Superannuation funds that merge to achieve benefits of scale do not always attain the desired cost savings, according to FuturePlus managing director Madeline Dermatossian.
Dermatossian said although benefits of scale could include reduced fees on a per-member allocation basis and in the allocation of fixed costs, the risks reached beyond the common risks associated with mergers and acquisitions and included the administrator encountering errors and losses in dealing with much bigger entities.
"The level of benefit from scale is reduced when members are in numerous industries/schemes, administered on several systems or the underlying structures are different," she said.
In cases where members could not be combined, the benefits of scale would be reduced by the need to operate on a transaction-by-transaction basis, she said.
According to Dermatossian, funds that managed administration in-house and used bespoke systems would have to bear the brunt of regulatory costs and the internal work necessary to meet deadlines.
Outsourcing administration could provide superannuation funds with a path to achieve costs savings while still resisting the urge to merge, according to Dermatossian, because costs would still be spread over a larger client base.
The shared service model could achieve cost and scale benefits while also reducing risk, she said.
"Funds with outsourced models or that use licensed products can rely on the administrator or vendor to implement changes, and they benefit from the cost being spread over a larger client base.
"Small-to-medium funds can retain their unique identities, value proposition and the qualities that attracted members in the first place – characteristics that can be lost or damaged in merger situations," she said.
Super funds would also gain access to innovative services without the research and development costs, according to Dermatossian.
