Super funds set to decline

The coming decade will see a 60 per cent fall in the number of funds, according to a report published by consultancy firm KPMG this week.

The report, Transformation in the Superannuation Industry, estimates that in five years’ time, the current 217 APRA-regulated funds will have shrunk to 138, with a faster pace in industry super funds than in retail funds.

The paper also shows there was a steep increase in the size of announced mergers in 2019 compared with a year earlier.

In 2019, the average size of the fund being transferred was $22.3 billion funds under management compared to just $1.5 billion the previous year.

The number of members moving from smaller to larger funds was 2.1 million in 2019 compared with 0.2m in 2018, while the size of the receiving fund was $57 billion ($27 billion in 2018).

Linda Elkin from KPMG said the effect of the pandemic would only speed up the pace of mergers in the coming years.

“Over the past year we have seen merger activity ratchet up across all categories of funds in the sector,” Ms Elkin said. “The greater pressures put on all funds by the COVID-19 pandemic will only increase this. 

“Significantly, we are beginning to witness the announcement of larger-scale mergers in addition to the more common smaller fund consolidating into a larger fund.

“This demonstrates funds are becoming increasingly ambitious in their pursuit of scale, and, for many already large funds, targeting smaller sub-scale funds may not be the best mechanism to achieve a material outcome in regard to scale and its associated benefits.

“An increasing number of Australia’s superannuation funds are going to achieve a scale over the coming years unprecedented in our economy, positioning a number of these funds as some of the largest globally.

“With this growth, comes significant implications and opportunities across our economy, political environment and the retirement outcomes of all Australians.”

According to the report, the current 38 industry funds will number 21 in five years’ time and just 12 by 2029. The existing 118 retail funds will have shrunk to 74 in five years and 52 within a decade.

KPMG’s David Bardsley said the need to deliver better outcomes for members was also driving the pace in super fund mergers.

“Regulatory pressure, increased demand for more customised service, and increased need for investment to deliver higher member outcomes is putting a strain on business models across all sectors,” Mr Bardsley explained.

“This leads to greater pressure to manage costs; and revenue and fee model pressure. This is not going to stop which is why we see an acceleration of merger activity.”

Have you had one of your super funds merge in the past? Did you find that it had a positive or negative effect on your money?

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