Super Funds Unwilling To Merge Seek Creative Alternatives
For many super funds, combining the best elements of two or more funds is an attractive venture, and in some cases, an inevitable one, with evidence and industry pressure behind it. APRA’s heatmaps still show 18 chronically underperforming super funds, and analysis from Super Consumers Australia estimates that mergers are leaving the average member $15,000 better off in retirement, primarily from fee-savings.
However, there are many small to medium funds unwilling to go down the merger path for very valid reasons. Funds that are at a level of maturity and performance can rightfully challenge whether their uniqueness and agility are more valuable than size and scale.
Primary concerns for well-placed funds contemplating merger:
Will our members trust the bigger merger entity or feel disconnected?
Will our member relationships improve or decline?
Will or should our brand be swallowed up?
Is our uniqueness and agility more valuable than size and scale?
Will the trustee lose control of communication channels?
Are the cultures similar enough to be harmonious?
Are there too many obstacles to overcome?
Can the costs of merger be successfully contained?
And the question will remain: after we do this, will we have the scale we need to compete against the mega-funds?
In the face of one’s peers aggressively pursuing ‘bigger, better, faster’, funds that don’t go down this merger route must refresh and increase the appeal in their uniqueness and somehow, somewhere find economies of scale. That might be in new technologies, new partnerships or establishing alliances with other super funds.
The “Your Future, Your Super” reforms (Stapling and Annual Performance Testing) place an added pressure on trustees to be confident they can continue to meet ongoing changes to member preferences, regulation and technology innovation.
When concerns or doubt pervade decision making, it can be a sign that the vision of the fund needs to be revisited amid this fast-changing landscape. With a revised vision, many of these concerns can be eliminated as non-negotiables and the fund can design and pursue the future they want most by exploring creative alternatives.
The “team up” approach for example is gaining popularity, running multiple funds with separate member cohorts and needs, but sharing costs where it makes sense. The Maritime Super agreement with Hostplus is a recent case in which pooling finances was a deliberate move to steer away from a traditional successor fund transfer.
The arrangement allows the $6 billion fund access to economies of scale and the buying power of a much larger fund, while retaining its brand, member relationships and administration autonomy.
Another interesting case was the merger involving Equip Super and Catholic Super of 2019. Both brands have been preserved and the parties continue to operate as separate funds. They merged using an extended public offering, leaving the possibility of other super funds to enter into the arrangement. Equip Super was the first industry fund in Australia to gain an EPO licence, allowing it to act as the trustee for more than one fund and only this week announce the fund will now manage the retirement savings of Toyota Super's 5000 members.
While there is not a “one size fits all approach”, the industry could see similar arrangements pop up; pooling assets, administration, or any selection of trustee duties to be “better together”. Leveraging buying power, lowering costs, improving data governance, business intelligence and performance monitoring can all occur while retaining one’s fund identity, controls and legal remit.
From an administration standpoint, any future model of super will still have members wanting a “personal touch” and wanting to feel at home with a long-term fund they can trust. Paradoxically, it may also be the case that the one-stop trustee is a thing of the past – members wanting to move around depending on their circumstances, changes in career and needs may become the new normal – however it is unclear whether stapling legislation will have an impact on superannuation mobility.
Many commentators, such as the Productivity Commission, have suggested that while increasing scale would lead to a more efficient super system and thus, higher returns for members, many of the points within the government’s recent Retirement Income Review do make a solid case for smaller, mature and innovative trustees to exist, depending on the situation and cohort.
Best regards
Josh
Joshua Robertson - Consultant
Please reach out to QMV for further information on p +61 3 9620 0707 or submit an online form.
ABOUT QMV
QMV provides independent advisory, consulting and technology to superannuation, wealth management, banking and insurance organisations.
Like what you see? Please subscribe to receive original QMV content!
You may also benefit from our free monthly pensions and superannuation regulatory updates.