To say the last 12 months have come as a shock for people thinking of retirement is understating the obvious.
The flow-on effects of the global financial crisis have touched every sector of every economy around the world, including the economic miracles of China and India.
And it has had a dramatic effect on many Australian households, including their superannuation balances.
However, the fact remains that superannuation is one of the most effective tools to save for retirement and there is cause for optimism.
The federal government has been quick to kick start a recovery, which is good news for superannuants.
It has spent billions to stimulate the economy, with the recent $42 billion stimulus package designed to drive the Australian economy forward during the current credit crunch, although plunging the budget $22.5 billion into the red – the largest deficit in 15 years.
And there is evidence that the green shoots of an economic recovery may be at hand.
By now cash bonuses of up to $900 from the stimulus package will be making a positive impact in the homes of low and middle income earners across the nation and more importantly businesses around the country. The building and infrastructure aspects of the package will be felt in due course.
The Australian financial services sector has held up compared with its counterparts overseas, mainly through our regulatory system and the federal government’s intervention, especially the guaranteeing of bank debts.
Global economic cooperation is also on the up turn, following a meeting of world leaders at the recent G20 summit in London.
Australia’s housing market has also stood relatively firm, falling by an average of just 3% in 2008, compared to drops of up to 20% suffered in the UK and US housing sectors, while the generous boosted first homeowners grant buoys the market.
And while volatility in global markets remains high, the massive falls of the last six months have started to turn around, bringing relief to investors, particularly those in superannuation funds.
Australia’s superannuation system looks to be in good shape
Despite super funds witnessing a lowering of balances in the past 12 months, the good news is the fundamentals of Australia’s superannuation system have withstood the test of the economic downturn, buoyed by the federal government’s tax incentives designed to encourage people to save for their retirement.
As we look ahead to the start of a new financial year, it is difficult to predict where the economy will stand in 12 months time.
But one frequently quoted principle remains true: superannuation, just like any other long-term investment, is cyclical in nature. This means investors must expect some “up” and “downs” in returns during an investment cycle.
At no time has this mantra been truer than during the current crisis, which follows a long period of unprecedented growth.
This is not the greatest of news for those fund members nearing retirement, calculating their life savings and questioning whether they have enough money to stop work or not.
Remember superannuation is always long term investment
Many members will at this time be making some difficult reassessments of their future. For those with more time up their sleeves, the current crisis will hopefully go down as a hiccup in their overall savings plan. This should provide some relief when considering how returns may pan out in the forthcoming year.
It is impossible to say how we will end the 2008/2009 financial year - though there is no shortage of economic forecasts ranging from the optimistic to the less than optimistic, to put it mildly.
The important point for investors and fund members to keep in mind is that markets generally - and over time - do go up.
By Brendan O’Farrell - CEO Intrust Super Fund
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