Current market volatility and larger swings in major global share indices have led to a renewed interest in Superannuation schemes. Some of this interest is positive in that many will be taking a more active role in their retirement savings, whilst some may be disruptive with people focussing too much on the regular fluctuations, especially those who are investing over a long-time horizon.

Many will have noticed their balances decline over the past six months, and my balances have been no different. Currently, I have four schemes running in three different countries which have accrued during my time working across Australia, the United Kingdom, and New Zealand. Superannuation currently represents around 47.2% in assets across my whole portfolio.

Overall, my combined balances have declined around 2.2% from November 2021, through to June 2022 (this calculation has included contributions over that same period, so the actual losses on the November 2021 balance will be larger). It should be noted that these returns are calculated by converting both AUD and GBP into NZD and as such, some investment losses have been offset by depreciation in the NZD relative to AUD.

I regularly track the combined returns of my balances, which results in a better understanding of their relationship with wider market moves. However, the recent market downturn has created some question marks as to whether my strategy around contributions is a sound one, especially since some of the losses during recent months are more than my contributions during that same month.

I have seen some market commentators state that individuals should not reduce their superannuation contributions now. Whilst I agree with their statement, I do have some issues with their broad-brush approach to making these comments. Some articles have even used a dollar cost averaging arguments to support a continuation of contributions, or by simply stating that markets rebound. My main issue with these statements is that they do not account for the individuals best use of funds during their own situation, nor does it account for the fact that markets can take a long time to recover – just look at the market recovery post the dot com bubble with the Nasdaq 100 taking 15 years, or the NZX50 taking around eight years to reach the 2007 highs again.  

The problem with these general comments, is that it does not consider individual financial circumstances. It may indeed make sense to fully cease superannuation contributions until such time as an individual’s financial position becomes more robust or more certain. This is especially the case in the current climate with rising interest rates, and cost of living taking up a larger portion of personal income.

When considering my own contributions to superannuation, I seek to maximise government contributions (currently up to a maximum of NZD521.43 per annum if you contribute at least NZD1,042.86 between 1^st July to 30^th June), and employer contributions (currently a minimum of 3% for of pre-tax earnings per annum) noting that some employers may pay more for matching contributions. I view both as essentially free money, which provides a psychological buffer for my superannuation balances before I feel as though I am losing hard-earned money which I have voluntarily contributed.

Before reducing my retirement savings, or my general savings, I would first seek to review my budget and cut back on discretionary spending items. Essentially, I would want to tighten my belt first before impacting my retirement pot in the future.

Currently, my portfolio is very liquid with around 42% in cash and I do not currently carry any debt (this may change if I were to purchase a house). If I were to reduce my superannuation contributions, I do not believe I would be putting these funds to a better use. As such, I do not plan to change my strategy around contributions in the near term.

Key points that drive my thinking when considering superannuation contributions are:  

• Consider the amount of “free money” being contributed to superannuant balances. Whilst Government Contributions, and Employer Contributions are real money, they can be viewed as a bonus and as such the psychological impact of a fluctuating balance may be less concerning to individuals
• If there is an increased chance of a financial event on the horizon, such as prolonged loss of employment, medical emergency, or major appliance purchase, it may make sense to reduce superannuation contributions which are locked, and direct more into cash savings to serve as a liquidity buffer
• This is a long-term play; short term fluctuations of the balances should not consume a strategy; think tactical versus strategic decisions
• What is the next best use of voluntary contributions, and could a better return be achieved by either investing elsewhere or repaying debt?
• When changing the allocation of funds from say growth to conservative, there is a spread to pay for selling and buying, and as such a cost will be incurred. It may be best to simply adjust the investment of future contributions – note that in some cases it may make sense to make a full change in investment allocation, such as occurrence of a life event, or a shorter time horizon to retirement