Overview

When someone converts their super fund balance into a pension, their needs change quite significantly. For a start, their investment strategy needs to consider liquidity and capital preservation as well as growth, so they need their fund to offer appropriate investment options. These may be different from, or additional to, those available to super members.

The services that pension members require from their fund change, too. They need help to manage their money and make it last as long as possible, while still drawing the income they need. They may also need help in understanding the interaction between their super and the Age Pension. Estate planning can be a major issue for many pension members, and they need to be aware of the options available to them so they can plan accordingly.

Choosing a good pension fund is important, but without help the average person has no reliable means of comparing one fund with another. That is the purpose of our pension fund ratings. By applying our knowledge and experience of pension funds, we compare them in a way that is both fair and rigorous.

The result is a set of ratings that encapsulate our view about the quality of each fund that we rate. We express those ratings in terms of Apples, reflecting our 'apples with apples' approach. Funds earn a rating ranging from 5 Apples, our highest grade, to 1 Apple, our lowest.

Rating Definition
CW_Pension_5_apples_RGB.png Highest quality fund
CW_Pension_4_apples_RGB.png High quality fund
CW_Pension_3_apples_RGB.png Sound quality fund
CW_Pension_2_apples_RGB.png Low quality fund
CW_Pension_1_apple_RGB.png Lowest quality fund
 

Our ratings are based on information that is either publicly available or is provided directly to us by the funds themselves. Where necessary, we modify that information to ensure fair comparisons. We give each fund the opportunity to review the information we use for its accuracy.

Main Criteria

When we rate pension funds, we apply a methodology that was first developed in 1997 and has been continuously refined ever since. We focus on five main criteria: organisation, investments, member services, fees, and administration.

We determine a score for each of the main criteria and then weight these to provide an overall rating for the fund. Chart 1 show the main criteria and the weights we assign to them.

Chart1-Pension-Methodology.PNG

In the following sections we look at each of the main criteria in turn, starting with the most important, and explain the sub-criteria we assess.

Investments

Investments are obviously important and account for 40% of our overall rating for pension members. When we rate a fund's investments, we do not focus on past returns. Rather, we focus on assessing the quality of the fund's investment governance, its in-house investment team, its external asset consultant (particularly for research), and the structure of its investment portfolios. If it does these things well, it is likely to have strong, long-term performance.

Most funds offer a range of investment options to choose from, but we concentrate our research mostly on the multi-manager options because that is where most members are invested. Chart 2 shows what we take into account. It is worth noting that past performance only accounts for 15% of the total score for investments (which equates to 6% of our overall fund evaluation).

Chart2-Pension-Methodology.PNG

Member Services

While investments carry the highest weighting in our ratings process, we believe member services are also vitally important for pension members. For that reason they account for 25% of our overall weighting.

The best funds offer services that help their pension members to (i) understand the options they have in retirement and (ii) arrange their super to give them the income they require, while providing some capital growth to make it last as long as possible. Retirees need to be able to model different scenarios to see the effect on their pension balance of different investment choices and drawdown strategies. They also need to be able to take into account any Age Pension they may be entitled to, either now or in the future.

Members need help in various forms to meet all of these needs. The main aspects that we focus on when rating a fund on member services are education (public website and secure website), communication materials (member statements and newsletters), and financial advice services. Chart 3 shows those sub-criteria and the weightings we assign to them.

Chart3-Pension-Methodology.PNG

Fees

The fees that a member pays – either directly from their account or indirectly through their investments – have a bearing on how much income they end up with and how long their money lasts. However, a low fee fund is not necessarily the best. A fund may be cheap because its investments use a lot of passive management, or it may cut costs by providing little in the way of member services.

When we assess a fund on fees, we look not only at the costs that the member pays, directly or indirectly, but also on how clearly and completely the fund discloses those costs, as shown in Chart 4.

Chart4-Pension-Methodology.PNG

Administration

For a fund to deliver high quality services to its members, it needs to have efficient administration. There is a range of factors we focus on when we assess a fund's administration, including the quality of its record keeping system and workflow management, and its ability to meet realistic service standards. These are shown in Chart 5.

Chart5-Pension-Methodology.PNG

Organisation

Australian super funds are highly regulated and they are not geared, so the chance of failure is quite remote. Nevertheless, it is important to know that the organisation behind the fund has the capacity to sustain and improve it now and into the future.

When we assess a fund on organisation, we look at who owns or controls it, the strength of its management team and its strategy for the future, as shown in Chart 6.

Chart6-Pension-Methodology.PNG

© Chant West Pty Limited (ABN 75 077 595 316) 2017. Unless otherwise permitted by an agreement between you and Chant West, you may only use the information on this website (the "Information") for your own personal, non-commercial use, and such Information may not be copied, reproduced, scanned or embodied in any other document or distributed to another party. This website is only intended for use by Australian residents.

Any ratings, nominations for awards, or awards, are subjectively determined by Chant West. Those ratings, nominations and awards, as well as parts of the Information, have been prepared based on data (including historical financial performance information) supplied by third parties. While such data is believed to be accurate, Chant West does not accept responsibility for any inaccuracy in such data. Past performance is not a reliable indicator of future performance.  Chant West’s liability is limited as described in the Terms of Use.

The Information is not intended to constitute financial product advice. However to the extent the Information may be considered to be general financial product advice, Chant West warns that: (a) Chant West has not considered any individual person's objectives, financial situation or particular needs; (b) individuals need to consider whether the advice is appropriate in light of their goals, objectives and current situation; and (c) individuals should obtain a product disclosure statement from the relevant fund provider before making any decision about whether to acquire a financial product from that fund provider.  It is important that you read a copy of our Financial Services Guide.

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