John Billington
Contents

by John Billington
General Manager
IOOF Portfolio Solutions

Like fans of certain sports teams (I’m not mentioning names) there seem to be plenty of fair weather supporters of the Australian superannuation system.

During the bull market, which seems so long ago now, our pension system was almost unanimously hailed as a global standard, a trail blazer.

Now that times are tough there are ‘super critics’ everywhere…

Some argue for a cut in contributions to super funds, others want to dismantle the whole system in favour of a voluntary process, others just insist that the industry ‘has a lot of explaining to do’ – as if the largest financial crisis of modern times was a superannuation industry conspiracy.

Superannuation has helped Australians save $1.1 trillion for retirement

Now don’t get me wrong, the superannuation industry (in fact, entire financial services industry) needs to learn some tough lessons, and adapt accordingly, in the wake of these extraordinary times, but it’s important to keep things in perspective. Is the superannuation system itself really the cause of our problems? Are compulsory super payments suddenly a bad idea? Are the alternatives really any better?

The fact is that while most first world countries face terrible pension deficit problems (often from defined benefit retirement schemes), compulsory superannuation has given Australia a national savings pool worth $1.1 trillion. And despite these difficult times, this pool is expected to exceed $1.5 trillion by 2010.

As we are all acutely aware, $200 billion has been lost from Australian super balances in the past year. That’s a catastrophe any way you look at it. It’s clear that the government, the regulators and the financial services industry must work together to ensure this crisis never happens again. My point is simply that we still have a good system. The global financial crisis is not a reason to reject the superannuation system.

Australians diversify their savings with superannuation

According to SuperRatings research, the average balanced super fund lost 19.7 per cent in the year to December 2008. That’s a terrible result, but it’s much better than the 40+ per cent you would have lost from the Australian share market.

Over 80 per cent of Australians have their super in the default choice, and they were protected from the worst losses because their contributions were diversified. History shows that, over the long term, diversification is the best strategy and that’s what superannuation investing is all about. Over the long term, superannuation is still the best way for working Australians to secure their financial future.

What we need to work hard at - as financial advisers/planners, investment managers and platform providers - is educating and assisting our clients. We need to help them understand why their super balance has fallen, help them realise that they are not alone, that these are extraordinary times, that they should think about the longer term – I’m sure these are the kinds of things you’re now growing weary of saying to your clients, but this has to be one of the best ways to stem the tide of scepticism towards our industry.

Encouraging confidence in superannuation is a hard task in these times, but we believe it’s the right thing to do. Indeed, as Fiona Reynolds (chief executive of the Australian Institute of Superannuation Trustees) explains:

“…this is the greatest challenge facing the superannuation industry: to convince working Australians, the Government and employers that — even in these gloomy economic times — it is in all of our interests, and especially those of our children, to put aside more, rather than less, for our retirement. Our super system, with its robust regulatory framework, its sound approach to governance and risk-management, its capacity to boost investment in nation-building assets, and — perhaps most importantly — its track record of delivering on its long-term investment objectives, is still the best way for all Australians to do this.”

I hope you enjoy this edition of @dviser magazine. Be sure to read the articles about our new PDSs and investment menus which are effective from 28 February 2009.

If there is anything we can do to help you, or your business, please do contact us. Phone or email your Business Development Manager, call Adviser Services on 1800 659 634 or simply email me directly.

John Billington