Shelter from the storm
Illustration: Rocco Fazzari
With investment markets still showing no clear signs of improvement, many more superannuation fund members are likely to be looking for somewhere safe to park their retirement savings.
Every time the sharemarkets have rallied since the onset of the global financial crisis in 2008, the boost has turned out to be short-lived. No wonder fund members want to quarantine at least part of the retirement savings until the worst is over for investment markets.
Until recently, the choice of cash options for super fund members has not been great. Fund members have not been able to earn the same sort of returns they see advertised on term deposits. Worse still, the ''cash'' options of some super funds were, in fact, partly invested in higher-risk corporate debt and shares. Fund members who switched to those ''cash'' options were horrified to discover they had lost money. Those funds have since recast their cash option into ''true'' cash.
More recently, super funds have started offering term deposits for investors who prefer to minimise their exposure to the sharemarket and other risky asset classes.
Data from researcher Canstar show four out of 11 of its five-star-rated super funds that are open to the public now offer fund members the option of putting money into a term deposit. Trustees of self-managed super funds have always had this option but now more people enjoy the same tax break. The returns on investments, including term deposits, inside super are taxed at only 15 per cent compared with bank term deposits that are taxed at the investor's marginal income tax rate.
Canstar research manager, Chris Groth, points out that term-deposit options in super funds are unlikely to be covered by the government deposit guarantee, so check with the fund if that is important to you. The guarantee was brought in during the height of the GFC to reassure investors their deposits would be safe. Applied to the first $250,000 per person per financial institution, it covers money on deposit with banks, credit unions and building societies. Of course, the guarantee may not be so important here as super funds have their own regulatory supervision. And the term deposits used by the funds come from banks and credit unions, which are regulated by the same regulator, the Australian Prudential Regulation Authority.
Term deposit rates from super funds are in line with those from financial institutions, which is not surprising given they are using the same products.
AustralianSuper is offering two 12-month term deposits - one paying 4.75 per cent and the other 4.8 per cent. MLC MasterKey Super Fundamentals, which uses NAB term deposits, has a 12-month rate of 4.8 per cent and a six-month rate of 4.93 per cent.