Chairperson and Chief Executive's introduction
Due to the performance of global investment markets, the 2008/09 financial year proved challenging for all super fund members.
During the year, investment markets felt the full impact of the global financial crisis, with all major sharemarkets around the world reducing in value significantly.
This financial crisis, which first began in 2007, is now likely to be remembered as the most severe global economic downturn of most members' lifetime. Financial stability and investor confidence has steadily improved since early 2009. But only after the world's financial system experienced an almost total failure.
The crisis began with excess mortgage lending to low-income households in the US. Many home owners were unable to meet their loan repayments when the US Federal Reserve increased the official interest rate in 2007. People often had no choice but to walk away from their homes, leading to a rapid fall in house prices, and a loss of confidence in global credit markets.
Sharemarket valuations reduced, which impacted those VicSuper investment options with an allocation to equities, or company shares. However, VicSuper avoided higher losses by not investing in hedge funds or mortgage-backed securities which many investors took-up during the period of excess mortgage lending in the US.
To help members save for and meet their income needs in later life VicSuper primarily uses a passive, or buy and hold, investment management approach. This approach aims to match the performance of relevant investment indices, and is low cost because investment turnover tends to be low. VicSuper's investments are diversified across many regions and financial markets through investment in four distinct asset classes - equities or company shares, cash, property and fixed interest.
In 2008/09, the asset classes of equities and property provided a negative annual return. This made building an account balance, or preserving capital in a superannuation pension, difficult in the short term. Negative returns are never welcome, and many members will have seen a reduction in their superannuation balance over the past year.
Encouragingly, global sharemarkets improved between March and June this year, highlighting how unpredictable short-term performance can be. At the time of publication, a sustained global economic recovery still appeared some time away. But it's instructive to remember that sharemarket performance is based on forecast economic conditions and company earnings - which is why sharemarkets have recovered well in advance of the wider economy following previous downturns.
Looking ahead, the legislative changes announced in this year's Federal Budget may pose challenges for retirement planning - in particular, the halving of concessional contribution limits from 1 July 2009. An article on these legislative changes is included in this report.
In 2008/09, members continued to build their retirement savings voluntarily, adding a collective $342 million in salary sacrifice and personal contributions. This helped net assets for VicSuper members to remain steady at $6.1 billion. During the year VicSuper's membership grew to almost 250,000 - equalling an annual growth rate of 8% since VicSuper opened to the public in 2000.
Overall, VicSuper's position remained strong and stable, and our performance in 2008/09 compared favourably with other superannuation funds. This reflects the continued demand for VicSuper's unique offering of quality services including personal advice, a low fee structure, and industry-leading sustainability performance.
As sharemarkets fell last year, those companies in which we invest that are independently rated as sustainability leaders proved more resilient. This makes sense, as these companies demonstrate better risk management strategies. It also reinforced our research that following sustainability principles to run a superannuation fund is the way to achieve the best long-term result for VicSuper's members and employers.
In 2008/09, VicSuper directed more money to sustainability investments, allocating $150 million to a portfolio of 700 international companies that outperform on carbon efficiency. This portfolio is designed to provide the equity market return for developed nations for just half the carbon footprint. Members with an allocation to equities will have part of their savings invested in this portfolio.
For the second consecutive year, VicSuper has reported on your member statement the estimated carbon footprint for the portion of your balance invested in listed equities throughout the year. As we can't manage and reduce what we don't measure, VicSuper will continue to publish your super's carbon footprint each year.
On 31 December 2008, David Craig completed his five year term as VicSuper Chairperson. On behalf of VicSuper's directors and staff, we thank David for his expert guidance and counsel over the past five years. We also thank you, our members, for another year of confidence and support, and look forward to your continued relationship with VicSuper.
Bob Welsh
Chief Executive
Barbra Norris
Chairperson