As more superannuation funds look to merge, Rachel Alembakis questions whether these moves are the best thing for members
There is a pipeline of Australian superannuation fund mergers in the works at the moment. In May GP reported that the A$1.7bn ($1.8bn) Local Super and A$2.4bn StatewideSuper, were having “detailed” discussions about merging. This is in addition to the agreed merger between Non-Government Schools Super (NGS Super) and UCSuper which will create a combined entity worth A$4.4bn.
Industry experts say mergers are increasingly being guided by an implicit belief that there should be fewer, larger superannuation funds. This is based on feedback from regulators and from the conclusions in last year’s landmark Cooper Review into the infrastructure of superannuation provision. But even as smaller industry and public superannuation funds seek mergers, and the minority remaining corporate superannuation funds look to outsource their operations, professionals say that bigger isn’t always better, and that merging for the sake of merging doesn’t always yield best results for members.
To be precise, a superannuation fund merger is when one fund seeks a tie-up with another superannuation fund, rather than an outsourcing activity when operations are given to another entity such as a vastly larger fund or master trust structure.
In addition to future pressures on costs, efficiency in administration and the need to integrate the default structure known as MySuper, funds are also influenced by factors like a stagnating or dwindling membership base as trade unions negotiate with fewer default superannuation providers in collective bargaining agreements known as “awards”. The fact aging memberships are also now moving into retirement phases also plays a part.
“Some funds have been impacted by the change in awards,” said Pauline Vamos, CEO of the Association of Superannuation Funds of Australia (ASFA). “You have funds that have gone from hundreds of awards down to a few and some funds that were named on older awards are no longer named in the newer awards. The membership base starts to erode, and with some funds, they have concerns about their ability to grow their membership, and with an aging membership, they decide that the best way to retain their value to members is to merge with other funds.”
The cash factor
The issue of cash flow is another factor guiding some funds to pursue merger activities. Some smaller superannuation funds are seeing that in the medium term, they will have to start paying out more in benefits to retired members than they receive in monthly cash flow from the 9% mandatory employer superannuation contributions. Often, these funds have their beginnings in defined benefit pension funds and have a lump minority of DB benefits to maintain, said Tony Miller, senior consultant at Russell Investments.
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