Super fund consolidation to increase
The number of superannuation funds has dropped 72 per cent in 10 years, according to Rice Warner data.
The research house’s ‘Superannuation Market Projections Report’ found in the decade leading to 30 June 2016, excluding self-managed superannuation funds (SMSFs), there was a fall from 872 funds to 244 funds.
The largest drop came from corporate funds that dropped 495 funds since 2006, followed by commercial funds at 87.
“…consolidation the industry has and will continue to be one of the main driving forces that shapes the industry,” the report said.
“In 2016 there were 83 of 219 funds with negative net flows. It is not reasonable to expect these funds to be able to provide their members with the best possible service whilst under this type of fiscal pressure.”
Rice Warner said in the next five years the industry would see significant merger activity and estimated that corporate funds would drop to 24, industry to 30, public sector to 22, commercial to 73, and small Australian Prudential Regulation Authority funds to 1400.
“We observe significant momentum for consolidation activity. Funds are attracted to the idea that through scale they can provide additional member services without increasing charges for members,” the report said.
Rice Warner said funds competed on services now more than ever and industry and retail funds had utilised scale to offer better rounded products and services to their members, in part to try to slow the outflow of retirement funds to SMSFs.
“Rice Warner research into superannuation fund expense levels has confirmed that scale benefits are a major driver in reducing costs. Operating expenses reduce significantly with scale. In particular, funds with more than $10 billion tend to have materially lower investment expenses than other funds,” the report said.
“This information suggests that continued rationalisation will benefit both members and the industry as a whole. Additionally, we consider that there exists scope in the short term for additional activity based on the current composition of the industry.”
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