The government’s new performance test will “light a fire” under struggling funds, with new regulations – including banning funds from taking on new members until they lift their game – set to heat up merger activity.
“Being barred from adding new members creates a very powerful incentive for funds to either shape up or merge. Underperforming funds need to find a partner or get off the dancefloor,” said Super Consumers director Xavier O'Halloran.
APRA is also forecasting that the superannuation industry is about to enter a period of significant consolidation, with deputy chair Helen Rowell recently noting a greater drive towards scale as funds attempt to lower fees in the increasingly competitive space.
Research from Super Consumers tracks the same theme, finding that that fund mergers bring “substantial benefits” for members, with fees falling by an average of 13.4 per cent – putting around $14,830 back in members’ balances.
“We believe that size and scale really do matter. Through mergers we can generate economies of scale and access a broader range of investment opportunities which support us to deliver strong, sustainable long-term returns to our members and reduce fees over time,” said Michael Dundon, executive consultant corporate development at Aware Super.
The Productivity Commission found that more mergers among funds with less than $1 billion in assets under management would be particularly helpful for the industry – but so far only four of these smaller funds have merged.
