New Rainmaker research has found being a member of a typical lifecycle MySuper product could reduce a person's retirement savings by up to 23% by age 70.
The research found that if a member were to stay in a typical lifecycle MySuper product for their entire working lives, they could lose up to $170,000 in savings.
The Rainmaker Superannuation Benchmarking Report found that single strategy MySuper products at least matched, and often beat, the lifecycle MySuper index across all age groups over the three and five-year performance periods to 30 June 2020.
"While the best lifecycle products perform very well, there is massive disparity between these and low-performing lifecycle products," Rainmaker Information executive director of research Alex Dunnin said.
Additionally, over the three year performance period to the end of November 2020, there was a 3.3 percentage point gap between the top placed product, and the bottom placed product.
Rainmaker said the COVID-19 crisis has added extra pressure with the difference in returns over the 12 months to 30 November 2020 growing to 5.5 percentage points.
Of the five lowest-performing lifecycle MySuper products, four were retail and one was a not-for-profit (NFP) fund.
Of the five top performers, four were NFP funds and one was a retail fund.
Despite the current performance figures, Dunnin said that the idea behind lifecycle products remains compelling.
"As you get older your investment risks are dialled down and a greater proportion of your MySuper savings are allocated to more conservative assets like bonds. There is less chance of losing money," he said.
"But the strategic problem in the lifecycle sector is not the concept behind them, but the huge variation in their outcomes. That is, as a group, they don't seem to be actually working properly. Their leading products are nevertheless extremely impressive."
Dunnin said some advocates of lifecycle MySuper have argued that it's not possible to compare lifecycle investment strategies, and that it's only when members retire that they'll know if they've achieved their goals.
"But that's absurd. It will be like telling parents that the first time they will ever see their child's school report is after their child has left year 12," Dunnin said.
"If lifecycle products, as a group, don't improve, there's real risk that pressure could grow for the regulator to prohibit them from being offered as default MySuper products."