Half of small super funds facing sustainability challenges

Analysis by the Australian Prudential Regulation Authority (APRA) has found half of small superannuation funds, those with less than $10 billion in assets under management, are facing sustainability challenges.

The regulator said smaller superannuation funds were more likely to struggle to deliver quality and value-for-money for members. They also faced sustainability challenges as result of declining cashflow and member accounts.

On the other hand, funds with more than $50 billion were able to spread their costs over a wider membership base and keep fees lower. This meant operating expenses were around 0.33% of net assets compared to 0.57% for smaller funds.

APRA said mergers since the release of the first MySuper heatmap in 2019 had delivered combined total fee savings of around $21 million per annum for 350,000 MySuper members while simplification programs had delivered fee savings of almost $16 million per annum.

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APRA member, Margaret Cole, said: ““While bigger isn’t always better, increased scale makes it easier for trustees to build an efficient and resilient business model that delivers strong financial outcomes for members.

“A fund that is losing members or has declining net assets will face challenges to keep fees and costs low for members, and fund operational improvements that ultimately benefit members.

“It’s for this reason that APRA will continue to encourage trustees facing performance or sustainability pressures to seek a strategic merger that can quickly deliver improved outcomes to their members.”