Lifecycle strategies come with a cost – Frontier


With the ubiquity of MySuper default options, many funds have attempted to provide a more tailored retirement solution to members through the adoption of so-called ‘lifecycle’ strategies. But, a new paper by Frontier Advisors, warns that members may retire with less as a result.

The paper, co-authored by David Carruthers, a principal consultant and head of member solutions at Frontier, says that while a lifecycle strategy provides an element of protection against sequencing risk in a member’s approach to retirement, that comes at a cost of a likely lower balance at retirement.

The paper says that many super funds seem to have made the decision that this is a price worth paying. But, have they canvassed member opinions? Do members know what they may be giving up/

The paper says that it is hoped that funds completed some analysis of underlying membership trends such as:

  • engagement rates
  • historic switching activity
  • choices at retirement, such as annuities or account-based pensions, and
  • cash flow trends in retirement.

“While well intentioned, defaulting members into a lifecycle strategy may perpetuate this low level of engagement,” the paper says. “There is the danger that adopting a lifecycle strategy is seen to some extent as job done for the fund with no further need to attempt to regularly engage with members and check that a lifestyle strategy is still in their best interests.”

– G.B.