There are active merger conversations for five of the 13 superannuation funds that failed the prudential regulator’s performance test.
The Australian Prudential Regulation Authority (APRA) executive director, Margaret Cole, told a parliamentary hearing that the industry could expect the regulator to be more “muscular” in those conversations to try and proceed with these mergers as it was in the best financial interests of members.
She said the funds that failed were not sustainable long term, did not have economies of scale and could transfer members to entities that had much better performance.
“We have no tolerance for members remaining with underperforming funds throughout this process. So, we do want to see that happen and you can expect us really pushing into that area,” Cole said.
Cole noted that while APRA did not have the power to compel a merger, it could have conversations leaning with moral suasion, and put directions on discussions around mergers.
This included directing funds to undertake a market scan to come up with a list of funds that could be potential merger partners and demonstrate how the merger would leave members better off.
“The other thing we are looking at is whether there’s any possibility of simplifying the merger processes as there are considerable complexities,” Cole said.
“Clearly, trustees take detailed legal advice on their rights in these situations and that tends to slow things down or make for greater complexity. So, we have an active program at the moment looking at whether any of these procedures can be simplified and we’re talking to Treasury about that as well.”
Cole also said due to the design of the test, the biggest level a super fund could pull to change the outcome of the next year’s test was to drop fees which she said was a “desirable outcome in its own right”.
“Where it appears that there's going to be difficulty passing next year's test or where we already have concerns about the sustainability of the entity we are very much leaning in and pushing them to find appropriate merger partners,” she said.