Do MySuper Lifecycle strategies really work?

Lifecycle superannuation products appear to generally deliver on their promise, according to the latest analysis from Lonsec and SuperRatings.

The analysis, released this week, resulted from research which was aimed at fairly comparing different types of MySuper products – lifecycle and single strategy products.

“Our main conclusion is that yes, there are lifecycle products that are able to deliver above-median lifetime performance whilst achieving their risk objectives near retirement,” the analysis said.

However it went on to say that, “nevertheless, the top performing products remain predominantly single strategies that are able to maintain exposure to higher returning assets (but with a higher risk classification) up until retirement”.

The exercise conducted by SuperRatings was framed against the background of the Your Future, Your Super (YFYS) regime encouraging superannuation fund members to compare fund performance and consider whether they should change funds.

“It is fundamental that members should understand and be able to compare the two product types. Particularly, since 37% of the 75 MySuper products registered with APRA as at 31 March 2022 were designated as ‘lifecycle’ products,” it said

“The value proposition of a lifecycle product is to place members in a lower risk strategy as they approach retirement, while still maintaining overall lifetime return by investing more aggressively during the earlier years of the member’s career. A fair comparison of lifecycle and single strategy products must therefore take into account both return over a typical member’s lifetime and the relative risk position at or near retirement.”

The analysis was derived from utilising a methodology aimed at calculating Equivalent Lifetime Return (ELTR) for MySuper products.

“Advocates of lifecycle products might contend that their objective is not necessarily to be in the Top 10 performers, especially if it involves a higher risk categorisation at retirement.  Outperforming the median return might be a more realistic and consistent goal,” it said noting that the median ELTR for the sample set was 5.92% per annum.

It found that 9 out of 15 (60%) lifecycle products achieved an ELTR greater than the median, while 14 out of 30 (47%) single strategy products exceeded this benchmark.

Evidently, several lifecycle products have been able to deliver above-median performance (measured over a member’s lifetime) whilst placing their members in a lower-risk position close to retirement,” the analysis said.