WA Super News
What does Brexit mean for your super?
On Thursday 23 June, a referendum was held in the United Kingdom (UK) regarding leaving or staying in the European Union (EU). The British people have now voted and the outcome was a majority voting to leave the EU. This event has been referred to by many in the media and financial markets as “Brexit” and saw the announcement that David Cameron will resign as UK Prime Minister.
Markets had been expecting the UK to vote to remain with the EU and were surprised by the vote favoring exit. The immediate effect of the surprise result has been significant volatility in financial markets. The British Pound and European shares were some of the worst affected as riskier assets have sold off across global markets. More defensive assets such as many government bonds have performed well as investors have sought out the relative safety of these assets.
Impact on WA Super
Diversification (which means not having “all our eggs in one basket”) is used as WA Super’s primary strategy for managing investment risk. Our diversified options achieve diversification by investing across different asset classes and risk factors.
Short term market volatility impacts the short term returns for superannuation just like any other investment with exposure to shares. This approach of ensuring there is adequate diversification in our investment options reduces both the reliance on investments in shares to generate returns and reduces the impact of short term fluctuations in share markets.
What happens next?
It’s unclear exactly what a British exit will look like, but it has the potential to have a negative impact on economic growth in the UK. The UK is the second largest economy in the EU after Germany and EU countries are major trading partners for the UK. It could take more than two years to fully transition out of the EU, and the UK will need to renegotiate trade and immigration agreements.
The new government leadership and financial institutions will now begin planning to manage the exit in a way that aims to limit any impact on the global economy and financial markets. The direct economic impact on Australia is likely to be small as trade with the UK is limited. It is likely that the recent volatility in markets should settle down once the full details of the transition and impacts are known.
There are broader potential risks if the result encourages European countries to review the terms or existence of their membership of the European Union and/or the Eurozone. A series of presidential elections both in the Euroland and the US cast further uncertainties on global political landscape and must call into question the chances of further political contagion both regionally to Europe and wider.
What should you do?
While we understand this uncertainty can be concerning, especially if you are approaching or in retirement, it's important to bear in mind that for many, super is a long-term investment (even if you've just retired, you're likely to need your super to last around 20 years). So it makes sense to look at investment returns over more than just a single year or few months. Often in uncertain and volatile markets, it can be tempting to ‘do something’. However, exiting share investments after sharp falls risks locking in losses and not participating in any subsequent market recovery. As demonstrated in recent geopolitical events such as the Greek debt crisis in 2010, changing investment options can ‘cost’ members both in direct costs and foregone returns, reducing the income available to live a comfortable retirement. If you are concerned please contact our Member Services Team on (08) 9480 3500 or arrange an obligation free initial appointment with one of our Western Financial Financial Planners.
The information above is of a general nature only and has been prepared without taking into account your individual objectives, financial situation and needs. Before making a decision about WA Super, consider your financial requirements and read the Product Disclosure Statement available at www.wasuper.com.au or by contacting the Fund.