Half of Australia’s super funds will merge with larger funds or exit the system in the next 10 years, a KPMG report predicts.
KPMG’s Super Insights Report 2018 also states that members will see their funds evolve to provide banking, aged care and other services.
While funds’ average assets under management (AUM) grew by a healthy 9.3 per cent and contributions rose 15.6 per cent last financial year, a split was emerging between larger and smaller funds, creating takeover opportunities, the report states.
Funds delivered strong investment returns amid a competitive fee environment but operating expenses increased, posing a challenge for the sector.
KPMG head of asset and wealth management, Paul Howes, says there is an “an increasingly two-tiered super fund industry in Australia”, putting pressure on smaller players to become more efficient or merge.
“The Productivity Commission’s review into the efficiency of the system will place significant challenges on smaller funds – and should it recommend a limitation of existing default awards, this could spell the end for many small funds,” Howes says. “While rationalisation has happened very slowly, we believe the pace will quicken sharply in the next few years.”
Corporate funds will be hit hardest, KPMG states, with only six forecast to remain from 26 current funds by 2028, in contrast with the self-managed super fund sector, where the number of funds is predicted to increase by more than 47 per cent.
The report found that Tasplan was Australia’s fastest-growing fund in 2017, by AUM increase, thanks to its merger with RBF during the year. AON was tops by member growth. AustralianSuper remains the country’s biggest fund, based on AUM.
KPMG superannuation advisory partner Adam Gee says the Productivity Commission inquiry and Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will make 2018 a significant year for changes.
Gee expects retail fund members to move to the not-for-profit sector in light of commission evidence, while some retail funds look to exit the system.
“It seems likely that the royal commission’s scrutiny of banks’ vertically integrated wealth businesses will led to greater pressure being placed on some sectors of the industry,” he says. “We must hope nothing happens that would run counter to the interest of fund members – and possibly prejudice the ability of funds to meet the new member outcomes requirements.”
These requirements include standards on operating costs, net cash flows, rollover ratios and member movements.
“Our analysis shows that many funds may struggle to meet many of the metrics outlined by APRA within the member outcomes test and our online tool allows funds to clearly benchmark their performance to their competitors.”
Gee also predicts that industry funds will become diversified financial institutions offering non-superannuation products focused on aged care and banking, like those ME and Hostplus offer.
Meanwhile, retail funds could move in the opposite direction, with a number considering the long-term viability of their wealth businesses.
Projected number of superannuation funds
|Total APRA regulated