what we're talking about today's general information only Any advice that we give does not take into account your personal situation. And you must consider your circumstances and think about getting personal financial advice before you act on anything we discuss. You can also get a copy of our product disclosure statement from our website or by calling us on 13 11 84. Welcome, Andrew.
[00:01:47] Andrew Fisher: Thanks very much Anne, pleasure to be here.
[00:01:49] Anne Fuchs: well look. Yeah, I've been wanting you on the New School of Super for some time. So, the timing of you coming with asset allocation and in this very challenging economic climate is, um is great to have you here because arguably, asset allocation is one of the most if not most powerful lever when it comes to growing in protecting a member's retirement savings.
[00:02:12] Andrew Fisher: Yes, it is. So it is a It's a pleasure to be here. I wish it could be in a better scenario than we are in right now. It's a challenging environment that we're in right now, and I guess I want to talk a little bit about what asset allocation is and what we do in asset allocation. So asset allocation is how we put together a multi asset portfolio, so out diversified portfolios, whether that be balanced growth, retirement or conservative. This is where most of our members invest their money, and this is where they trust us to invest their money on their behalf and myself in my team, what we do is we put those portfolios together.
[00:02:47] Anne Fuchs: so it's kind of like baking a cake where you've got all of these ingredients and that the quality of those ingredients and the quantity of those ingredients is really comes down to how delicious the cake is. And I guess at the end of the day there are only a a small number of assets that you can use to deliver the returns for our members. How do you? I guess if I can start with how are you sleeping? What's keeping you awake at night in times like this?
[00:03:11] Andrew Fisher: It's a very good question and on a day like today where we've had some really violent market moves overnight. I do typically sleep fairly well, but I must admit, I was awake at about one o'clock two o'clock this morning checking markets to see how things were going. So it is. It is a really challenging time, and I can understand some of the anxiety that people are feeling with the way markets of behaving. You couple that with what you're reading in newspapers on a daily basis. This is a tough time, and this is why people like myself this is why we're here, where he had to actually look after your investments. I'm getting up in the middle of night so you don't have to. That's that's what I'm here for.
[00:03:47] Anne Fuchs: So how does it work with strategic asset allocation? Because strategically implies long term decisions to achieve a certain goal. But in an environment, where, as you said the market is reacting violently every day. There's got to be some tactical responses. How do you deal with that from a decision making perspective?
[00:04:10] Andrew Fisher: Looks, I'll give you. Let me give you an example of something we've done recently. So if you think about Australian equity. So as of today, I think Australian equities are roughly down about 20% in a very short space of time. It's a big change now. The question we sort of ask ourselves is, if you think about what equity market is, it's what you're paying for is all the future earnings that that market will deliver now. Has that changed in the last two weeks by 20%? Is the future earning capacity of the whole Australian economy effectively 20% lower? We don't think that's the case. So then the question is, well, two weeks ago, we have it wrong or today that we have it wrong or is it somewhere in between? So the way we think about it, we're making a long term, forward looking decision. But when the market moves by 20% that long term, forward looking decision has changed an awful lot in a very short space of time. So what we're thinking about in response to this is not should we be selling, but everything just got 20% cheaper. Are if we look forward by 7 to 10 years from today, a 20% discount on an asset in a two week period is really attractive now in terms of why's that anxiety driving is that you gotta make a decision to buy when everybody else is screaming at you "Sell"
[00:05:23] Anne Fuchs: intuitively. I think Andrew, that concept of buying and when markets are cheap that logic applies, Australians would get it when it comes to property. But it is more challenging for every day Australians to get that logic when it comes to buying with shares and people are doing the opposite. Where are you seeing, if you're looking 10 years from now, where do you see from an asset allocation perspective, opportunities around the globe? What types of investments do they look like?
[00:05:53] Andrew Fisher: So in terms of sort of the shorter term responses that we're having now, that's really driven by what you're saying in share markets, so that will be share markets around the world; the other thing that's been responding really sort of severely in recent weeks has been bond yields, bond market. So we've been reducing our exposure to bonds and increasing to equity markets all around the world, and that's that's pretty consistent. I mean, we've been doing more in European markets, for example, less in the US but on the margins were pretty much buying everything when it comes to equities, I guess one of the one of the difference differences between sharemarket's and property market, for example, is you don't often see on the front page of every newspaper that $60 billion was walked out in a day in share market. Would you get that in sharemarket's all the time you hear there's a trillion dollars has been wiped out across the globe in the last two weeks. Like these sorts of huge stats come in really hard and fast, and they confront you in really big, bold font on the front page of a new and terrified people. Yes, properties are much slower moving market, so that can't happen in a very short space of time. Um, that's not to say that we haven't had property corrections here before as well. I mean, you have to go back a fair way, probably to our last big recession, to remember the last one of those. But those can be quite damaging as well. But when it comes to property, we would call that an unlisted market. It's a direct market. And so you're waiting for a market to be created, whereas in shares things will repriced every single day. What we will think about is in different times, when is the right time to say perhaps move from listed markets shares into unlisted markets. So we do a lot of investing in alternative assets. He sort of mentioned before the concept of the cake and the ingredients. One of the great advantages in my life is I have some of the best ingredients out there to make my cake with. When it comes to putting together a multi asset portfolio using those ingredients, one of the big things you think about over the long term is diversification. So how many different different ingredients can you put together in the cake? More ingredients more diversification. You have a better tasting cake. So that's one thing we have, and the other thing we think about is when is the right time to use those alternative assets more or less than the traditional equity and bond markets at a time like right now, equity markets have fallen quite substantially, so we wouldn't want to be selling equities to go out and buy alternative assets necessarily. But in a place like bonds, where bonds are really increased in value, they're really quite expensive. Opportunities to use alternative assets in the fixed income as a replacement fixed income. That's really attractive to us.
[00:08:29] Anne Fuchs: So Andrew, from an asset allocation perspective, we've just spoken with Brian about the concept of like lifecycle investing in how we de-risk our members portfolios as they head towards retirement to protect them from these market shocks. Are you able to explain how you and the team use asset allocation to achieve this risk protection for our members
[00:08:51] Andrew Fisher: when it comes to risk protection that key levers diversification. So at a fundamental level, what we what we do is we actually take investment risk. So the idea rested allocations to put together a logical collection of risks that we want to take that we think will be rewarded going forward. Diversification is the process of picking different risks. So when one of them is perhaps going when one asset is going up, one might be going down over the long term. These are all things that are going to go up over the long term.
[00:09:19] Anne Fuchs: Some assets have a greater amount of the, greater upside and greater risk at which I think our older members dare I say our 50 plus members might be feeling particularly anxious about
[00:09:28] Andrew Fisher: I guess so. Something like equity. For example, Equity is what we would call that a high risk asset. So that's what the
[00:09:36] Anne Fuchs: Equity being the stock market
[00:09:37] Andrew Fisher: Yes, so investing in shares. So that's what the higher end of risk to try and quantify what that risk looks like. One in sort of five years, you're expecting to get a negative return from equities. That's one way of thinking about it. But in return for that, you get much higher returns. So, I mean, if you compare bonds and equities, for example, bonds are sort of the lowest risk asset equities the highest risk something like equities, you'd expect 4 to 5% extra return over the very long time versus bonds. So if today bond yields, or something like 1% or less even actually overnight, I say, expecting 1% return from bonds, you should be expecting 5 to 6% return from equities
[00:10:18] Anne Fuchs: and and the unlisted assets that you spoke about, things like the infrastructure and property that aren't on the stock exchange?
[00:10:26] Andrew Fisher: So this is we use the term and illiquidity risk premium, which sounds really complicated -- Yes -- Basically, what we say is, if you tie your money up, you must be rewarded for that. So one of the advantages of, and I was speaking about this earlier in terms of last night, we can respond to what's happening in private into public markets. So in shares and bonds, we can act on information immediately if we are in property or if we are in infrastructure and airport, we can't respond immediately. There isn't a market there. So we need to be rewarded because it takes away opportunity. So that's what we call an illiquidity risk premium. You get paid when we typically demand somewhere in the range of 2% roughly speaking as an extra return to time on the up over long term like that.
[00:11:10] Anne Fuchs: But even some of those assets do you have a higher elevated risk than normal, particularly airports. If you think about the extent of everyone being grounded?
[00:11:18] Andrew Fisher: absolutely, absolutely So I think when we so I mean, I get to see all of the internal stress testing that we do. For example, the number one stress test that we run on airports, is SARS, so SARS and 9/11 Those are sort of the big stress tests that we run on the airport portfolio and we So we understand. How our airports are going to behave through this crisis way also understand it's a temporary effect. So would there will definitely be an impact on earnings on those assets in the short term. But at the same time, we own those assets for the next 30 years of earnings and that temporary blip. Basically, this year we also have evidence of what happens after those blips, and you go straight back to a trend earnings profile very quickly. I don't think this is going to fundamentally change the way people move around the globe. It's gonna temporarily ground people.
[00:12:10] Anne Fuchs: before we conclude the episode, I think, would be really useful for our listeners to understand from an asset asset allocation perspective, the difference of what? How is asset allocation different for a 30 year old versus a sixty year old when you're pulling together or constructing a portfolio for our members
[00:12:28] Andrew Fisher: s. So I used the example of shares and sort of you might expect shares to give you a negative return once every five years. So I think the first question the first thing we think about when we put together these portfolios is what is the investment horizon? So what is the investment horizon someone has? And someone who's 60 years old versus someone who's 30 years old has a much different investment horizon. When you're younger, you can invest for much longer period of time. And that is an advantage, because if you think about what illiquidity looks like, illiquidity risk premium, you get paid to look assets you paid to lock your money up. And so if you have a longer investment horizon, you can invest with a longer term, and you can earn higher return in response that you're gonna be taking more investment risks. So you need to be able to tolerate the ups and downs of markets over that long horizon.
[00:13:14] Anne Fuchs: So what's the difference of - I'm being pointed - If I'm being pointed with you from a shares perspective, a 30 year old has what sort of percentage of their portfolio exposed to shares in the stock market versus a 60 year old in the default life's lifecycle product?
[00:13:30] Andrew Fisher: There's a lot of alternative assets in there, but if you sort of look through all of that and you ask yourself on balance, if you just thought of the whole portfolio was just being shares and fixed income, it would be roughly 70% shares, 30% fixed income. You compare that with someone who's aged 65. At the end of their life cycle, they would have around 45% shares and 55% defensive assets. Be that fixed income cash or other alternative defensive us.
[00:13:57] Anne Fuchs: And we do that because
[00:13:59] Andrew Fisher: we're managing that default member or managing our members into a position of lower risk because we recognise our investment horizon is getting shorter. Their needs are shorter, and their balances are getting larger as well. So the risk around that balance is getting bigger. So as you as you go through your lifecycle when you're younger, it's all about future earning potential. But as you sort of reach maturity in superannuation. You have a large sum of money. There you're in the drawdown face, potentially a drawing from it. There's a concept of sequencing risk, which is the idea that when you're putting money in your you're always buying, markets fall. Actually, it's an opportunity to put money in cheaper. The alternative to that is, though, if you're taking money out of your super and markets are falling, then there's a risk that you're locking in losses. So taking more investment risk when you're younger is a lot easier. But as you get later in your retirement planning journey are you really need to think about how much risk you're able to bear and your capacity to do that, Given what you need to draw out of your super as well.
[00:15:00] Anne Fuchs: So final bits of advice sitting in your chair. A man that's responsible for the allocation of $75 billion worth of Australians' retirement savings. It's a huge responsibility.
[00:15:13] Andrew Fisher: So, I will go back to your earlier comment and that I do not give personal advice, but it's so this is very general advice, I think look forward, don't look backwards. So when you're investing money today what happened yesterday has got absolutely no influence on what you should be thinking about looking forward. So don't change your investment strategy. Based on the last two weeks of performance, what was your investment horizon? What is your investment horizon and what is your investment strategy. Set up consistently with that. If you look at Sunsuper's returns over the past five years to yesterday. Um, over the five years to yesterday, the returns have been somewhere in the order of 6 to 8%. Now the returns over the two weeks to yesterday may have been minus 5%. But you shouldn't make a five year investment decision based on a two week performance outcome. You need to be able to accept it from time to time. You might have good and bad weeks. You're investing for the long term, and I think any member, any member, any investor anyone out there should really be thinking about what it actually what is a realistic return expectation And what should I be aiming for going forward? And am I comfortable there?
[00:16:21] Anne Fuchs: And that's where financial advice comes to the fore because five years from out, we can start helping you plan for what your goal looks like, taking into account all of the factors going on in your life and your desire to maybe scale back hours, your cash flow needs and the like. So if you're five years out from retirement and you want comfort that your money is going to be there and provide you that secure and dignified retirement, you should definitely call us on 13 11 84. Andrew, it's been an absolute pleasure having you on the New School of Super
[00:16:49] Andrew Fisher: thank you very much Anne, the pleasure has been all mine.
[00:16:51] Anne Fuchs: Thank you yo our listeners and we look forward to you joining us again soon.
[00:16:53] Outro: This has been the New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you've got a superannuation or investment question, you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it feature in one of our future New School of Super podcasts.
And in episode 31, Sunsuper’s Head of Asset Allocation outlines how Sunsuper is responding to the impact of the coronavirus on share markets, including how he and his team construct Sunsuper’s investment portfolios with members’ best interests at heart, how asset allocation works, and how he uses the power of diversification to cushion the blow of market downturns on members’ retirement savings.
Hi. I’m Brian Parker Sunsuper’s Chief Economist. While you may be concerned about the impact of the coronavirus crisis on your super investment, we encourage you to remember that super is the longest-term investment many of us may ever have. And while we have seen negative returns in the past month these follow many years of very good returns, and the longer-term performance of Sunsuper’s investment options remains strong.
And while we know that market downturns are inevitable, they’re also temporary. Every crisis, every downturn, every recession comes to an end bar none. And it is highly likely that this crisis will be no different. You can read our commentary and listen to our latest podcasts on the coronavirus. Go to sunsuper.com.au/markets for more information. Now all of this is general information only and doesn’t take into account your personal situation. If you feel you may be over exposed to shares and are very worried about the impact of this downturn on your retirement, you may need to consider moving to a more conservative strategy. However, taking that step after markets have already declined sharply can create other problems. More conservative options are not likely to benefit as much from an eventual recovery in share markets, and these options tend to deliver lower long-term returns. If you are close to retirement and want to review your current investment strategy, we encourage you to speak with a financial adviser, either within or outside of Sunsuper.
To speak to a Sunsuper financial adviser, please call us on 13 11 84.
Past performance is not a reliable indication of future performance. Sunsuper employees provide advice as representatives of Sunsuper Financial Services Pty Ltd (ABN 50 087 154 818 AFSL No. 227867) (SFS), wholly owned by the Sunsuper Superannuation Fund.