What Are Life Stage Investment Options in Super & How Do They Work?

Choosing the right investment options in super can make a big difference to your retirement savings, but it can be confusing to know where to start. Did you know some super funds have made automatic investment options available based on your age?

These are known as life stage or ‘lifecycle’ super funds, which are designed to automatically move your money from more aggressive investments when you’re younger to more conservative ones as you get older. They are becoming increasingly popular in Australia – the Australian Prudential Regulation Authority (APRA) found around 30% of MySuper funds have a lifecycle investment strategy as their default option, and more superannuation funds are including them as an option for members to choose.

This article will delve further into life stage super funds, what they are, how they work and the pros and cons of having one.

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Related Article: What is MySuper?

Which super funds offer life stage investments?

Canstar Research crunched the numbers on the super funds we research and rate for our yearly Superannuation Star Ratings and found there were 18 different super funds that offer a range of life stage investment options. This means a total of 29% of all super funds we reviewed (18/63) have some form of life stage investments.

You can see a snapshot of these funds in the table below, which displays the highest rated super funds with life stage investment options, sorted by Star Rating, (highest to lowest) then by provider name (alphabetically).

Please note the star ratings shown are based on a person aged 30-39 with a super balance between $55,000 and $100,000, and that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.

What are life stage super funds?

Technically there is no such thing as a life stage super fund – the life stage part is the investment option within the fund. A life stage investment option automatically mixes up your investment portfolio based on where you fit in pre-determined age brackets.

The investment mix (also known as an asset allocation) changes as you move into the next age bracket. According to ASIC’s MoneySmart website, some typical age brackets and matched investment mixes could look like this:

Age Growth Defensive
Under 45 85% 15%
45-54 75% 25%
55-64 55% 45%
65 or older 40% 60%

Source: ASIC

As you can see, younger members in a life stage investment option tend to have their assets more heavily concentrated towards growth assets, such as shares and property. As the members get older, these funds are then reallocated into more defensive or ‘conservative’ assets like cash and bonds, which are less risky but tend to generate lower returns.

These allocations vary from provider to provider – below is an example of Sunsuper’s ‘Sunsuper for life’ investment strategy.

Sunsuper for life

Source: Sunsuper 

So are life stage super funds worth it?

The principle behind these life stage investment cycles is younger people can invest in growth assets like shares and property because they generally have time on their side for their investments to recover from short-term market volatility. At the other end of the spectrum, people who are winding down to retirement have a shorter time frame. Therefore more defensive assets generally enable them to generate a smaller return, but with less risk of a potentially devastating fall in the value of their retirement savings.

Lifecycle strategies aren’t without criticism however. Some critics say age isn’t nearly as important as investment markets and other personal circumstances. Paul Moran of Paul Moran Financial Planning told the Australian Financial Review “these strategies are all activated without a view to current market conditions. Portfolio changes occur based simply on the client’s birthday. There is a risk in this itself, as changes may be at exactly the wrong time – or exactly the right time – but they are always based on a factor that has absolutely nothing to do with investment markets: the investor’s age.”

Whether a life stage super fund is “worthwhile” depends on the individual, and a variety of factors such as:

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

The market climate will also have a huge impact on the investment returns your super gets. If the share market is booming, you could be missing out on some juicy returns if you’re investing mainly in cash and bonds. Alternatively, if the share market is retracting, having investments elsewhere, such as bonds, can help to mitigate your risk.

If you like to be hands-off with your super, a life stage option could be worth consideration as it provides an option that actively manages your asset allocation as you age.

Pros and cons of life stage super funds

To summarise the above, the table below shows the main advantages and disadvantages of life stage super investments.

Lifecycle super funds pros and cons

Pros

Cons

  • 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
  • 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, missing out on greater market returns

When choosing a super fund it’s important to consider investment returns, fees, insurance, access to advice as well as features. Remember, past performance is not an 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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