Setting yourself up for retirement: Could a 5-Star Rated account based pension help?

For those seeking a degree of financial stability in retirement, knowing which account based pensions are a cut above the rest may prove useful. Read on to find out which account based pensions offer outstanding value in 2020.

The news that the age pension will not automatically increase this month for the first time since 1997 may have current and near-retirees worrying about their future income. An account based pension – which allows you to draw down your superannuation gradually while investing the balance – can provide an income to supplement, or even replace the age pension for retirees. But how do you know which account based pensions could offer you the most bang for your buck?

Canstar assessed 63 account based pensions from 54 providers to determine which ones offer outstanding value to consumers.

This year, six providers received an overall 5-Star Rating for their account based pensions. Here’s how they did it.

How were account based pensions assessed and rated?

Canstar assesses account based pensions using a methodology which takes both performance and features into consideration. Star Ratings are given to individual investment options based on their performance, rather than overall products with multiple investment options.

Investment options were assessed against one of four profiles, based on their proportion of growth assets (such as shares and property):

  • Cash – 0% growth assets
  • Moderate – comprised of between 20% and 59.99% growth assets
  • Balanced – comprised of between 60% and 79.99% growth assets
  • Growth – comprised of between 80% and 100% growth assets

Each investment option was assigned a performance score and a feature score, weighted at 70% and 30% of its final score respectively.

Performance scores were based on an investment option’s net annual investment return over six years, which was calculated by deducting fees and tax from the initial returns.

Feature scores were calculated based on four categories:

  • Opening – How easy is it to open an account based pension with/switch to the provider?
  • Investment flexibility – What investment options are offered by the provider? How easy is it to switch between them? How is your pension paid to you?
  • Support – Does the provider have educational tools available to customers? Does it offer support online, by phone or both?
  • Closing – How easy is it to close an account with the provider or change account based pension providers?

Providers which offered more options within these categories received a higher feature score.

Canstar Research gave overall 5-Star Ratings to the account based pension providers with the highest total scores for their best-performing investment option across the various investment profiles considered. You can read the methodology to find out more about how the Ratings were calculated.

What does 5-Star performance look like?

The table below shows the difference in returns between 5-Star Rated investment options and the database average for each investment option assessed.

Average Five-Year Net Annualised Return (Period ending 30 June 2020)
Profile Growth Asset Allocation 5-Star Rated Average Market Average Difference
Cash 0% 2.05% 1.54% 0.51%
Moderate 20.00%-59.99% 6.55% 4.54% 2.01%
Balanced 60.00%-79.99% 7.56% 5.95% 1.61%
Growth 80.00%-100% 8.01% 6.49% 1.52%
Source: Canstar Research. Based on products rated in Canstar’s 2020 Account Based Pensions Star Ratings (September 2020) that have been available for a minimum of six years. Five-year Annualised Return calculated based on the annual investment returns (effective to end of June) for the most recent five-year period; returns are net of fees and investment-related tax.

2020’s overall 5-Star Rated account based pension providers

This year, six account based pension providers received an overall 5-Star Rating – five of them are returning winners from the 2019 Account Based Pension Star Ratings, and one is new to the podium.

Australian Super

Australian Super has won a third consecutive overall 5-Star Rating for its account based pension product, Choice Income. Australian Super improved on its overall performance from last year, and was especially strong across the Cash, Balanced and Growth investment profiles.

According to Australian Super, its Choice Income account based pension offers flexible payment options and advice available via email, phone call, and in person.

Cbus

Cbus has retained the overall 5-Star Rating it won last year for its account based pension. This year Cbus outperformed its previous overall score, but was particularly strong across the Cash, Balanced and Growth investment profiles.

According to Cbus, its account based pension offers retirees the option to tailor the amount and frequency of their payments, as well as access to retirement planning services.

HESTA

HESTA has won an overall 5-Star Rating for its account based pension for a second year in a row, off the back of a strong performance in the Balanced and Growth investment profiles.

HESTA says its account based pension offers 10 investment options, access to fee-free advice, low ongoing fees and its Ready-Made Investment Strategy, which it says is designed to reduce investment risk.

Prime Super

Prime Super has scored a hat-trick, winning a third consecutive overall 5-Star Rating for its account based pension. It improved on its 2019 performance, and did notably well across the Balanced and Growth investment profiles.

Prime Super says its account based pension offers flexibility when it comes to receiving your payments and a number of different investment options.

Statewide Super

Statewide Super is this year’s new winner. Canstar Research said Statewide Super’s overall 5-Star Rating was due to an above-average performance in three out of the four investment profiles, and a particularly strong showing in the Growth Profile.

According to Statewide Super, its Super Pension offers a choice of 10 investment options, flexibility in how much you draw from your pension each year, a range of member benefits and discounts and access to financial advisers who can help you set up an effective retirement plan.

Sunsuper

Sunsuper has won an overall 5-Star Rating for the third year in a row, off the back of a strong performance across the board, and an especially strong performance in the Cash investment profile.

SunSuper says its account based pension offers a range of investment options, the choice of when you receive your income payments and how much you receive.

For more information on how the winners of our Account Based Pensions Star Ratings were calculated, you can read the methodology and view the full results.

This article was reviewed by our Sub Editor Tom Letts and Finance Editor Sean Callery before it was published, as part of our fact-checking process.

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