Super pensions: Choosing an investment option in retirement

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:

• Want investments that help you sleep? Understand your risk profile
• Superannuation Investment Performance Reckoner: Discover annual returns for 5 investment options
• Investment performance: Assess your super fund in 4 steps
• Super control: How to switch your super account’s investment option
• Superannuation investment: What is the difference between a balanced and growth option?
• Responsible investment: A guide to investing your values with your super account
• Listed or unlisted investments? Why it matters for your super fund’s performance
• Infrastructure assets: why your super fund loves it when you fly

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:

• Super control: How to switch your super account’s investment option
• Investment performance: Assess your super fund in 4 steps
• Want investments that help you sleep? Understand your risk profile
• Investment returns after retirement: Understanding the 10/30/60 Rule

For more information about retirement planning, see SuperGuide articles:

• Financial freedom: retirement planning in six steps
• Retirement: Making the right super strategies for your age
• How to find low cost (or free) financial advice