‘Consolidation indigestion’ hinders super fund mergers

The Australian Prudential Regulation Authority (APRA) is pushing for superannuation funds to merge but some are facing ‘consolidation indigestion’ in the process.

In a speech by APRA chair Wayne Byres and director of superannuation, Suzanne Smith, the regulator said larger super funds had economies of scale which could deliver better member benefits.

However, it is not necessarily a smooth process for all funds.

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APRA said: “Signing the deal, however, is only the first step in realising benefits for members. Depending on the nature of the transaction, we are observing funds facing difficulty due to what we refer to consolidation indigestion.

“This may manifest at the industry level at the point of transfer in a SFT [successor fund transfer], for example where an administrator has a backlog of transfers to process.

“Alternatively, it may be within an entity itself where the transaction results in a merger of businesses requiring integration of people, systems and processes to deliver the real advantages to members – the complexity of which should not be underestimated. This is more pronounced in scenarios where multiple transactions have been undertaken in quick succession.”

It recommended trustees remained firmly focused on translating the financial benefits to their members.




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Given that this congestion is known and unavoidable for funds looking at merging, it is difficult to understand how sending a letter to members of "under performing" investment options to tell them to consider moving elsewhere is in the best interest of members where there is a potential for a run on money if members exit. The implementation of this legislation has not been well thought out.

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