Life-Cycle Funds in 2025: Smart Superannuation Strategy?

Australians are rethinking their superannuation strategies, and life-cycle funds are at the centre of the conversation in 2025. These funds promise to take the guesswork out of retirement investing by automatically adjusting your investment mix as you age. But do they deliver on that promise? Here’s the latest on life-cycle funds, how they’re evolving under new regulations, and what to consider before switching your super.

What Is a Life-Cycle Fund?

Life-cycle (or ‘lifestage’) funds are investment products designed to match your risk profile as you age. When you’re younger, your super is invested more aggressively (with a higher allocation to growth assets like shares), and as you approach retirement, the fund automatically shifts to a more conservative mix (with more bonds and cash). The idea is to maximise growth early, then protect your nest egg from market shocks as you near retirement.

• Automatic rebalancing: Your portfolio changes without you needing to make manual switches.

• Age-based strategies: Asset allocation is typically linked to your birth year or decade.

• Hands-off investing: Life-cycle funds suit those who prefer a ‘set and forget’ approach.

In Australia, major super funds like AustralianSuper, Hostplus, and Sunsuper now offer life-cycle options, and more employers are defaulting new staff into these products.

2025 Policy Updates: The Big Shift in Super Defaults

Recent changes in superannuation policy have put the spotlight on life-cycle funds. In July 2024, the APRA (Australian Prudential Regulation Authority) introduced new performance benchmarks for MySuper products, including life-cycle funds. The Your Future, Your Super reforms mean that funds underperforming the benchmark for two consecutive years can no longer accept new members. This has triggered a wave of fund mergers and product redesigns, with life-cycle products working hard to stay competitive.

Key 2025 trends:

• Tighter performance scrutiny: Life-cycle funds must demonstrate strong risk-adjusted returns at every stage of the member’s journey.

• Fee pressure: With the average Australian reviewing fees more than ever, some funds have slashed life-cycle option fees to stay attractive.

• ESG integration: Many life-cycle funds now include environmental, social, and governance (ESG) screens as standard, responding to member demand and regulatory signals.

For example, Hostplus Life-Stage now offers members a choice between traditional and ESG-focused life-cycle options, a response to new APRA guidelines encouraging clearer disclosure on sustainability factors.

Should You Pick a Life-Cycle Fund for Your Super?

Life-cycle funds aren’t for everyone. Their biggest advantage is simplicity, but that can come at a cost—sometimes literally, in the form of higher fees, or in missed opportunities if the glide path (the rate at which your investments shift) doesn’t match your personal situation.

Here’s what to consider:

• Personal risk tolerance: Some investors are comfortable with more risk, even later in life. Life-cycle funds may shift to conservative assets too early for your liking.

• Account balance: If you have a large super balance, a one-size-fits-all glide path may not optimise your outcomes. More tailored options (or advice) could help.

• Fees and performance: Always compare the total fees and check performance (using the latest APRA heatmaps) against simple index or single-strategy options.

• Changing circumstances: Life-cycle funds don’t adjust for career breaks, inheritance, or other life events that might impact your retirement planning.

Real-world example: In 2024, AustralianSuper’s Balanced Option (a standard MySuper product) outperformed its life-cycle equivalent for members under 40, but the reverse was true for members over 55, due to the latter’s more defensive portfolio mix during volatile markets.

Alternatives and Complementary Strategies

If you like the principle of life-cycle investing but want more control, consider these alternatives:

• Custom asset allocation: Many super funds let you set your own mix and change it as you age or your risk profile evolves.

• Hybrid approach: Use a life-cycle fund as your core, and add satellite investments (like listed investment companies or ESG funds) outside super for extra diversification.

• Professional advice: For high balances or complex situations, tailored advice can ensure your investment strategy matches your real-world goals.

Remember, in 2025, most super platforms offer robust online tools to help you model different scenarios—well worth exploring before making the switch.