Anyone running a self-managed super fund in pension-paying mode quickly realises they have taken on a challenging investment task. There are no new contributions coming in to bolster any investment losses. Ideally the fund should earn enough to pay the required pension while running a portfolio, which has to focus on preserving the fund’s capital.
An event like the global financial crisis (GFC) and its effect on markets was guaranteed to turn trustees cautious, perhaps to the point where they have been slow to return to the stock market. But now, with interest rates low and bank term deposits no longer solving both questions of income and security of capital, investors are being forced back to dividend-paying shares in search of higher income.
The risk of equities is heightened because SMSFs just into pension mode have probably reached their peak, with maximum life savings at risk. This concentrates the mind and means the risk of buying shares takes on a different complexion in a pension fund.