Super is designed to provide you with an income for your retirement. It aims to build up your retirement savings in a cost-effective, tax-efficient way to help you achieve financial security when you retire. However, there are also certain risks you should be aware of.
The types of risks your super may be exposed to can be broadly categorised as either general or investment risks. There are also risks specific to your membership category.
General risks that may affect your super
The impact of these risks may be short term or long term, depending on the conditions and circumstances that have given rise to them.
Legislative risk
This is the risk that legislation governing super (for example, the way super is taxed and how and when you can take your benefit) may alter in the future. This may result in you paying more tax than you had initially planned, not being able to access your benefit exactly how you had planned, or other unanticipated consequences.
Operational risk
This is the risk that factors beyond the Trustee’s reasonable control may prevent it from administering and managing the Fund, your account, the investment options and the Fund’s investments in the manner in which it usually would. This might include, for example, system or technology failure, people, operational processes, market closures, significant market movements, significant illiquidity, significant redemption or switching activity, actions taken by our external investment managers and other service providers, industrial disputes, terrorist acts, wars, actual or potential epidemics and pandemics, earthquakes, fires and civil disturbances.
The Trustee has measures in place that are intended to manage the consequences of these occurrences. However, the Trustee cannot guarantee that these kinds of occurrences will not interrupt normal operations.
Cyber Risk
This is the risk of financial or data loss, business disruption, or damage to the reputation of UniSuper as a result of a threat or failure to protect the information or personal data stored within its information technology systems and networks.
Other general risks
The fees and costs (including inbuilt charges and insurance premiums), associated with your membership may increase in future. However, we will give you 30 days’ written notice in advance of any increases in fees and charges (other than automatic indexation). There is also the possibility that a new fee could be introduced.
There is also the chance that the Trust Deed may be amended or that changes to the Fund (as permitted by law) may affect your rights and entitlements as a member. We will keep you informed of such changes, as required by law.
Risks for Defined Benefit Division (DBD) members
For DBD members, defined benefits are based on a formula that takes into account your:
Defined benefits are supported by a pool of assets into which your employer contributes and which is automatically invested by UniSuper in a diversified portfolio of shares, property, bonds and cash.
The DBD is designed so that in the longer term investment returns are expected to be sufficient to provide for UniSuper’s defined benefits, although this is not guaranteed. In addition, over short periods the funding position may vary with investment volatility.
The main risks to your standard of living in retirement are that you do not contribute enough in standard member contributions or your period of service is not long enough to produce an adequate final benefit. There is, however, a risk that the defined benefit pool is or could be insufficient to meet all obligations to DBD members, in which case your defined benefit may be reduced.
The
accumulation component for DBD members is also subject to investment risk.
Risks for Accumulation 1, Accumulation 2 and Personal Account members
For Accumulation 1, Accumulation 2 and Personal Account members, benefits are based on your individual account balance, which is invested in the investment options of your choice (or if you don’t make a choice, in the Balanced (My Super) option, which is the Fund’s default investment option). This means that your benefits are subject to investment risk.
Investment risks that may affect your super
Investment risk is the potential for your accumulation super account to rise or fall due to how it is invested. As a result, the amount of your final benefit when it comes time to withdraw it from the Fund may be less than the total contributions made into your account. Similarly, your final benefit may be less than you need to achieve your desired lifestyle in retirement.
UniSuper offers a wide range of investment options that give you the flexibility to invest your super according to the level of investment risk you are comfortable with. While each investment option involves some level of risk, some involve higher levels than others. As a general rule, investments that offer higher returns tend to be higher risk, while those that offer lower returns tend to be lower risk.
Risks relating to particular types of investments:
Specific investment (or security) risk
The risk that a specific investment held in an investment option may experience negative returns and lose money, or may fail to perform in line with expectations.
Investment manager risk
The risk that UniSuper, or an external investment manager appointed by UniSuper to manage certain investments, may underperform the general market or may fail to perform in line with expectations, for example due to their investment management style or management decisions.
Market risk
The risk that a specific investment market (for example, the share market or the fixed interest market) may not perform well and may diminish the value of the investments held in those markets. Factors such as interest rates and inflation, as well as government policy and economics, can all influence market risk.
Country risk
The risk that investment options that hold securities from an individual country may not perform well as a result of economic or political pressures specific to that country, and the investment options may lose money as a result.
Currency risk
The risk that the changing value of currency either in Australia or overseas may change the value of an overseas investment. For example, if the investment option contains investments denominated in US dollars and the Australian dollar rises against the US dollar, the value of those US investments may fall when calculated in Australian dollar terms.
UniSuper may from time to time hedge some or all of the Fund’s foreign currency exposures but will not necessarily do so at all times. Different currencies may be hedged to different extents (or possibly not at all).
Credit risk
The risk that an organisation that deals with UniSuper will fail in its obligation and cause an investment option to incur a financial loss.
Inflation risk
The risk that inflation and/or interest rates may fluctuate and affect investment returns and the real value of your investment.
Liquidity risk
The risk that a particular asset cannot be easily converted into cash at a particular time, leading to a delay and resulting loss when the asset is eventually sold.
Derivatives risk
UniSuper and some of its external investment managers use derivatives to gain exposure to certain types of investments, or to hedge risks, as considered appropriate. Importantly, UniSuper does not use derivatives to leverage the Fund’s assets. With derivatives, there is a risk that the value of the derivative will fail to move in line with the value of the underlying asset, or that the obligation under the derivative contract held by another party will not be honoured.
Investment option risk
There is a risk that, during your membership, UniSuper may discontinue the investment option you're invested in and require you to transfer to another option or make substantial changes to your chosen investment option. However, if this were to occur, you would receive advance notification and have an opportunity to switch to any of our other investment options available at that time. Similarly, UniSuper may change the default option that applies to members who do not make a choice.
Managing investment risk
While risk is an inevitable part of investing, it's possible to manage investment risk and therefore moderate its impact on your investments. Two strategies for managing such risks are:
- diversification – spreading your money across a number of different investments, rather than just a few or even a single investment, and
- investing according to your timeframe – choosing investments that are expected to be best suited to the length of time you intend to hold those investments.
When it comes to deciding how you want your accumulation component/account to be invested, UniSuper has a wide range of investment options to choose from. All of these options offer a diversified selection of investments – some within specific asset classes, and some across a range of different asset classes. In addition, we generally encourage you to take a long-term view when it comes to your super. Your individual circumstances need to be considered when deciding how to manage investment risk.
You can also read more about how we invest in our How we invest your money booklet.