According to the 10/30/60 rule, 60% of your retirement income comes from the investment returns you achieve during your retirement. While this rule originated from a US study, the principle holds broadly true for Australian retirees and underlines how important it is to continue to earn a good investment return in your retirement years.
During their working years, most Australians pick a balanced or growth super fund, with between 60% and 80% of their money invested in growth assets such as shares and property. However, as people near or reach retirement capital preservation becomes more important and it is generally advised to reduce the percentage of growth assets in their investment portfolio to reduce risk. This is to limit what is called ‘sequencing risk’, or the risk of a bad year early in retirement, as retirees are now living off their super savings rather than a salary.
This is the logic behind lifecycle super funds. For example, lifecycle funds for people who were born in the 1990s on average have 88% of the money invested in growth assets, whereas those born in the 1950s have 45% invested in growth assets.
However, retirees with a super pension do get a boost, even if they reduce risk and thereby returns, because there is no tax on investment earnings during the retirement phase. In accumulation phase (essentially while you are working), your super fund’s investment earnings are taxed at 15% (up to the transfer balance cap of $1.6m).
We’re grateful to SuperRatings for providing the following list of top 30 performing capital stable funds over the last 5 calendar years up to December 2018. SuperRatings’ capital stable category includes super fund investment options with 20% to 40% of their assets invested in growth assets.
The gold medal goes to AustralianSuper which achieved an average of 6.5% per year over the last 5 years. Of the top 30 funds, 23 are Industry funds, with only five Retail funds, one Corporate fund and one Public Sector fund rounding out the list.
|Fund and option||Type||Fees (based on $250,000 balance)||Return over 5 years (% per year)|
|AustralianSuper Choice Income Account – Stable||Industry||$1,378||6.5%|
|UniSuper AP – Conservative||Industry||$1,396||6.2%|
|HESTA AP – Conservative||Industry||$1,641||6.1%|
|Hostplus AP – Capital Stable||Industry||$2,265||6.0%|
|MyLife MyPension – Conservative||Industry||$2,801||6.0%|
|NGS Super AP – Defensive||Industry||$2,715||6.0%|
|StatewideSuper AP – Conservative||Industry||$2,178||6.0%|
|TelstraSuper RetireAccess AP – Conservative||Corporate||$2,128||6.0%|
|Cbus AP – Conservative||Industry||$1,304||5.8%|
|Sunsuper for Life AP – Conservative||Industry||$2,081||5.7%|
|MTAA Super AP – Conservative||Industry||$1,608||5.6%|
|Vision Super AP – Conservative||Industry||$2,150||5.6%|
|Energy Super AP – Stable Option||Industry||$2,252||5.6%|
|CareSuper AP – Capital Stable||Industry||$1,956||5.5%|
|Media Super AP – Stable||Industry||$1,615||5.5%|
|Tasplan Pension – Conservative||Industry||$2,003||5.3%|
|Super SA AP – Conservative||Public sector||$2,225||5.3%|
|First State Super AP – Conservative Growth||Industry||$2,602||5.2%|
|VicSuper AP – Capital Secure Option||Industry||$1,603||5.2%|
|smartMonday PENSION – Moderate – Active||Retail||$3,340||5.0%|
|Local Government Super AP – Conservative||Industry||$2,846||5.0%|
|Mercer PS AP – Moderate Model Choice||Retail||$5,263||4.9%|
|Rest AP – Capital Stable||Industry||$1,843||4.9%|
|Mercer Super Trust AP – Mercer Conservative Growth||Retail||$3,085||4.9%|
|LUCRF AP – Conservative||Industry||$1,903||4.8%|
|legalsuper AP – Conservative||Industry||$2,068||4.8%|
|Equip AP – Conservative||Industry||$1,355||4.8%|
|ESSSuper AP – Conservative||Industry||$1,777||4.6%|
|North AP – North Index Defensive||Retail||$2,216||4.5%|
|IOOF Pension Core – IOOF MultiMix Conservative Trust||Retail||$2,917||4.5%|
Note: Returns are net of investment fees, tax and implicit asset-based administration fees. Fees are based on a $250,000 balance as at 31 December 2018. Fees include percentage-based administration fees, member fees, investment management fees (including performance-based fees), indirect cost ratios (ICRs) and taxes, but exclude any applicable employer size rebates.
The performance for the SRP50 index (the average across the 50 pension funds in the capital stable option reviewed by SuperRatings) was 4.8% per year, so not all the funds listed above actually performed better than the average.
Although the difference between the top performer and the average doesn’t seem much (1.7% per year), the difference builds up significantly over time due to compounding.
SuperGuide’s Super fees and returns calculator helps illustrate the difference that fees and returns can make over time. For example, a 60-year-old with $500,000 in super and earning $95,000 per year, paying 0.8% in fees and achieving 6.5% per year, could retire at 70 with a super balance of approximately $754,685. All other things being equal, achieving 4.8% instead would mean a super balance of approximately $646,733 – a difference of $107,952, or 14% less.
Fees are an important part of the equation, and there was significant variation in the fees charged (based on a $250,000 balance) across the 30 funds. The most expensive fund charged $5,263 per year, which was more than 2.3 times the average of $2,217 per year. The fund with the lowest fees charged $1,304 per year. Discover the super and pension funds with the lowest fees, and find out what are the average super fund fees.
Learn more about super investing in the following SuperGuide articles:
- Risk profiling and your investment choice
- Understanding the dynamics on which your super fund invests
- SMSF investment rules: What every trustee should know
- How to create an SMSF investment strategy (including examples)
- Super investing: How to choose a responsible investment option
- Super investing: Should you change your investment option?
- Super investing: How to change your investment option
- Super investing: Are you investing in infrastructure?
- Super investing: What are listed and unlisted investments?
- Super investing: What is your risk profile?
- How to choose an investment option for your pension
Learn more about investment performance over calendar years in the following SuperGuide articles:
- Best performing super funds over 5 calendar years (to December 2018)
- Asset sector performance: Returns over 1 to 15 calendar years (to December 2018)
- Super fund performance: Calendar years (to December 2018)
- Best performing super funds over 15 calendar years
- Best performing super funds over 1 calendar year (to December 2018)
Learn more about investment performance over financial years in the following SuperGuide articles: