Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 124

Lifecycle funds increase super engagement

Engaging people with their superannuation is the holy grail for the wealth management industry. It’s encouraging to see the work super funds are doing to increase engagement but it’s a slow process. The road to that holy grail is paved with challenges, not least of all the intangibility of retirement, particularly for younger customers.

We believe lifecycle funds and MySuper can play a role in achieving greater customer engagement with superannuation.

Lifecycle funds are not only about returns

Lifecycle funds, otherwise known as target-date or age-based funds, invest in a predetermined way depending on the age of the customer. The asset allocation shifts as the time horizon changes and the customer moves towards retirement.

With lifecycle funds, performance is not the sole aim. The primary focus is the final outcome: delivering a suitable level of income at retirement.

One of the advantages of defined benefit funds, once the mainstay of the superannuation industry, was that they gave customers certainty of income at retirement. Today, defined contribution funds are the norm. But the primary measure for success for defined contribution funds is past performance. Being a backward-looking metric, customers don’t have a future figure they can plan around.

Another prevalent measure of success is performance in relative terms i.e. against a peer group or a benchmark. This can provide fiduciaries with important information about the success of manager selection or the management of business risk. However, it provides no information to the customer about their path to a comfortable retirement. What does it mean to a customer if a fund is a ‘second-quartile performer’? It tells the customer nothing about whether their retirement strategy is on track. And this is partly why engagement is so low.

As an industry, we’re blinkered by performance figures, and it’s critical that a fund performs well. However, it’s just as important to look forward and consider whether a fund will deliver a suitable level of income at the end of a working life. Customers are more likely to be engaged with a fund that focuses on a tangible retirement outcome. A lifecycle fund creates a strong platform for customer engagement, including as part of a MySuper solution.

Lifecycle funds aim to manage the competing objectives of maximising return while minimising sequencing risk. This is best expressed through the metaphor of crossing a river. While a river may, on average, be four feet deep, a quarter of the people crossing the river risk drowning because there are pockets in the river that are seven or eight feet deep. The average depth of the river is irrelevant. Our intention is to get as many people as possible across the river without drowning.

We manage our lifecycle funds actively. The fund manager looking after each age-based cohort aims to optimise customers’ income in retirement and increase the certainty of achieving that outcome. In the early years, it’s about maximising return. As members mature, certainty of outcome becomes more important, while rejecting the temptation to de-risk too quickly. It’s made us think about things in new and different ways.

Take customers on the journey

Communication is critical in reaching that holy grail. We need to focus on whether the fund is on track to meet its objective. This might also serve to dissipate investor concerns about short-term volatility as it reminds customers that superannuation is a long-term investment.

MySuper communications now look and feel different to what people are used to. The reports reflect how each age-based cohort is managed and focus on an expected income in retirement rather than a lump sum dollar value. This will help build engagement (although there is nothing stopping a balanced fund from using a similar form of customised communication).

Of course, lifecycle funds aren’t the panacea for engagement and the issues the industry faces. We need to ensure people do not think lifecycle funds give some sort of guarantee. As with all forms of investing, lifecycle funds remain at the mercy of market risk. The challenge is to talk about this risk openly. Customers need to know about the action they can take to help meet their goals in retirement, such as increasing their contributions or planning to work longer.

The hope is that this will lead to customers participating more actively in their super, such as moving out of default choices. The more people are interested in their retirement, the better.

 

Sean Henaghan is AMP Capital’s Multi-Asset Group Chief Investment Officer.

 

RELATED ARTICLES

Reply to Peter: Why a glide path makes sense, with equities for growth

Super engagement better than expected

Inflation cruels a comfortable retirement

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Latest Updates

Superannuation

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Economy

Should Australia follow Trump's new brand of capitalism?

A new brand of capitalism may be emerging - one where governments take equity in private companies. Is it state overreach, or a smarter way to fund public goods without raising taxes?

Gold

Why gold may keep rising - and what could stop it

Central banks are buying, Asia’s investing, and gold’s going digital. The World Gold Council CEO reveals the structural shifts transforming the gold market - and the one economic wildcard that could change everything. 

Investment strategies

Fact, fiction and fission: The future of nuclear energy

Nuclear power is back in the spotlight, including in Australia. For investors exploring the sector, here are four key factors to consider in this evolving energy landscape. 

Taxation

The myth of Australia’s high corporate tax rate

Australia’s corporate tax rate is widely seen as a growth-killing burden. But for most local investors, it’s a mirage - erased by dividend imputation. So why is it still shaping national policy? 

Taxation

Should we change the company tax rate?

The headline 30% corporate tax rate masks a complex system of dividend imputation and franking credits that ensures Australian shareholders are taxed only once, challenging traditional measures of tax competitiveness. 

Investing

Noise cancelling for investors

A lot of the information at an investor's fingertips today has little long-term value. The modern investing greats are not united by access to faster information, but by their ability to filter out what doesn’t matter.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.