Under the new Stronger Super rules, trustees must provide APRA with an annual ‘attestation’ that members are not disadvantaged by their fund’s scale.
The attestation must take place every year on the anniversary of the launch of the fund’s MySuper product.
Speaking to InvestorDaily, Kinetic Super chief executive Megan Bolton said attestations about scale – along with the asset test – will “require more resources” from funds and require trustees to ensure the scale of their fund is in the best interests of their members.
“I would hope trustees are always acting in the best interests of their members, and if that means there are better funds out there then they should be considering it,” said Ms Bolton.
Regulatory changes such as the SuperStream requirements will also “continue to put more pressure on costs”, she added.
Ms Bolton said funds have mostly been concentrating on regulatory changes in the past two years rather than on merging but said she is now seeing increased discussions on mergers within the industry.
AIST executive manager of policy and research David Haynes, on the other hand, believes scale tests are unlikely to trigger further merger activity given that its basis is 10-year rolling returns.
“It’s clear from the league tables of net investment returns from over one-, three-, five-, seven- and 10-year periods that you have a mixture of both large and small funds returning strong net returns,” said Mr Haynes.
“It’s a testament to the fact that a lot of small and medium-sized funds are very well run, and are able to organise their investments in such a way to deliver strong returns over an annual period and over the long term.”
Mr Haynes did acknowledge, however, that each time a significant framework occurs there is a reduction in the total number of funds in the system.
“With each additional regulatory layer, fund trustees make a judgement about whether the long-term interests of their members are best dealt with in their existing, standalone fund or in a merger situation, and different funds come to different conclusions,” he said.
“There are plenty of small and medium funds out there continuing to do a good job, and they aren’t necessarily going to merge.”
Mr Haynes said he expects “industry consolidation to continue”, however, particularly among the corporate funds, due to the “high level of fiduciary responsibilities trustees have to their members”.
The Association of Superannuation Funds of Australia’s chief executive Pauline Vamos said attestation including scale tests are unlikely to have an impact on mergers as smaller funds can access the benefit of reduced prices of scale by “outsourcing to technology providers”.
However, she believes the work of the Fair Work Commission, and whether a fund is named in an award, will have significant impact on merger activity.
