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Superannuation -- how to preserve your dollars at time of crisis

I am over 70. I withdrew my superannuation totally in March from a superannuation company feeling that the sharemarket was going to collapse because of the Coronavirus crisis. However, I had to tick a box in the superannuation company online withdrawal software accepting the unit price on the date of processing rather than on the date of the request. The superannuation company did mention that the processing might take more than 5 working days. It took 7 working days in the end and I lost over 10% of the value of my superannuation. I made a complaint to Australian Financial Complaints Authority, and Australian Securities and Investment Commission, neither of them could do anything as the superannuation company replied that in their Life Investment Guide, an option of converting the investment into Cash before withdrawal was mentioned. It is my opinion that the superannuation company should highlight this option to its customers during the withdrawal request process other than just requiring its customers to tick the disclaimer of acknowledging there would be delay in processing and that the unit price on a future date has to be accepted. If the superannuation company had highlighted this Cash option, I would rather convert my superannuation completely to Cash and remain with the superannuation company rather than withdrawing the whole amount. The superannuation company is not doing anything illegal but I feel it has relied too much on its customers to read every line of its investment guide and remember it for the rest of their life. Even in an email sent to its customers recommending them not to withdraw their superannuation, the superannuation company did not mention the option of converting to Cash for the time being. This is to highlight the Cash option to other superannuation customers so that they would choose this option at any impending financial crisis and preserve the value of their superannuation. They can, of course, convert the Cash option to Growth option later when the financial market starts to improve. All these could be done easily online.

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Welcome to the community @Alex2,

I was tempted to move your post to a COVID19 topic on super, of which there are two, but your comments are really super, nothing to do with COVID-19.

and

Back to your issue, you may find that our share markets and super funds have had an excellent upward bounce over the past month, so any delay by your fund was more likely to be in your interests than against it.

A mate decided to move his investment option from balanced to cash a month ago, but his super fund delays any movement for 30 days from request, not just 5. He will have made out well compared to it having been moved on the day of his request, or soon thereafter.

As is published, super requires a long term perspective and most funds have processes that stymie swapping in and out, because every time one does that they pay the spread between sell and buy prices, and the timing can be for better or worse.

The bottom line is even passive investors need to understand how their funds work including options and how a member’s instructions are carried out (delays, etc).

Your closing comment about things that could be done easily online are very appropriate. Our funds are historically not equipped to do such things, and there seems to be some self serving pride in making it difficult so as to keep us members from sometimes shooting our own finances when we think we are saving our day. Of course 100% timing creates huge profits (advantages) but I am not aware of anyone who did that more than once, if ever, although the markets are littered with advisory services who claim to have done just that. If they were so successful would they be selling advice, or investing their own money?

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Hi @Alex2, welcome to the community.

When did they mention this? Before or after the transaction?

One has to also remember that some assets may be difficult to liquidate quickly. The less mainstream an asset (e.g. foreign unlisted assets which aren’t traded freely), the longer it can take to offload to generate cash.

A large superfund may be able to transfer such assets to another member (when superannuation funds are deposited by the member/member’s employer and the same asset mix exists) to reduce timeframes, but the transfer may still be delayed by the processes required to initiate the transfer to another member, especially if the asset itself is held by the member and not as say a more transferable unit of an asset. Think a property where transfers could take many weeks.

If one runs a SMSF, then the delay for conversion to cash or exit can be greater as there are potential no other ‘members’ to buy the asset to allow its liquidation. The more obscure the asset, the more challenging its timely liquidation.

Superfunds are also not like a bank where one can transfer money in or out of an account quickly. They are a long term sleeping elephant designed for long term returns.

Notwithstanding this, it would have been prudent for a simple timeframe explanation be provided when one makes a investment change online…a simple thing to do which would clarify any delays which may be incurred.

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Hi @Alex2,
Many super funds do allow members to switch investments within the fund or rebalance. You have mentioned your age, but not the fund manager or fund option.

Most funds enable members to change the investment strategy or asset allocation. Many members opt for the first option of choosing a strategy, typically guided by their age and circumstances. The fund managers do the rest.

The second option where as a member you make the asset allocations transfers some or all of the risk to the member. There are also Super funds (known as WRAPs) which allow for a more hands on approach. The average retiree or super member may be better off with an everyday industry or retail fund. The alternatives are more complex, require investment knowledge and time to manage.

My super with an industry fund faced a similar threat to the one you described. I’d previously discussed our needs with their free financial planning service. We had decided that as I was approaching retirement to take a conservative approach with the majority of the funds invested in fixed interest and cash. There was no need to do anything different with the recent fall in the equity markets.

Most funds recommend retirees have their assets in low risk, low volatility investments as a matter of course. In all the fund dealings I’ve had the fund/s have been clear in advising how and on what day the value received Is determined.

It would have been great if on the day before the Covid-19 down turn, every fund manager Globally had cashed out all their equity investments. And then on the day before the start of the recovery they had all bought back in again. I’ve marked both dates on a calendar for next time. With luck I’ll be able to buy most of BHP for $10, Microsoft for $100, Apple for a song, and Musk will be begging for someone to take Tesla off his hands. Never mind the logic, feel the profits. :roll_eyes:

Reality is super funds hold money as trusts. They are not banks or equity funds. In converting investments to cash is it the other fund members who are being asked to convert some of their cash to equities? I know how I’d feel if the day before the Covid-19 downturn my super fund had converted my low risk fixed cash, bonds etc to equities. Just one strategy to enable others to cash out and exit on a high. Someone said we are all in this together.

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Thanks for your relevant comments. Super does require a long term perspective. However, how one feels about this and handle the wait depends on how old one is. If one is younger, say in the 40’s or even 50’s, it perfectly makes sense. However, when one is over 70, the situation is different. The urge to protect ones savings as much as possible becomes a lot stronger rather than to wait for the market to come up again.

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It was mention during the application for withdrawal and one has to agree to this before it would proceed. However, it did not remind the client to convert the investment to Cash option first in order to be sure of what the client would get when the application is processed. If they had done this, I would convert the whole investment to Cash first to stop the loss and might even not withdraw the fund since the tax on superannuation investment is less. This is what I would like others to know so that they are aware of this option.

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I do not think it is appropriate to mention the name of the fund manager. There might be legal implications if I do.

Enough to say that I had lost money because I did not remember the lines buried within the pages of the Investment Guide saying that one could change the investment all to Cash to preserve its value, and the superannuation company did not remind me of this during the withdrawal process.

The Superannuation company also would have difficulties dealing with crisis situation but it would have all the necessary information and skills to minimize losses which their clients will have to bear with for a period of time. The company would not be harmed in any way. Of course, for the younger generation, the value of their investment will increase again in the future. However, what about those of us who have to withdraw money for daily living??? May be the company should allow and remind them of the Cash Option if they have passed a certain age??

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Would there have been a delay in switching your selected fund to cash so the outcome would not have been so different, or does your fund ‘switch’ on the day?

So long as your posts remain factual and not accusatory I doubt that would be an issue for this, or your future contributions. Our ability to delve into the specifics of a forum member’s problem is sometimes helpful for us to be able to provide better and more educated opinions.

I hear you.

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The fund was not switched to the Cash Option because there was no reminder about this at the time and I forgot those little prints in the brochure. I just logged for withdrawal but I had to tick a disclaimer that I knew the process would not be immediate and that the unit price on the day of processing would apply but not that on the day of withdrawal application. So, all the loss, if any, was on my side. I lost around 10% of my fund. The company was completely protected!!

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It is all factual. I think the same process would apply to any superannuation fund. There will be no reminder about the Cash Option by the company. One has to be aware of one’s right of being able to switch over by phone or via the Internet.

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Sorry, different question. Just curiosity comparing your fund with my mates

Per your funds processes IF you had ‘pushed the button’ to switch to cash, would it have been actioned on the day or would that have also had a built in-delay, as did your withdrawal?

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Yes. The fund will be converted to Cash on the same day. If it is for withdrawal, then when they process the withdrawal application, the amount of cash would remain the same as on the day of the Cash option conversion and not on the day of processing. In that case, I would not have lost the 10% in addition to the few thousand dollars lost before I made the application.

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I couldn’t agree with Alex2 more.

There are a lot of complex answers here but I think the nub of the matter is that Alex wasn’t prompted at the time of making his withdrawal that converting to a cash (or capital-guaranteed) option might be a better idea.

I like to think that’s I’m reasonably smart with money but made exactly the same mistake and I’m kicking myself because of it. I’m with SunSuper and have been totally delighted with their service and returns over many years. I’m also in the same age bracket as Alex so every dollar counts.

Even with only a relatively small balance we lost tens of thousands of dollars by waiting the 5 days or so to withdraw. It we had converted to capital-guaranteed it would have taken a day or less and the losses would have been much less.

The added problem, due to Govt rules, is that we cannot add much of those withdrawals back into Super without tax penalties, so now have little opportunity (or time!) to rebuild our savings. (As a side issue, the Govt should re-think their restrictions, otherwise they will be paying out more age pensions than otherwise).

In summary: Super funds, thank you for all the appropriate warnings about not withdrawing funds in a crisis, but do add the suggestion of converting to capital-guaranteed as an option worth considering. (And in BIG PRINT for those of us with failing eyesight or those who don’t read the small print!).

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I tried to bring this to the attention of AFCA and ASIC but neither organisation were concerned about the lack of prompting at the time of withdrawal. Don’t know if there is any other way to give this “Cash Option” message to more people. While this might cause administration issue with the Superannuation companies, they would have the resources to come up with a better arrangement and not letting their clients to bear all the costs if there is a loss because of the delay in their administration. Isn’t this fair?

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after twenty plus years of dealing with super fund members I can confidently tell people that giving members choice in how they invest their money has led to the vast majority making disastrous decisions, the best advice anyone can give is get professional advice before you do anything, and remember when you retire your average life span is up to twenty years.

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That may be for those who retire at 65, but many people seek earlier retirement - and I have difficulty imagining someone like a bricklayer being physically capable to work until they are 65 or 70.

More broadly, I would suggest that even if you are currently retired or getting close to retirement age you should think very carefully before touching any of that money you have saved. While it will take a few years, the market will recover - and you can incur irrecoverable losses if you ‘cash out’ while it is on a downward slide or worse - has hit bottom.

Seek the advice of an expert, and pay for it - there are plenty of ‘experts’ who will be keen to sell you the product for which they earn the biggest commission, so free advice is not.

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I have to make clear that ‘cashing out’ while the market is on a downward slide is only for cutting loss. In early March this year, the market started to fall because of the Coronavirus crisis. I saw the value of my superannuation dropped more than $4000 within a few days. I was scared, knowing that it was only the beginning. I felt I had to cut loss even there was the attraction that future gains in the superannuation fund would be taxed at a lower rate than normal investment. I withdrew because I was not aware of the “Cash Option” where I could wholly convert my investment so that I could preserve what was left. The Superannuation company did not remind me of this option either.

If I was aware of the ‘Cash Option’ at the time, I would have converted to this option first to preserve the value of my retirement fund. Then when the market is clearly recovering, I would convert it back to the conservative investment option again. In this case, I could have increased the number of units of investment held. I wonder if any of the readers’ Superannuation company had told them of this option.

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In my very limited experience super companies deal with two types of customer. One is a financial advisor who manages a client’s funds and knows things, for which he is compensated. The other is a direct client who is self advising and expected (required) to be atop such things. It would be a rare financial anything that takes it upon itself to provide ‘free’ advice for the uninformed DIY. A few years back I discovered I lost a few 10,000s because of my own lack of knowledge. The fund could have told me I had an option to make a conversion from retail to wholesale and get benefits, but that is not their role or responsibility since I am a direct client, expected to ‘know my business’ if that makes sense, whether or not you are of the same mind as I.

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Yes. I was a direct client who joined the superannuation company online.

I remember I joined a fund promoted by my own Bank back in the nineties. The Bank was not the fund manager and did not actually provided me with any support. I trusted the fund because the bank teller promoted it. I did not know that the teller had to meet a target each month selling funds listed by the Bank. Eventually I lost about &50,000, despite the advice of the fund telling me that the value of the fund would go and down but eventually after a few years its value would have moved up to more than I had invested.

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Going back 12 years to the 2008, GFC, I saw a industry fund financial advisor. He assured me the market would recover, being 55, he recommended I start a transition to retirement income stream. Transferred funds from my super fund into the TTRIS fund, it was set up to pay me 2% per annum, monthly payments. ( taxed at 2%, till age 60, then ZERO tax over 60) That payment has increased to 5% pa, monthly payments, it is the minimum payment. Both funds recovered remarkably till the Covid 19 crisis. My advice is to get independent financial advice. I have learnt from the past. Don’t Panic, do nothing till you get professional independent advice.

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