Lifecycle superannuation products
3.9 Lifecycle superannuation products
A lifecycle investment product is one that aims to manage investment risk throughout a member's lifetime based on the member's ages and expected time to retirement.
Lifecycle investments are frequently offered among MySuper products available through retail superannuation funds, especially those run by banking groups. Some not-for-profit funds also offer lifecycle investment options.
The investment strategy of a lifecycle product is broadly characterised by its 'glidepath', which seeks to reflect a member's risk profile by having a larger exposure to growth assets when a member is younger and de-risking to a higher proportion of defensive assets as a member is approaching retirement.
In practical terms, this means when a member is under age 40, their exposure to growth assets will average almost 82% before progressively reducing to an average of 63% by the time they reach their 50s. By age 65, when most people retire, the average lifecycle MySuper product has about 45% of its portfolio invested into growth assets. This is illustrated in the graph below.
Are lifecycle investments safer?
Lower investment risk does not come without potential cost. Over the life of their superannuation investment, the member's portfolio is more conservatively invested than it would have been, had they remained in a single strategy diversified growth portfolio. This could impact their retirement balance as the lifecycle strategy is likely to deliver lower investment returns.
This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.
Last modified: Tuesday, April 27, 2021