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Super pensions: Choosing an investment option in retirement

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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 Investment returns after retirement: Understanding the 10/30/60 Rule).

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:

  1. Pre-mixed option
  2. Choose your own or DIY investment mix option
  3. 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:

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 classes: Naming the investment winners for the 2017/2018 financial year (and previous years) and Asset classes: Naming the investment winners for the 2018 calendar year (and previous years).

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:

For more information about retirement planning, see SuperGuide articles:

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IMPORTANT: SuperGuide does not provide financial advice. All information on SuperGuide.com.au is intended only as a guide. It is important to seek professional accredited financial advice when considering whether the information is suitable to your personal circumstances. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more