The days of small, niche superannuation funds could be coming to an end. Small funds are criticised by the Productivity Commission’s recent final report into superannuation because they don’t have the scale to deliver low fees and ultimately better retirement savings.
The Commission found that 93 superannuation funds, or about half of all APRA regulated funds, have less than $1 billion in assets and many underperform. Around 35% of super funds have less than $500,000 in assets.
“We have (conservatively) estimated that cost savings of at least $1.8 billion a year could be realised if the 50 highest-cost funds merged with 10 of the lowest-cost funds.”
The Commission estimates that an average member would be $22,000 better off at retirement. “That this potential exists reflects a lack of effective competition,” says the report.
The Commission did admit that its analysis of economies of scale reveals that substantial cost savings from greater scale remains to be made in full, especially from further consolidation in the super system.
But it does want to see more fund mergers and to help with speeding up mergers between superannuation funds, the Productivity Commission has recommended that the government legislate to provide funds with relief from capital gains tax liabilities when they merge.
The Commission wants funds to disclose all merger activity to APRA and outline the reasons why the merger didn’t go ahead, particularly the members’ best interest assessment that prompted the merger. This is in light of some superannuation funds that have pulled back from merging at the eleventh hour.
The Commission also wants APRA to be empowered to prevent mergers that are not in the best interest and ASIC to pursue action against trustee directors for misconduct in relation to mergers.