THE retirement savings of millions of Australians have been savaged by the global financial turmoil with the average superannuation fund falling 11.6 per cent in the year to September.
The latest bad news about super returns came as the sharemarket hit a four-year low and Colonial First State, the Commonwealth Bank's wealth management arm, froze $3.3 billion of funds invested directly by 61,000 small investors to avoid a run on deposits.
The research agency SuperRatings said the latest fall meant the median balanced super fund had lost 3.4 per cent in value over the first three months of the financial year. Funds have had their worst 12-month performance since compulsory superannuation was introduced in 1992.
Senior Treasury officials and corporate regulators are working on a plan to allow retail investors in frozen funds to withdraw their savings if they would suffer severe personal or financial hardship if their capital remained locked up.
But the Prime Minister, Kevin Rudd, made it clear the Federal Government would not extend its guarantee of bank deposits to funds such as mortgage trusts that are being hit by a flight of capital.
Mr Rudd said bank deposits were fundamental to the financial system but "providing guarantees to market-linked investments, that's quite something else".
"We will work through the implementation of this over a long period of time but market-linked investments go beyond the scope of the guarantee that the Government announced the other day, and we did so directly on the advice of the financial regulators."
The Australian sharemarket fell 1.65 per cent yesterday as investors sold up due to growing fears about an extended global recession. The benchmark All Ordinaries index fell by 63.3 points to close at 3768.3, its lowest in four years.
The latest sharemarket falls would depress super funds' returns further, the managing director of SuperRatings, Jeff Bresnahan, said.
SuperRatings found the median balanced fund - with investments in a mix of shares, bonds, property and cash - posted its fourth consecutive quarterly decline in the three months to September.
Mr Bresnahan said super fund members were increasingly moving out of balanced portfolios and into more conservative cash investment options. Funds needed to improve their communication with members to ensure they did not panic, he warned.
The Government's guarantee of bank deposits earlier this month has contributed to a rash of withdrawals from mortgage trusts and other managed funds as investors try to move their savings into banks.
The Treasurer, Wayne Swan, said he had asked the Treasury Secretary, Ken Henry, and the Australian Securities and Investments Commission chairman, Tony D'Aloisio, to consider ways of helping unguaranteed financial institutions "weather the storm".
"I can't and won't promise instant solutions in a time of unprecedented uncertainty, but I can promise that we will work as hard as possible, consistently and decisively, to resolve as many issues as possible," he said.
Executives from the managed funds industry met government officials in Canberra yesterday and pressed for measures to stem the flight of capital amid concerns that some funds could be forced into fire sales of their underlying assets.
The talks are focusing on two issues: how to provide relief for the minority of investors who will suffer hardship if they cannot withdraw their funds; and wider approaches to restoring confidence and stemming the flow of funds from managed investment vehicles.
Officials said they hoped a plan to deal with hardship cases could be announced by the end of the week.
This is likely to rely on ASIC's powers to exempt managed investment schemes from the Corporations Act's requirement that all investors are treated equally in distributing funds.
The Opposition Leader, Malcolm Turnbull, said the Government's handling of the bank guarantee had been a serious blunder.
"A lot of people are suffering real hardship because of that: their assets have been frozen and that has been as a direct consequence of Mr Rudd and Mr Swan's mistake."
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