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.


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

Super engagement better than expected

Retirement adequacy: COVID means we need to work longer


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.


Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.