Super funds consolidation could adversely impact Australians

The ‘insatiable desire’ for consolidation of super funds could have unintended consequences for Australian workers and retirees, including short-termism and diseconomies of scale, as the number of funds halves in 10 years.

Research by advisory business Frontier Advisors found the number of Australian Prudential Regulation Authority (APRA) regulated funds fell from 466 to less than 200 in the 10 years to June 2018 and there was an ‘insatiable desire’ for further consolidation to weed out inefficient or costly funds.

This was coming from the APRA and the Productivity Commission as well as wider politicians and industry participants.

But Frontier’s analysis found there was not always a positive relationship between fund size and net return with two of the smaller funds in the market also being among the highest performers over the last three years.

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Nor was there clear consistency in performance from funds sitting in the best-performing categories where consumers are encouraged to seek a fund. Frontier found four of the top 10 performing funds in June 2018 had dropped out of the ranking six months later. Conversely, eight of the 10 worst performing funds still held that position six months later.

But when it came to comparing industry super funds to retail funds, the report found industry super funds consistently outperformed retail ones over a 13-year period.

David Carruthers, Frontier Advisors principal consultant, said: “To determine the value a particular fund offers requires an assessment across a wide range of factors that includes the level of fees and costs, size of assets, performance across a range of time periods, risk profile and qualitative factors such as member service.

“The focus should be on the best outcome for members, not reducing the number of funds for the sake of it.”

He suggested new member outcome legislation would set a minimum standard of delivery for funds, giving funds and members more certainty.