Big Money: Why improved super returns could do more than fatten your retirement

After several years of sordid returns, our super balances should be looking up this year.

According to superannuation research company SuperRatings, balanced fund options, which account for 60-70% of Australian super balances, have seen returns of 15% in the financial year to April, boosted by returns of 2% in April alone.

It’s the second-highest result since superannuation was introduced 21 years ago, beaten only by the 18% return super funds posted in 1996-97.

This is good news, and not just for our retirement, because of what economists dub ‘the wealth effect’.

The wealth effect holds that people’s spending decisions aren’t affected just by how much money they have, but also by how wealthy they feel.

It’s largely why consumer confidence and spending tends to collapse in a recession. In the years from the global financial crisis, unemployment in Australia stayed pretty low. That tells us that most Australians didn’t actually lose their job or experience any drop in their income.

In fact, with the high Australian dollar and companies discounting to move stock, you could argue most Australians saw their purchasing power increase during the crisis.

But their houses weren’t gaining value, and their superannuation balances were going backwards. When people feel poorer, they don’t spend, no matter how good the bargains in front of them are.

Since 2007, Australian consumer confidence has been in the doldrums. Cultural reasons mean Australians generally don’t save too much of their incomes, but since the global financial crisis, we’ve saved nearly 10% of our wage. And that doesn’t count superannuation.

A boost to people’s super balances could help address this. And higher consumer confidence means people become more likely to buy your products.

Unfortunately, housing returns remain low and are likely to stay that way. The Reserve Bank doesn’t think we’re likely to see a return to the boom of the 1990s and early 2000s anytime soon.

But if we hold to the change we’ve made in how we buy houses – paying off our mortgages and being unwilling to take on large housing debt – this will matter less and less to consumer confidence.