Mercer is calling for clearer reporting of superannuation default fund investment performance to ensure the returns of default lifecycle products are accurately represented.
The flagship superannuation product of the Mercer Super Trust, which surpassed $25 billion in funds under management as at 31 July 2019, is SmartPath, a default lifecycle product.
Mercer’s Head of Corporate Superannuation Darren Stevens said lifecycle products remain underestimated by industry participants despite achieving strong returns for members.
“With league tables often either excluding lifecycle products altogether or struggling to clearly represent their performance, the misconception is that lifecycle products are performing poorly,” Mr Stevens said.
“For members aged 50 and below – three-quarters of SmartPath’s member base – our default lifecycle product achieved well above SuperRatings’ default median returns, with our three and five-year results to 30 June 2019 achieving top quartile performance against other defaults,” he said.
More than six months on from the release of the Productivity Commission report, Mr Stevens said the strong performance of lifecycle products supports the Productivity Commission’s finding that ‘well-designed life-cycle products can produce benefits greater than or equivalent to single-strategy balanced products’ (finding 4.3).
“What the surveys don’t show is the benefit to older members of de-risking. Market volatility can have a significant impact on the savings of pre-retirees and retirees, as we saw in the last quarter of 2018,” said Mr Stevens.
During the December 2018 quarter, Mercer’s default members in the 1949-1953 cohort returned minus 2.8 per cent while members of a single-strategy saw a median return of minus 4.8 per cent.
“The lifecycle investment strategy shielded our older members from the big hits. As an example, those with a superannuation balance of $300,000 were protected from a $6,000 hit in just one quarter.”
Mr Stevens said a properly designed lifecycle product was the most appropriate product for default options.
“With many Australian superannuation account holders not actively engaged on how their balances are invested, lifecycle products use a best practice investment strategy to deliver strong outcomes for members, with higher growth exposure in younger years that are gradually de-risked as they approach retirement.
“It’s important that surveys of default products represent lifecycle products accurately so that the benefits of lifecycle products in comparison to balanced products are clearly understood,” Mr Stevens said.
Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan Companies (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people with 76,000 colleagues and annualized revenue approaching $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com.au.