Mr Day explained that due to the way tax components are calculated, generally only the value of a member’s taxable component fluctuates with investment returns.

“This happens by default as the taxable component is simply calculated as what’s left over after the value of the tax-free component has been determined,” he said.

However, one important exception to the rule, he noted, is where negative returns decrease the value of a member’s account balance to an amount that is less than the value of their tax-free component.

“In this case, given the tax-free component cannot exceed the actual account balance, negative returns cause a reduction in the value of the tax-free component,” he said.

“However, it’s also important to note that subsequent positive returns, or concessional contributions, can increase the value of a member’s tax-free component back up to previous levels, to the point where the member’s balance equals the value of their tax-free component.”

This means that where a member has suffered negative returns that have reduced the tax-free component, Mr Day said careful consideration should be taken before recommending rollovers, withdrawals or contributions, as there may be opportunities to increase their tax-free component to previous levels.

“For example, where a member transfers a benefit from one super fund to another via a rollover, the rollover fund will be required to notify the receiving fund of the amount of taxable and tax-free component included in the rollover,” he explained.

“The receiving fund is then required to include the amount of tax-free component included in the rollover in the calculation of the member’s contributions segment in that fund.”

As a result, a rollover could have the impact of locking in any reduction in the member’s tax-free component due to negative returns, he warned.

“It is also important to note that making deductible contributions could effectively increase the value of the member’s tax-free component where it had previously been reduced by negative returns,” he said.