02.Long reach of the GFC
The Australian economy held up far better through the GFC than the economies of other developed countries, but at the height of the crisis shareholders in Australia were hurt as badly as shareholders in the US, UK, Japan, Germany and France.
Lingering GFC hangover
The impact on super accounts during the GFC depended on how exposed they were to the share markets.
According to an analysis by super industry research firm Chant West, the median loss for what are generally referred to as “balanced” funds – the asset allocation for most default funds – was 17.5% between March 2008 and 2009.
Jeremy Cooper is not alone in sounding a warning. Associate professor Hazel Bateman, who directs the Centre for Pensions and Superannuation at the University of NSW, laid out a convincing case that Australians approaching retirement are sitting ducks for deep and lasting market drop-offs in her late-2009 paper, Retirement Incomes in Australia in the Wake of the Global Financial Crisis.
She said workers aged between 30 and 40 would need to save as much as two per cent extra every year until retirement to make up for the losses that occurred between 2007 and 2009.
But these generation Xers have time to increase their incomes and rethink expenses.
According to Bateman, baby boomers are in a much tighter spot and need to either “increase their contribution rate or delay retirement to make up for their losses”. The needed increase would be substantial.
“A retirement saver aged 49 before the crisis would need to contribute almost 19% of earnings each year, or more than double the mandatory rate, between the ages of 51 and 60 to catch up. If you were 55 you would need to contribute about 34% of earnings each year between the ages of 57 and 60 to catch up.”
However, at least one major fund manager has warned against reacting after the markets have moved. Australian Super members who switched to more conservative investment options when the S&P ASX 300 hit a 60-year low in March 2009 missed out on the comeback as the markets recovered and rose about 35% by mid-June, according to an analysis by the company.
But older Australians would have done better had they avoided the loss in the first place.