Switchers suffer indecent exposure

The rapid decline in superannuation returns may have severely bitten investors who took advantage of the so-called ‘$1 million window of opportunity’ to switch property and other investments into superannuation.

The Australian Prudential Regulation Authority (APRA) has released data revealing a decline of $4.3 billion in superannuation assets during the December quarter of last year, and a number of financial planners have acknowledged that some people will have been hurt by switching.

What is more, the latest data covering the first quarter of 2008 suggests further declines in both superannuation returns and the value of overall assets of between 4 and 8 per cent, meaning some investors may lose up to $80,000 from the value of their original $1 million investment.

More than $10 billion is estimated to have flowed into superannuation as a result of the ‘better super’ regime, which allowed the transfer of wealth from business ownership, property, shares, inheritance or cash investments into superannuation under a one-off transitional measure allowing up to $1 million in undeducted contributions.

Macquarie Equities associate director of wealth management Doug Webber said it was likely that some people had got both their timing and their positioning wrong, but it was largely dependant upon what they had done with the money once it had been placed into superannuation.

“You have to remember that quite a large chunk of the money that was invested into superannuation stayed in cash,” he said. “However, there are probably one or two people who insisted on maintaining an exposure to the market, and they would be feeling it now.”

Former Money Management Financial Planner of the Year Neil Kendall of Tupicoffs said those likely to have been worst affected were those who had rushed to make the $1 million deadline and failed to take a sensible, long-term approach.

“Of course, if they remained in cash they might have reaped twin benefits, but if they were exposed to the market then they will have had to accommodate at least a paper loss,” he said.

Kendall said that as well as revealing an unintended consequence of the $1 million window of opportunity, the decline in superannuation returns had probably also taken a toll on the early users of leverage within superannuation.

“Now is certainly not the time to be leveraged,” he said.

The managing director of Fiducian Portfolio Services, Indy Singh, said there were undoubtedly people who had found themselves exposed, but those worst affected were likely to have adopted heavy debt exposures.

“A lot of people were saying that debt is good, but we said that was wrong,” he said. “It is those people who are likely to have found themselves facing problems with respect to margin calls and gearing into property.”