Stats released by Rainmaker Information found that lifecycle My Super product members are up to $170,000 worse off in their retirement due to inferior performance.
Lifecycle superannuation products are those that invest members’ money differently depending on their age.
Younger members will have more of their superannuation allocated into equities and property, while older members will have more allocated into bonds and cash.
However, research from Rainmaker Information found that single strategy MySuper products at least matched, if not beating, the lifecycle option.
“While the best lifecycle products perform very well, there is massive disparity between these and low-performing lifecycle products,” said Alex Dunnin, executive director of research at Rainmaker Information.
He stated that over the three-year performance period to the end of November 2020, there was a 3.3 percentage point gap between the top-placed product, Virgin Money, and the bottom-placed product.
COVID-19 made this worse, with the difference in returns over the 12 months to 30 November 2020 growing to 5.5 percentage points.
Despite the current performance figures, Mr Dunnin said the idea behind lifecycle products remains compelling.
“As you get older, your investment risks are dialled down and a greater proportion of your MySuper savings are allocated to more conservative assets like bonds. There is less chance of losing money,” he said.
“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.”
“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.”
The need to tackle underperformance in superannuation has gained momentum following the announcement of the Your Future, Your Super reforms in the 2020-21 Commonwealth budget. For the first time, starting in 2021, super funds will have to pass an investment performance test.
Mr Dunnin said some advocates of lifecycle MySuper have argued that it’s not possible to compare lifecycle investment strategies, and that it’s only when members retire that we’ll know if they’ve achieved their goals.
“But that’s absurd. It will be like telling parents that the first time they will ever see their child’s school report is after their child has left year 12,” he said.
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