Is big always better? That seems to be the general consensus when it comes to the shrinking number of super funds vying to look after your money.
Australia’s retirement savings pool grew to $3.3 trillion in the June quarter, up 14.7 per cent over the year, according to data released this week by the Australian Prudential Regulation Authority (APRA). But as fast as super savings are growing, funds themselves are disappearing – and at a rate that has attracted the attention of industry watchdogs intent on ensuring consumers are not disadvantaged.
APRA reports that the number of regulated super funds in Australia fell from 279 in 2013 to 170 in 2021 – largely on the back of a 2019 Productivity Commission report into competition and efficiency in the sector.
The latest Superannuation Benchmarking Report, released by financial services researcher Rainmaker Information, says the biggest impact of the “consolidation” has been in the number of smaller funds with less than $1 billion under management. Their numbers have plummeted by 70 per cent – from 176 to 52.
Boutique funds with $5-$10 billion have fallen by half from 72 to 36. Larger, mid-size funds ($20-$30 billion) have increased from 16 to 19, funds with more than $50 billion have jumped from two to 18 and the number of funds with more than $100 billion has tripled in the past decade.
Rainmaker predicts that at the current rate, Australia’s 10 biggest super funds will hold 80 per cent of the market by 2025, with fears that this concentration will have a big impact on consumer choice.
“This could dramatically impact competition in superannuation and profoundly change Australia’s capital markets,” says Rainmaker executive director of research and compliance Alex Dunnin.
Rainmaker says that by 2025, the biggest funds in Australia, ranked by funds under management (FUM), are likely to be AustralianSuper, the combined Qsuper/Sunsuper, Aware Super, UniSuper and Hostplus.
It says retail groups such as AMP and BT will remain strong players, but are not growing at the same rate as the biggest not-for-profit funds.
Previous research from Rainmaker indicated that most mergers lead to fee savings of up to 20 per cent. Add in the Your Future, Your Super reforms and the performance test administered by APRA and the consumer would appear to be sitting pretty.
Investor Daily reports that the ACCC will consider any future consolidations on a case-by-case basis.
A test will be applied to measure the potential gains for consumers against “whether the merger would be likely to substantially lessen competition”. Components of the test will include fund transparency, performance, fees and whether the merger would have any implications for members looking to switch.
The Australian Securities and Investments Commission (ASIC) is also assessing the shrinking sector and in an initial review noted that an uncompetitive market “tends to lead to poorer consumer outcomes in terms of higher fees, lower performance, limited choice and reduced innovation”.
Poorly performing MySuper investment options are expected to be ‘named and shamed’ for the first time by the Australian Prudential Regulation Authority (APRA) next week.
Abhishek Chhikara, associate principal at consulting firm Right Lane, said earlier in the year that while consumers were largely set to win out from reforms, “this could lead to a system dominated by mega funds, with no room for quality specialist funds.”
David Carruthers, principal consultant and head of member solutions at investment consultancy Frontier Advisors, says large funds have more resources, with bigger teams and can drive hard bargains to manage their funds and keep fees low.
But he cautioned that factors other than performance should be considered in selecting a fund, such as the cost and coverage of insurance and the level of member services.
Long-term returns should be given more weight by members, but a drop in performance in the short term could be a sign that all is not well. That’s when a fund member should seek an explanation.
“People need to keep track of their fund’s performance,” Mr Carruthers says. “If it continues to be bad, then it may require some action to switch funds, [but] it doesn’t mean you should jump out [of the fund] straightaway.”
Median growth funds, which allocate between 61 per cent and 80 per cent of funds to growth assets, grew by 1.1 per cent in July on the back of gains in share and bond markets.
Do you take a keen interest in your fund’s performance? Are you in a mega-fund or a smaller one? Have you opted for a not-for-profit fund or simply one that suits your circumstances? Why not share your experience in the comments section below?
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