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The super plan costing Aussies $170k

Lucy Dean
·2-min read
Here's the problem with these funds. Images: Getty, RainMaker Information
Here's the problem with these funds. Images: Getty, RainMaker Information

Australians who have their superannuation in a lifecycle product could lose as much as $170,000 over the course of their lifetime, new research has found.

Lifecycle superannuation products invest members’ money differently based on their age, with younger members generally having more aggressive strategies and older members having more conservative strategies.

Australians with industry funds are more likely to have their money in a single-strategy fund, likely referred to as a “balanced” option. Australians with retail funds are more likely to have their money in a lifecycle option.

However, new analysis from superannuation consulting firm Rainmaker found that a typical lifecycle MySuper product can erode savings by 23 per cent by age 70, or $170,000, compared to single-strategy funds.

MySuper products are the default superannuation funds for Australians in certain industries. MySuper products were introduced in 2013 to create a simple and cheaper option for Australians using default products.

Source: Rainmaker Information
Source: Rainmaker Information

“While the best lifecycle products perform very well, there is massive disparity between these and low-performing lifecycle products,” executive director of research at Rainmaker Information Alex Dunnin said.

In its latest Superannuation Benchmarking Report, Rainmaker found single strategy MySuper products at least matched and would often beat lifecycle products measured across three- and five-year performance periods, across all age groups.

Source: Rainmaker Information
Source: Rainmaker Information

Four of the worst-performing lifecycle MySuper products were retail funds and one was a not-for-profit fund. At the other end of the spectrum, the top five lifecycle products were made up of four not-for-profit funds and one retail fund.

Dunnin said the findings don’t necessarily indicate lifecycle products are worthless, noting that the shift to a more conservative approach later in life makes sense for those looking to avoid risk.

“But the strategic problem in the lifecycle sector is not the concept behind them, but the huge variation in their outcomes.

“That is, as a group, they don’t seem to be actually working properly. Their leading products are nevertheless extremely impressive,” he said.

“Too many lifecycle products are struggling to deliver on their promise. Heatmaps produced by the superannuation regulator, APRA, have found pretty much the same thing."

Research from Rice Warner released in 2020 found that while older lifecycle products performed poorly due to scaling down growth assets too early into members’ lives, the newer lifecycle products coming onto the market were more hopeful.

However, Dunnin said that if lifecycle products as a group don’t improve, the regulator could be forced to pull them as MySuper options.

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