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Most people think all the hard work of creating a retirement income is over once they collect their final pay cheque, but decisions still need to be made about how to invest your hard-earned super savings.
Although people often choose to take their super account balance and invest it themselves during their retirement, super funds are still keen to help look after your money even after you have left the workforce. Large super funds are now offering a wider range of super pension products that include investment options allowing you to put your retirement savings into many different investment assets.
You need to consider carefully which pension investment option best suits your personal circumstances and retirement goals, as your choice can affect how much retirement income you have available to withdraw each year, and how long your savings last. Research has shown that 60 cents in every dollar of retirement income comes from the investment earnings you make in retirement (for more information see SuperGuide article The 10/30/60 rule: What it is, and how it can help your retirement plans).
What investment options are on offer for super pensions?
Super funds generally offer three types of investment option if you are a pension super fund member:
- Pre-mixed option
- Choose your own or DIY investment mix option
- Direct investments
1. Pre-mixed option
Diversified options invested across different combinations of assets such as shares, property, infrastructure, fixed interest and cash. Some super funds offer up to 350 different choices invested in various asset mixes.
Pre-mixed investment options for super pensions are usually categorised by the amount of ‘growth’ assets (broadly shares and property) they contain:
| Option type | Level of growth assets % | What they invest in |
|---|---|---|
| All growth | 100 | Growth style assets only, usually shares and property |
| High growth | 81 – 100 | Majority growth assets, with small amounts of cash and fixed interest |
| Growth | 61 – 80 | High allocation to growth style assets, emphasis on long-term growth |
| Balanced growth | 41 – 60 | Higher allocations to fixed interest and cash than shares and property |
| Conservative growth | 21 – 40 | Mainly fixed interest and cash, with lower allocation to growth assets |
Source: Chant West and author’s description of investment options.
More recently, an increasing number of age-based or ‘life stage’ investment options are being offered to pension members by super funds as pre-mixed investment choices. A ‘life stage’ investment option works in the following way: as you get older, these investment options automatically shift their investment mix to slowly contain less growth assets and more ‘defensive’ assets (broadly cash and fixed interest).
For more information on investment options, see the following SuperGuide articles:
- Super investing: What is your risk profile?
- Super investing: Should you change your investment option?
- Super investing: How to change your investment option
- Super investing: How to choose a responsible investment option
- Super investing: What are listed and unlisted investments?
- Super investing: Are you investing in infrastructure?
- Annual super fund performance Reckoner: Annual returns for 5 investment categories
2. Choose your own or DIY investment mix option
Retirees can select investment options that use a managed investment fund based on a single asset class. This means you can create your own tailored investment portfolio to match your personal circumstances, or to complement any investments you have outside super.
| Investment option | What they invest in |
|---|---|
| Australian Shares | Companies listed on the Australian Securities Exchange |
| International Shares | Companies listed on global share markets |
| Global Property | Australian and overseas property |
| Global Fixed interest | Australian and international bonds and loans |
| Cash | Short-term market securities and short-term bonds |
3. Direct investments
These investment options usually offer a selection of direct investments from which to choose, including direct shares, exchange traded funds (ETFs), term deposits and listed investment companies (LICs).
For more information on the performance of asset classes, see SuperGuide articles Asset sector performance: Returns over 1 to 15 financial years (to June 2018) and Asset sector performance: Returns over 1 to 15 calendar years (to December 2018).
If you don’t choose an investment option…
Not everyone wants to choose how their super pension account balance is invested. If you don’t select an investment option when you open a super pension account, your money is normally invested into a default option (usually a balanced or conservative growth option). Some super funds will then switch you into a more conservative investment option (with less growth assets) as you get older.
For more information about considering investment options in a super fund, see the following SuperGuide articles:
- Super investing: How to change your investment option
- Super investing: Should you change your investment option?
- Super investing: What is your risk profile?
- The 10/30/60 rule: What it is, and how it can help your retirement plans
For more information about retirement planning, see SuperGuide articles:
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