Despite challenging economic and geopolitical conditions, superannuation pension funds posted stellar back-to-back returns for the financial year to June 2024, with the median Growth fund (61–80% growth assets) up 10.0%. This follows the 10.1% return the previous financial year.
Once again, shares were the main driver of the healthy 2024 result, with international shares surging 21.5% over the year on booming artificial intelligence (AI) stocks. While slightly more subdued, Australian shares rose a solid 11.9% on the back of a strong bank sector.
This was reflected in the outperformance of higher risk categories with a higher allocation of shares. While all risk categories were strongly positive over the year, returns ranged from 14.2% for the median All Growth option to 6.2% for the median Conservative option.
Chant West senior investment research manager Mano Mohankumar said: “The return experience of the past two years in the face of much uncertainty is another reminder of the importance of remaining patient and maintaining long-term focus. If you think back two years ago, (financial year) 2023 kicked off amid surging inflation and uncertainty around when interest rate hikes might come to an end. I don’t think anyone could have forecast a 20.1% return over the subsequent two years and the small 2022 loss now seems like a distant memory.”
Last year’s positive returns mean most retirees would have seen their account balance increase even after withdrawing the mandated minimum pension income. The government’s move to temporarily halve the minimum withdrawal would have helped protect account balances in rocky patches in recent years, although standard minimum withdrawal rates were reinstated for the 2023–24 financial year onwards.
Pension fund categories – Conservative, Balanced, Growth, High Growth and All Growth – are the same as those for accumulation funds and by and large hold the same underlying investments. So, pension fund returns are driven by the same factors as accumulation fund returns.
Yet despite holding the same underlying investments, pension fund returns tend to be roughly 10–15% higher than returns for the same category in accumulation phase over the long run. The difference is due largely to tax, as investment earnings are not taxed in retirement phase.
For example, in the 15 years to 30 June 2024, the median return for pension Growth funds was 8.9% per year on average while accumulation Growth funds returned 8.0% per year.
However, when returns are negative pension funds typically generate slightly bigger losses in the short term than accumulation funds in the same category. For example, in the year to 31 December 2022 the median return for pension Growth funds was -5.1%, compared with -4.6% for the accumulation equivalent. Only Conservative pension options posted a smaller loss (-2.8%) than their accumulation equivalent (-2.9%).
Mano Mohankumar says this is because accumulation funds get a deferred tax benefit when returns are negative.
Although people tend to be more risk averse as they get older, he says most retirees are still invested in their fund’s Growth option where most accumulation members are also invested. For example, he says that in large industry funds, such as AustralianSuper and UniSuper, most pension fund members are in the Balanced option (with an investment mix that aligns with Chant West’s Growth category). Even so, he says a meaningful number would also be invested in the next risk category down, in line with Chant West’s Balanced category with 41–60% growth assets.
Retirees in retail pension funds (and some industry pension funds) are most likely to be invested in a Lifecycle investment option with a conservative investment mix. Lifecycle funds automatically shift members into a lower risk investment mix as they age.
In years when shares and listed property perform poorly, as they did in 2022, retirees with a more conservative investment mix will do better than those with a higher exposure to growth assets. The reverse also holds true. As mentioned earlier, retirees with more exposure to growth assets did best in the year to June 2024 when shares were the star performers. Stout-hearted retirees invested in the median All Growth option pocketed a return of 14.2% for the year. Over the long term, though, the advantage of holding a meaningful level of growth assets is clear, as can be seen in the table below.
The following table from Chant West shows pension fund performance across various timeframes for five investment categories as at the end of June 2024.
Pension diversified fund performance (results to 30 June 2024)
| Fund category | Growth assets (%) | Qtr (%) | 1 yr (%) | 3 yrs (% pa) | 5 yrs (% pa) | 7 yrs (% pa) | 10 yrs (% pa) | 15 yrs (% pa) |
|---|---|---|---|---|---|---|---|---|
| All Growth | 96–100 | -0.1 | 14.2 | 6.9 | 9.2 | 9.7 | 9.9 | 10.7 |
| High Growth | 81–95 | 0.1 | 11.8 | 6.2 | 8.3 | 8.9 | 9.2 | 9.9 |
| Growth | 61–80 | 0.1 | 10.0 | 5.2 | 7.0 | 7.5 | 7.9 | 8.9 |
| Balanced | 41–60 | 0.2 | 8.0 | 4.3 | 5.3 | 6.0 | 6.4 | 7.5 |
| Conservative | 21–40 | 0.2 | 6.2 | 2.8 | 3.7 | 4.4 | 4.8 | 6.0 |
Source: Chant West
