Superannuation pension funds, like their accumulation fund peers, had a knockout year in 2019. The median Growth fund was up 16.3% in the year to December, mostly due to a stellar performance from shares, but even Conservative funds returned 9.4%. This left many retirees in the happy position of a bigger balance at the end of the year, even after withdrawing the mandated minimum pension income.
Pension fund categories – Conservative, Balanced, Growth, High Growth and All Growth – are the same as those for accumulation funds and by and large hold the same underlying investments. So, pension fund returns are driven by the same factors as accumulation fund returns. See Super fund performance over 27 calendar years to December 2019 for more on the underlying market trends and asset class returns.
Despite holding the same underlying investments, pension fund returns tend to be roughly 10–15% higher than returns for the same category in accumulation phase. The difference is due largely to tax, as investment earnings are not taxed in retirement phase.
For example, while pension Growth funds with 61–80% growth assets returned 16.3%, the median Growth fund in accumulation phase with a near identical investment portfolio returned 14.7%. All Growth pension funds (96–100% growth assets) returned 23.7% in the year to December compared with 20.8% for All Growth accumulation funds, while Conservative pension funds (21–40% growth assets) returned 9.4% compared with 8.3% for the same category in accumulation phase.
Chant West senior research manager, Mano Mohankumar says although people tend to be more risk averse as they get older, most retirees are still invested in their fund’s Growth option where the majority of accumulation members are also invested. For example, he says that in large industry funds such as AustralianSuper and UniSuper most pension fund members are in their Balanced option (with an investment mix that aligns with Chant West’s Growth category). Even so, he says a meaningful number would also be invested in the next risk category down, in line with Chant West’s Balanced category with 41–60% growth assets.
However, retirees in retail pension funds (and some industry pension funds) are most likely to be invested in a Lifecycle investment option with a conservative investment mix. Lifecycle funds automatically shift members into a lower risk investment mix as they age and get closer to retirement.
In years like 2019, when shares and listed property perform well, people with higher levels of growth assets will reap the benefits. Conversely, when shares perform badly, conservatively invested retirees should do better.
The following table from Chant West shows pension fund performance across various timeframes for five investment categories as at the end of last calendar year.
Pension diversified fund performance (results to 31 December 2019)
|Fund category||Growth assets (%)||Qtr|
Note: Performance is shown net of investment fees. It is before administration fees and adviser commissions.