What are lifestage investment options in super and how do they work?

Choosing the right investment options for your super can make a big difference to your retirement savings. You can choose those options yourself or you may be able to let your super fund make investment options for you, based on your age.

These are known as lifestage or lifecycle super funds and are designed to move your money from more aggressive growth investments when you’re younger to more conservative ones as you get older.

Which super funds offer lifestage investments?

Canstar Research crunched the numbers on the super funds we research and rate for our Superannuation Star Ratings and found there were 15 out of 55 rated super funds that offer a lifestage investment option. That’s about 27% of all super funds we reviewed.

They include Active Super, AMP, ANZ, Australian Catholic Super, Aware Super, Bendigo Bank, BT Funds Management, Child Care Super, GuildSuper, Mercer Superannuation, Mine Super, QSuper, Suncorp, Sunsuper and Virgin Money.

You can check out each super fund’s website to find out more about how their liftstage options work. Each follows a similar path in altering the mix of investments for you, depending on the year or decade in which you were born.

Virgin Money, for example, has a LifeStageTracker that shows how your investment mix will change from 90% growth and 10% defensive if you start at an early age, moving to approximately 50% growth and 50% defensive as you reach ages 66–70.

It will even break down how the investment can be split between Australian and international shares, fixed interest assets, cash and other options.

Active Super talks about the three stages of its lifestage option: accelerator, accumulator and appreciator.

The first stage accelerates your super growth in your younger years, the accumulator takes the risk down a notch and the appreciator moves your super into lower risk assets as you near retirement.

“When you’re younger, it makes sense to invest your super in riskier, high growth investments, because you have time to wait out any temporary downturns in the market,” says Active Super.

“As you get closer to retirement, however, most people want to reduce their investment risk.”

Is a lifestage super product right for you?

Whether a lifestage super product is right for you will depend on your own circumstances and it may be a wise idea to seek independent financial advice. Read carefully any Product Disclosure Statement (PDS) and Target Market Determination (TMD) documentation, and check for fees and other charges.

You may want to consider a number of factors depending on what stage you are at in your super journey towards retirement, such as:

• What you want your final retirement balance to be?
• How long will you be working?
• How much risk you’re comfortable with?
• How hands on you like to be with your super?

If you like to be hands-off with your super, a lifestage option could be worth considering as it provides an option that your super fund manages your asset allocation as you age.

Some people prefer to have more control over their investment mix and exposure to risk. If that’s you, then you’d be wise to talk to your super fund to see what options are available to you. Again, consider seeking some independent advice.

Dr Paul Moran, from Moran Partners Financial Planning, has cautioned against opting for a strategy that can automatically move you from one investment option to another, based solely on your age, regardless of what may be happening on investment markets.

“Another consideration is that retirement can last for 30 years or more and so becoming too defensive, especially in a very low interest rate environment, can have a dramatic impact on long-term returns and how long the money will last,” he told Canstar.

Pros and cons of lifestage super funds

Now you know how lifestage or lifecycle super funds work, let’s summarise some of their main advantages and disadvantages.

The pros

• A more active management approach to your super rather than the one asset allocation if you do not decide to play a more active role in your super investment choice
• Your investment mix is automatically tailored to your age – you could achieve a higher return at a young age and consolidate your investments before retirement
• It’s a hands-off approach, suitable for people who want their super fund to assist in adjusting their investments as they age to gradually reduce risks

The cons

• You could potentially lose money in high-growth investments when you’re younger, and earn less from defensive investments when you’re older
• Age isn’t the only important factor – you also need to consider the current market conditions
• Life stage funds might automatically switch over your investments at the wrong time, meaning you miss out on greater market returns

What should you consider in comparing super funds?

When choosing any super fund it’s important to consider investment returns, fees, insurance, access to advice as well as any other features. Remember, past performance is not a reliable indicator of future performance.

You can compare super funds based on fees and performance with our comparison tool, or you can check out our articles on the top-performing super funds and lowest fee super funds. You may also want to find out about the life insurance offered by your superannuation fund before making a decision.

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