Equity Protection Swaps: Shielding Your Retirement Savings

Worried About Your Super? How Equity Protection Swaps Can Safeguard Your Retirement Savings

Lena Voss in Business & Economy December 2025 • 3 min read.

"Discover how Equity Protection Swaps offer a new type of investment insurance for superannuation accounts, providing peace of mind in uncertain markets."

In today's volatile financial landscape, safeguarding your retirement savings is more critical than ever. Defined Contribution (DC) superannuation schemes place the responsibility of investment performance squarely on the individual. While offering control and flexibility, they also expose savers to market risks that can erode years of diligent contributions.

As Australians navigate the complexities of superannuation, a growing need has emerged for innovative tools that manage risk while preserving growth potential. The Superannuation Guarantee (SG) system, while comprehensive, doesn't inherently shield individuals from market downturns that can significantly impact their retirement nest eggs.

Enter Equity Protection Swaps (EPS), a new type of investment insurance designed to provide a safety net for superannuation accounts. This article delves into the mechanics of EPS, exploring how they function, their potential benefits, and whether they represent a viable strategy for securing your financial future.

What are Equity Protection Swaps (EPS) and How Do They Work?

Equity Protection Swaps: Shielding Your Retirement Savings

Equity Protection Swaps (EPS) are financial derivatives designed to protect superannuation holders from market downturns. Think of them as insurance policies for your investment portfolio, with a twist. Unlike traditional insurance, EPS allow you to participate in market gains while providing a buffer against potential losses.

Here's how a generic EPS works:

Protection Leg: The buyer of an EPS (the superannuation holder) obtains partial protection against losses on a specified portfolio (e.g., an S&P/ASX 200 index fund).
Fee Leg: In exchange for this protection, the buyer agrees to share a portion of any gains above a predetermined threshold with the insurance provider.
Participation Rates: The specific rates for protection and fee-sharing are agreed upon upfront between the provider and the superannuation holder.

In essence, an EPS allows you to limit your downside risk while still benefiting from market upside. The structure ensures that the insurance provider is able to hedge using instruments, such as options.

Are Equity Protection Swaps Right for You?

Equity Protection Swaps represent a promising avenue for Australians seeking to fortify their retirement savings against market volatility. By understanding how EPS function and carefully considering your individual risk tolerance and financial goals, you can determine whether these swaps align with your overall superannuation strategy. As the financial landscape evolves, innovative tools like EPS empower individuals to navigate uncertainty with greater confidence and security.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2305.09472,

Title: Equity Protection Swaps: A New Type Of Investment Insurance For Holders Of Superannuation Accounts

Subject: q-fin.pr

Authors: Huansang Xu, Ruyi Liu, Marek Rutkowski

Published: 12-04-2023

Everything You Need To Know

What are Equity Protection Swaps (EPS), and how do they benefit my superannuation?

Equity Protection Swaps (EPS) are financial derivatives designed to protect superannuation holders from market downturns. They act as investment insurance, providing a safety net. The primary benefit is limiting downside risk on investments, such as those in an S&P/ASX 200 index fund, while still allowing participation in market gains. This means you can potentially protect your retirement savings from significant losses while still benefiting from market growth, which is especially valuable in volatile markets.

How does an Equity Protection Swap (EPS) actually function in practice?

An Equity Protection Swap (EPS) operates with two main components: the Protection Leg and the Fee Leg. The superannuation holder, the buyer of the EPS, gains partial protection against losses on a specified portfolio, such as an index fund. Simultaneously, through the Fee Leg, the buyer agrees to share a portion of any gains above a predetermined threshold with the insurance provider. The specific rates for protection and fee-sharing are agreed upon upfront between the provider and the superannuation holder. This structure enables the superannuation holder to balance risk and reward, allowing for some protection while also benefiting from market performance.

Who are Equity Protection Swaps (EPS) designed for?

Equity Protection Swaps (EPS) are tailored for Australians managing Defined Contribution (DC) superannuation schemes. These schemes place the investment performance responsibility on the individual. EPS are especially valuable for those seeking to manage market risk within their retirement plans. By using EPS, individuals can aim to protect their retirement nest eggs from market volatility, providing a more secure path toward financial goals. This makes them a good fit for individuals who are risk-averse or concerned about market downturns impacting their retirement savings.

What are the key advantages of using Equity Protection Swaps (EPS) compared to traditional investment strategies?

The key advantages of Equity Protection Swaps (EPS) include downside protection combined with participation in market gains. Traditional investment strategies may require shifting to less risky assets, potentially sacrificing growth potential. EPS provide a buffer against losses on investments like those in an S&P/ASX 200 index fund, while still allowing you to benefit from market upside. This structure helps to manage risk effectively without necessarily compromising growth potential. The Superannuation Guarantee (SG) system, while comprehensive, does not inherently protect against market downturns, which is where EPS add substantial value.

What should I consider when deciding if Equity Protection Swaps (EPS) are right for my superannuation?

When considering Equity Protection Swaps (EPS), assess your individual risk tolerance and financial goals. Understand how the protection and fee-sharing rates align with your investment strategy. Reflect on the potential benefits of limiting downside risk, particularly in a volatile market. Consider your overall superannuation strategy, including the asset allocation within your portfolio. Determine whether the characteristics of EPS align with your objectives for retirement savings. By carefully evaluating these factors, you can make an informed decision about whether Equity Protection Swaps are a suitable addition to your superannuation plan.