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Since the introduction of compulsory super in 1992, the focus of our superannuation system – from the media, government, regulators and super funds themselves – has been on the accumulation phase.
There is applause and awards for the funds that deliver the best returns for members as if it’s a race past the post; the post being the day you retire and count your winnings. But that’s just the beginning.
While building your nest egg is important, the real challenge begins once you start drawing on it to pay for your living expenses in retirement. You want your money to last the distance and be invested in a way that gives you peace of mind.
That’s why your choice of pension fund is so important; because there are real differences in the strategies, products and services on offer.
What makes a winning pension fund?
As the general manager of superannuation ratings group Chant West Ian Fryer says, there are two areas where pension funds need to deliver for their members.
The first is investments with returns that will keep your money growing even as you withdraw income, while recognising the importance of capital preservation for retirees. That’s different to accumulation phase, where the emphasis is squarely on growth.
The second is financial advice because everyone’s needs in retirement will be different. When you move from accumulation phase to retirement phase, advice that is tailored to your personal circumstances is critical. Once you have retired you may just want to touch base occasionally to see how you are tracking.
The best pension funds offer a range of advice, from basic to comprehensive. But Fryer argues there’s a lot more funds can do to support pension members to get the most out of their retirement savings. From tools that help them make good decisions to products that give them confidence to withdraw more cash without worrying that their savings will run out.
Pension funds of the year
SuperRatings was first cab off the rank with its 2024 awards night held on 25 October 2023, while Chant West announced its 2023 winner on 18 May 2023.
Aware Super made its first appearance on the winner’s podium after winning SuperRatings Retirement Offering (pension fund) of the Year award, edging out a crowded field of the usual suspects, including Australian Retirement Trust (ART), UniSuper (which won the SuperRatings overall Fund of the Year) and TelstraSuper.
SuperRatings executive director Kirby Rappell says Aware has worked hard on its retirement offerings. It has launched an innovative retirement income calculator, making it one of only a few funds to give projections for every member and pathways to achieve their goals. It has also developed investment overlays for all its pension options to safeguard returns in volatile market conditions.
The table below lists the best pension funds for the past seven years as awarded by Chant West and SuperRatings. As you can see, the pension fund plaudits over the past seven years have all gone to industry funds, until recently. Corporate fund TelstraSuper won the most recent award for Chant West and the previous award for SuperRatings for its strong focus on its pension fund members who represent a quarter of the fund’s assets.
Fryer says TelstraSuper recognises that pension members have different investment needs and tolerances to super members, so it adopts different strategic asset allocations for its pension options. This is a different approach to many funds that simply replicate their super investment options for pension members. Fryer says the fund has a strong internal investment management capability with a meaningful allocation to unlisted assets. “It has a well-performing property portfolio with lots of Bunnings stores and industrial properties.”
“TelstraSuper’s diversified pension options have a cash allocation feature that pays the income part of a member’s earnings to the cash option. This sends a signal that it’s OK to draw down what you need as you’re not eating into your capital,” says Fryer.
The fund also has a strong advice offering, with 57% of members who transfer to a pension receiving some sort of advice.
Apart from TelstraSuper, two funds – UniSuper and Australian Retirement Trust (ART) QSuper – have been out and out champions in the pension space. (QSuper and Sunsuper, also a previous winner, recently merged to form the Australian Retirement Trust.)
Sources: Chant West and SuperRatings
*now part of Australian Retirement Trust
Prior to the 2023 awards, QSuper had won the top award six times. Rappell says innovation in the pension space has been disappointing overall given the large numbers of members entering retirement phase.
QSuper’s innovative lifetime pension allows members to take out the same amount of money each year until they die, so they can be confident that their money won’t run out. Another advantage is that only 60% of the money in a lifetime pension account is counted towards the Age Pension assets test, unlike other pension accounts where 100% of your balance is assessed.
QSuper’s annuity-like lifetime pension is an example of the concept of income layering in retirement. The idea is you put part of your retirement balance in a product like the lifetime pension to be used for essential spending but not your entire balance. You then use other pension accounts exposed to markets and potential capital growth for discretionary spending.
QSuper also has a unique approach to managing portfolio risk, with a lower exposure to listed equities and a significant allocation to long duration bonds that provide higher returns than traditional fixed interest investments, albeit with slightly higher risk. But as the returns from shares and long bonds are not correlated, that is, they hit their highs and lows at different times, the combination produces a smoother ride for members. This is important for retirees who want a regular flow of income and a smoother investment journey.
ART-QSuper also offers a range of advice services, including retirement planning at no additional cost.
UniSuper’s pension product is very strong on both investments and advice. Fryer says its long-standing focus on listed assets is now supported by meaningful allocations of unlisted assets that will help smooth the ride for pension members.
One of its big advantages is that members are clustered on university campuses, which makes it easier to offer face-to-face financial advice as members approach retirement. This includes pension set-up through to full retirement planning including aged care and estate planning. One third of members who transfer to retirement phase receive financial advice.
Choosing a pension fund that offers the best retirement outcome for your personal circumstances and preferences is every bit as important as choosing the right super fund; perhaps more so.
The annual pension fund awards are a great way to check what the best funds are doing right at a particular point in time, but your search shouldn’t end there. Over the next few years, more funds are expected to launch innovative pension products that reduce the risk of outliving your savings, or provide more flexibility around how you withdraw income, so when retirement beckons it’s important to compare pension funds.