15 super funds optimal for Australia - report

26 May 2020

Amid Government moves to defer both the Retirement Income Covenant and the timing of its Retirement Income Review, new research has emerged suggesting that the Australian superannuation industry has reached a tipping point where smaller funds need to consider merging or face extinction. 

The research, the 2020 Industry Super Forces at Work report, produced by management consulting firm Right Lane, identified what it said was the urgent need for higher-cost superannuation funds to merge or face the consequences as cashflows as well as asset values fall, in large part due to the impact of COVID-19. 

The report, the eighth produced by Right Lane on the state of the industry, has suggested the optimal number of superannuation funds in Australia is 15 – well down from the current figure of 92 funds. 

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It outlined that the superannuation system had now reached a tipping point when smaller funds need to accelerate plans to merge or face the prospect of extinction as growth becomes more difficult and members continue to switch into larger funds. 

“An idealised structure for the superannuation system would have 3-5 generalist mega-funds and 7-10 specialised funds, with no fewer than 500,000 members,” the report analysis said. “Under this system, those who currently join an average sub-scale fund at the start of their working lives could be $45,000 better off by the time they retire.” 

The report found that size matters when it comes to cost efficiency and returns, meaning the smaller funds must merge or face the possibility of declining competitiveness and eventual extinction. 

"Size matters for costs – at a system level, the largest funds are generally the cheapest and our research on long-run average costs shows that funds with fewer than 500,000 members are generally not efficient. Costs impact retirement incomes significantly – while investment returns come and go, costs stay forever,” the report said. 

“The Australian superannuation system must become more efficient. There are currently too many providers, many of whom are too small and don’t deliver enough value for members,” associate principal at Right Lane, Abhishek Chhikara said. 

“At a sector level, industry funds have outperformed retail funds on growth and efficiency. Seven out of the top ten fastest-growing funds are industry funds, and the median operating cost for an industry fund is approximately half of the median cost for a retail fund,” he said. 

“While industry funds have consistently delivered better net returns for members, more than half of them are facing headwinds when it comes to their economics. 19 out of the 34 remaining industry funds have been growing total costs while member numbers have decreased. As inflows dry up, accounts consolidate and returns go negative, many of these funds also risk a cash crunch, making it harder for them to remain competitive.” 


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Any consulting firm that purports to have expertise in superannuation, then asserts a common falsehood such as... "While industry funds have consistently delivered better net returns for members"...should not be taken seriously.

Who is Right Lane anyway? Are they yet another union aligned lobby group like AIST, IFS, Choice, or CALC?

I don't think this is a particularly useful analysis either.
However the point remains that there will be a consolidation of funds over time. We're currently at 112 Retail funds and 37 Industry funds

Why 15? Karen Chester's 10 of the best of the best of the best in show Sir (selected by yet to be determined experts) suggested 10 for 4 years then pick again.

Perhaps Karen herself can pick the first 10?

Whatever happened to a market economy and competition?

Also concerned when things like this happen at the big end of town: AFR headline "Revealed:Hostplus fund 70pc run by related party IFM" -conflicted, vertically aligned union run funds dominating this space doesn't look smart to me.

I have encountered this crowd previously as well as the person mentioned in this article and call I can say is take this "report" with a massive grain of salt!!! When I last had to sit through a presentation a few years ago, they did not know what they were talking about then, and sure as rain, they have no clue abut what they are talking about now....... They are paid by larger industry super funds to push an agenda disguised as independent research, so be very clear how conflicted they actually are!!

Yes, just one more case of ideological agenda camouflaged as research.
When you at the bio's of the people behind this organisation there are many of them who have had a history in the Not for Profit sector.
Interestingly, the founding Director Marc Levy's bio reads:
"Marc has worked as a strategic advisor to several award winning not for profit super funds and their peak bodies"
So, while they may be called Right Lane, they are definitely travelling in the left lane.
Skewed agenda from the beginning so the results are unsurprising.

Sounds like another "research findings for cash" firm, similar to Chant West and Trowbridge.

Although isn't it refreshing to see Lonsec finally imposing some research integrity on SuperRatings after their acquisition!!

What a load of crap. Having super funds that size means they’re too clunky when they move hundreds of billions of dollars around. They’d be the majority shareholder of half the ASX! So then what do they do - they privatise good companies and de-list them, load their investment allocation up in alternates, private equity and unlisted infrastructure assets and create massive liquidity issues.

If they are union funds they will use their controlling stake in listed companies to install union officials on the board, and impose compulsory unionism on the workplace. That is the long term objective for union (aka "industry") superannuation. They are getting closer to it every day.

This pay for research fiasco mob didn't go far enough.

Why stop there? Why not eventually just bring it all down to one massive compulsory fund, run by the unions. And while they're at it, who needs the banks? They will be dwarfed in asset size by then, so you may as well disband all other banking and credit institutions as well as that is very 'inefficient' and hand that control of wealth over to them as well.

I am sure i have just accurately described the unions & industry super's biggest wet dream ever.

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