Superannuation funds should not shift pensioners’ assets into any single retirement investment strategy on a given day. SIMON MUMME reports.


Some superannuation funds achieve their aim of providing investment returns that beat the rate of consumer price inflation (CPI) after long time periods.

The median rolling three-year return of conservative super funds, which favour bonds and cash, was about 6 per cent from July 1995 to December 2011, Chant West data show. This surpasses their “typical” benchmark of CPI plus 2 per cent, which rose about 4.2 per cent.

However in rolling five-year periods the median growth fund, which invests more in equities, fell from about 11.1 per cent to about 0.2 per cent from June 1997 to June 2011. The “typical” benchmark for these funds, CPI plus 3.5 per cent, rose to about 6.2 per cent by December 2011.

Even if a fund beat its inflation benchmark in the past 20 years, it won’t matter to retired fund members that lost money in the bear markets following the dotcom crash and global financial crisis, when both strategies fell behind their benchmarks, the Chant West data show.

This should spur super funds to reconsider how they gauge success, says Michael Drew, professor of finance at Griffith University in Brisbane.

“Measures of success are made within rolling five-year timeframes, but shouldn’t the real question be: ‘What was the real return for the members of your fund who were 65 years old last year?’” Drew says. “They are the group that has the largest amount of money at risk.”

Those members have bore the brunt of market crashes that diminish their super savings. “In the last 10 years, Australians have been littered with crisis events: the dotcom bubble, the global financial crisis and, now, for their trouble, the European sovereign debt crisis,” Drew says.

Super funds are seeking ways to make members’ money last longer in retirement. They listen to sales pitches from investment managers about strategies, such as guaranteed annuities and so-called “target-date funds”, that can purportedly meet this need.

Drew is doubtful that there is a single, simple solution.

“There is a search on for a silver bullet. From my perspective, it may be more prudent to take a building-block approach,” he says. Funds should start by preparing members for retirement long before they begin living off their super, he says.

Retirement investment strategies will be the focus of the 2012 Post-Retirement Conference in Melbourne on 8 March 2012. Conexus Financial, publisher of Investment Magazine, will run the event. Information:


“Risk zone”


Twenty-three of the largest 25 super funds overseen by the prudential regulator offer allocated pensions to members, a survey made in 2011 by Frontier Investment Consulting finds. Fifteen automatically shift savings into conservative investment strategies when members reach 55 years of age or older through “age-based defaults”.

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