PC draft prompts merger moves

A number of superannuation funds have initiated merger investigations following The Productivity Commission’s (PC’s) draft report on Efficiency and Competitiveness in the superannuation industry has prompted a number of mid-to-large superannuation funds to investigate the possibility of mergers with small entities.

A number of consultants have confirmed to Super Review that they have been retained by superannuation funds to explore merger opportunities, particularly among smaller funds operating in the default space.

The increased level of interest in merger opportunities follows on from the PC’s questioning of why there had not been more fund mergers in circumstances where there existed “evidence of unrealised economies of scale, persistent under-performance and an entrenched large number of small funds”.

The PC report suggested that the relatively low number of mergers might be owed, in part, to some directors being reluctant to “countenance mergers that would see them losing their jobs”.

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The PC report contains a draft recommendation which would require funds to both report to the Australian Prudential Regulation Authority (APRA) any merger attempt and the reasons when those attempts fail.

“The Australian Government should require trustee boards of all APRA regulated superannuation funds to disclose to APRA when they enter a memorandum of understanding with another fund in relation to a merger attempt,” it said. “For mergers that ultimately do not proceed, the board should be required to disclose to APRA (at the time) the reasons why the merger did not proceed, and the members’ best interests assessment that informed the decision.”