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system was rocked by the global financial crisis.
It is a strategy that rests on automatically
lowering investors’ exposure to riskier growth
assets as they age. But whether it will deliver
results – as first envisioned under MySuper’s low-
cost, simple product structure – remains hotly
debated by the industry.
There are about 23 MySuper lifecycle funds
currently being offered, according to research
house Chant West, and their asset base is
growing quickly, thanks to some of the largest
retail super players’ lifecycle ventures.
Colonial First State (CFS) head of investment
services Scott Tully says about 90 per cent of
its 300,000 super investors don’t exercise any
investment choice and now have an exposure to
its lifecycle strategy, which was launched just over
a year ago.
“You could argue it’s about being a bit
paternalistic to ensure that those members who
haven’t elected a choice have an experience
which doesn’t disrupt their retirement plans,”
Tully says. “Ideally, we’d like all those members
who hit 55 and haven’t considered their super to
start thinking about their super and, if they move
out of the lifecycle fund, that would be fine...
but we know, in reality, there’s still going to be
a proportion of members who don’t exercise
CFS FirstChoice Lifestage, which was the first
retail fund to receive MySuper approval last year,
passed the $1 billion mark in April. A number of
other retail funds have also launched their own
lifecycle products including rivals such as AMP,
ANZ, BT and Mercer.
But it is a product range that is anything but
homogenous and hides an increasingly diverse set
NOT SO SIMPLE
The way a lifecycle fund shifts an investor from
growth to conservative assets – including the
timing, frequency and quantum of the shift –
produces a ‘glide path’.
A young investor (born in the 1980s or 1990s)
typically has 89 per cent of their portfolio in
growth assets in the average lifecycle fund,
according to Chant West. It only begins to drop
markedly once an investor enters their 40s (to 73
per cent growth assets), dropping by a further
one-third over each of the next two decades.
However, funds such as AON MySuper have an
aggressive drop off in growth assets (from 100
per cent to zero at retirement), while First State
Super MySuper Life Cycle makes just one change
(from a 70:30 growth-defensive split) at age 59.
Nonetheless, Chant West principal Warren
Chant says the bulk of lifecycle funds currently
follow a similar glide path and employ
comparable strategies, allowing for comparison.
“It’s a reasonable group of funds to compare their
performance,” he says.
Chant West plans to compare lifecycle funds
by their ‘cohort’ – the age band that lifecycle
funds typically place investors in. Those lifecycle
funds that switch investors between options as
they age (a more difficult task for administrators)
will be compared in Chant West’s single strategy
Michael Drew, professor of finance at Griffith
University’s Griffith Business School, says the
deterministic nature of the glide path remains a
challenge for lifecycle funds.
“In our various research papers in the Journal
of Portfolio Management and the Journal of
Retirement, we have advocated for a more
dynamic approach to glide path design,” he says.
“Most critically, we see the design of lifecycle funds
as being much more than simply the targeted
retirement date of the investor. Issues around
portfolio size, sequencing risk, dynamic asset
allocation and risk management are paramount.”
Most lifecycle funds make pre-determined asset
allocation changes every five to 10 years, although
some make fewer changes and so increase the
risk that a significant proportion of growth assets
will be sold at the wrong time.
Meanwhile, age remains just one factor among
many when attempting to assess the risk that an
investor has taken on. Lifecycle funds do not take
into account assets held outside of super or the
value of the Age Pension (which effectively acts
as an inflation-linked government-guaranteed
Ben Facer, a principal in the Deloitte Actuaries
& Consultants team, says age cohorts are just
the first step for lifecycle funds. “I think that
all of those providers should be thinking, over
time, about how those cohorts can be refined
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