Many Australians will have been shocked to see that their super actually declined in value last year, with the median balanced fund slipping 4.6 per cent, according to Chant West.

The group’s lead researcher, Mano Mohankumar, described the result as “not bad at all” given the fact that bonds and listed shares and property losses were mostly in double digits, between -9.7 per cent and -24.1 per cent.

Only cash, up 1.3 per cent, and Australian shares, down 1.8 per cent, helped stem the falls in the listed sector.

“2022 was highly unusual in that all traditional listed asset sectors finished in the red, except cash,” Mohankumar said.

Will the falls continue?

That’s impossible to know, but the odds look to be in favour of avoiding another decline. Last year’s fall was the first since 2011 and only the fifth since compulsory super started in 1993.

Given that shares are a major driver of super returns, share market history can help us here.

“The Australian share market hasn’t had two consecutive years of falls in the last 30 years, and the US market only did [that] during the global financial crisis,” said Alex Dunnin, a director research group Rainmaker.

“The trade situation with China and the Chinese economy don’t look as bleak as they did some time ago, and Australia is unlikely to see another eight interest rate rises like last year,” Dunnin said.

All that means the markets could be more positive than many believed a few months ago.

Of course, this is a prediction and markets can unexpectedly tank if circumstances change.

Purpose of superannuation

The Albanese government is expected to introduce “purpose of super” legislation during the first quarter.

We already have a purpose of super and it’s called “the sole purpose test”, Dunnin said.

That test demands superannuation to be invested to provide retirement benefits to members.

However, the government plans to bring in a new definition that will serve political ends by cutting back the super benefits available to the very wealthy.

There is no current limit to the amount of money that can be held in a super fund, although there is a limit to the tax-free status of earnings inside a fund in pension mode of $1.7 million.

However, a number of big industry fund CEOs, including AustralianSuper’s Paul Schroder, have called for a limit of $5 million in funds.

That view has traction within the government. But it is believed Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones are waiting for legislation to limit the purpose of super “to provide an adequate retirement by supplementing or supplanting the age pension” to come in before they act.

When they do they will likely restrict the level of funds that can receive super tax concessions, rather than put a blanket cap on the amount able to be held.

However, the Association of Superannuation Funds of Australia and the Financial Services Council, which represent for-profit funds, have called for the legislation to include the term “comfortable retirement” which would open the door for larger balances to remain in the system.

“That is code for high-end super receiving very high levels of tax concessions,” Dunnin said.

That means a political fight is looming.

Transfer balance caps

Currently, super fund members can transfer a limit of $1.7 million into tax-free pension mode. But the cap is automatically increased with the inflation rate and recent 30-year high inflation numbers of 7.8 per cent mean it is due to go to $1.9 million in July.

However, the view in financial advisory circles is that the government may move in the May budget to hold the cap at current levels so as not to act as a driver for building big balances.

Your Future Your Super review

A review of the Your Future Your Super legislation currently underway will report through the year. It is largely tasked with reviewing the parameters of the superannuation fund performance test that regulator APRA is using as a way to force underperforming funds to merge or close down.

It is expected to bring in around $267 billion in trustee-directed choice funds (those members choose, rather than default funds attached to awards) into the performance test regime, which currently only applies to default funds.

But calculations made on SuperRatings estimates from 2020 indicate that there is another $959 billion in investments owned by 8.4 million Australians in platform funds rather than trustee-directed funds. Originally these were not planned to be included in the performance test.

So the things to watch will be whether the parameters of the performance test have changed, when trustee-directed choice funds will be included in the test, and if the test will be extended to cover platform funds.

Super fund mergers

Consultancy KPMG has reported 40 mergers of super funds over the past five years as regulatory and performance pressure makes funds look for new efficiencies.

Last year KPMG reported 10 major mergers which included QSuper, Sun Super and Australia Post Superannuation forming the giant $230 billion Australian Retirement Trust.

This year, mergers are expected to be completed between AvSuper and Commonwealth Super, Care Super and Spirit Super to create a $45 billion fund and for-profit groups BT Super and Mercer Super.

This article first appeared in sister publication The New Daily, which is owned by Industry Super Holdings.