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

Uncomfortable truths: The real cost of living in retirement


Most viewed in recent weeks

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

How not to run out of money in retirement

The life expectancy tables used throughout the financial advice and retirement industry have issues and you need to prepare for the possibility of living a lot longer than you might have thought. Plan accordingly.

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Latest Updates

Investment strategies

Have value investors been hindered by this quirk of accounting?

Investments in intangible assets are as crucial to many companies as investments in capital equipment. The different accounting treatment of these investments, however, weighs on reported earnings and could render ratios like P/E less useful for investors.

Investment strategies

Investors are threading the eye of the needle

As investors cram into ever narrower areas of the market with increasingly high valuations, Martin Conlon from Schroders says that sensible investing has rarely been such an uncrowded trade.


New research shows diverging economic impacts of climate change

There is universal consensus that the Earth is experiencing climate change. Yet there is far more debate about how this will impact different economies across the globe. New research sheds more light on the winners and losers.

SMSF strategies

How super members can avoid missing out on tax deductions

Claiming a tax deduction for personal super contributions can end in disappointment if it isn't done correctly. Julie Steed looks at common pitfalls and what is required for a successful claim.

Investment strategies

AI is not an over-hyped fad – but a killer app might be years away

The AI investment trend looks set to continue for years but there is only room for a handful of long-term winners. Dr Kevin Hebner also warns regulators against strangling innovation in the sector before society reaps the benefits.


Why certainty is so important in retirement

Retirement is a time of great excitement but it is also one of uncertainty. This is hardly surprising given the daunting move from receiving a steady outcome to relying on savings and investments.


This vital yet "forgotten" indicator of inflation holds good news

Financial commentators seem to have forgotten the leading cause of inflation: growth in the supply of money. Warren Bird explains the link and explores where it suggests inflation is headed.



© 2024 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. 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.