What are lifecycle super funds, and how do they perform?

Close to 70% of Australians with super in one of the major funds are invested in their fund’s MySuper option, the default option for employees who don’t wish to choose another super fund.

There are currently 64 MySuper products, down from 80 in 2021, and this trend is likely to continue as more mergers are finalised, according to SuperRatings insights manager Joshua Lowen. Around 41% (26) of these 64 MySuper products registered with the Australian Prudential Regulation Authority (APRA) in 2024 have a lifecycle design.

If you are a member of a retail fund MySuper default, this is most likely a lifecycle product designed to reduce your exposure to higher-risk growth assets as you age. A small but growing number of industry funds also use a lifecycle design, including Aware Super and Australian Retirement Trust (ART), but most use their traditional balanced or growth option as their MySuper default.

This makes it difficult to compare MySuper returns. Balanced or growth default options have a single strategy for all members with somewhere between 60% and 80% of members’ money in growth assets such as shares with the remainder in defensive assets such as cash and bonds. By comparison, lifecycle defaults might hold less than 40% or as much as 95% in growth assets, depending on your age and the fund’s design.

Why lifecycle funds?

Lifecycle super funds, sometimes called lifestage or target date funds, have been around since the early 1990s. While popular overseas, they didn’t really catch on in Australia until after the global financial crisis of 2007–09, which heightened investors’ awareness of market risk. Their position was further cemented with the introduction of MySuper in 2014, when many retail funds adopted a lifecycle approach as their MySuper default.

Lifecycle funds are based on the idea that investors in different age groups should not have the same mix (or allocation) of assets in their investment portfolio. While younger members can afford to accept a higher level of risk and hold more growth assets, it’s generally held that older members should take a more defensive approach as they get close to retirement.

They are also an acknowledgement that most super fund members are not actively engaged with their super and don’t know how it is invested. With this in mind, lifecycle products automatically increase the amount of defensive assets relative to growth assets as you age and your investment horizon draws nearer.