No super segment safe from consolidation

No segment of the superannuation industry will be excluded from the Australian Prudential Regulation Authority’s (APRA’s) moves to encourage funds to lift their game, according to APRA deputy chair, Helen Rowell.

Addressing the Association of Superannuation Funds of Australia (ASFA) conference in Sydney, Rowell said said that changes which were soon to be announced in an APRA consultation package were designed to put pressure on poor performers “irrespective of industry”.

She said the focus would be on having superannuation funds lift their game and, if improvement was not possible within a reasonable timeframe, to have those funds “gracefully exit the industry”.

“Flowing from this, APRA expects to see further industry consolidation in the years ahead, leading to both fewer APRA-regulated funds and investment options to choose from over time,” Rowell said.

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“If we look at the composition of the industry five years ago, there were 51 industry funds, 179 retail funds, 40 public sector funds and 64 corporate funds. By comparison, in 2017 there are 40 industry funds, 126 retail funds, 37 public sector funds and 25 corporate funds – a loss of 106  funds overall.”

Rowell said this reduction had come about for various reasons, including unsustainable funds closing and transferring their members elsewhere, or funds voluntarily choosing to merge, pool their assets and resources, and hopefully gain the benefits of increased scale. 

“As indicated in the letter we issued to the industry of 31 August 2017 on the assessment of quality member outcomes, some trustees and funds appear insufficiently prepared to manage current and future industry challenges. These include a more competitive environment; changing fund demographics as more members move into retirement; and low investment returns,” she said.

“That is why our proposed prudential framework enhancements are so important. The strengthened prudential requirements will require trustees to bolster their strategic and business planning practices, decision-making and oversight for fund expenditure, and approach to defining, assessing and delivering quality outcomes for members.”