Best performing pension funds

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 an important consideration. At this age and stage of life it is generally advised to reduce the percentage of growth assets in your investment portfolio to reduce risk. This is to limit what is called sequencing risk, or the risk of a bad year early in retirement adversely impacting the total amount of income available to you over the course of your retirement.

This is also the logic behind lifecycle super funds, which automatically reduce the percentage of growth assets in your account as you age. 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 may have 45% invested in growth assets.

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 in retirement phase. In accumulation phase (essentially while you are working), your super fund’s investment earnings are taxed at 15%.

When super and pension performance tables are published in the media, it’s important to note that they are generally only listing super investment options in a single risk category. Most often this covers super investment options that are classed as ‘balanced’ or ‘growth’ which generally means they have 60-80% invested in growth assets. For pension this generally covers investment options that are classed as ‘conservative’ or ‘capital stable’ which generally means they have 20-40% invested in growth assets

SuperGuide publishes performance tables for 5 risk categories for pension funds (All Growth, High Growth, Growth, Balanced and Conservative), all listed below.

• Best performing pension funds: All Growth category (96–100%)
• Best performing pension funds: High Growth category (81–95%)
• Best performing pension funds: Growth category (61–80%)
• Best performing pension funds: Balanced category (41–60%)
• Best performing pension funds: Conservative category (21–40%)

We’re grateful to SuperRatings for providing the following list of top 30 performing Capital Stable funds over the last five calendar years up to September 2019. SuperRatings’ Capital Stable category includes super pension fund investment options with 20% to 40% growth assets such as shares, with the balance invested in bonds and other defensive investments.

The gold medal goes to AustralianSuper which achieved an average return of 5.2% per year over the past five years. Rounding out the top three are Cbus with a return of 5.0% a year and HESTA with 4.8% a year. The average return for all 50 funds that make up SuperRatings’ Capital Stable category was 3.4% a year.

Industry funds dominate the top performers list. Among the top 20, 17 are industry funds, with just one retail fund. Learn more about the different types of super funds.

The table below shows the top 20 Capital Stable super options (20-40% growth assets) ranked by 5 year return.

Important: Past performance is not necessarily a guide to future performance. The returns that super funds achieve will change over time and readers should continue to monitor their super’s performance.

Click here to see an extended table with results for 1 year, 3 years, 5 years, 7 years and 10 years.

Source: SuperRatings

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 March 2020. 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) over 5 years was 3.4% 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 (1.8% 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 5.2% per year, could retire at 70 with a super balance of approximately $658,629. All other things being equal, achieving 3.4% instead would mean a super balance of approximately $558,649 – a difference of $99,980 or 15% less.