With a dramatic drop in confidence due to the GFC and ongoing super rule changes, Australians are choosing to invest their savings elsewhere, deserting their superannuation funds in droves.
Personal contributions to super funds outside of employer contributions have plunged by more than 55% over the past two financial years, according to recent data released in January 2010 by independent researcher SuperRatings.
Jeff Bresnahan, SuperRatings’ managing director commented that while a reduction in contribution limits during 2007 would have played a role, it was the financial crisis that had really hurt super funds.
Dropping by 32% in 2007/08 and 35% last financial year when the downturn was gathering pace.
"A large part of it was because of the global financial crisis and the consistently negative returns that were coming out of super and that would have translated into a lack of confidence by some people on continuing to invest in superannuation," he said.
High allocation to equities by Australian super funds resulted in returns being savaged during the downturn. Median balanced super options employed by most default funds, plunged by almost 20% in 2008, the worst year on record.
While super funds staged a strong recovery in the latter 6 months of last year posting an impressive 12.9% return, the associations that represent the super industry say they would not be surprised if voluntary contributions continued to fall.
Melinda Howes, Association of Superannuation Funds of Australia director of policy and industry practice says, "You have to recognise that if people have had their confidence damaged; that may continue on."
Mr Bresnahan concluded that the 12.9% gains were the first bit of good news Australians have had for some time however, there was “no way in the world" returns would be as strong over the next six months and investors should expect modest gains.