Industry funds to have half of market share by 2041

Industry superannuation funds will likely increase its market share by 10% to 51% in the next 20 years thanks to the Your Future, Your Super (YFYS) measures, according to Deloitte research.

Deloitte’s ‘Dynamics of the Australian Superannuation System: The next 20 years to 2041’ report found industry super funds currently had 41% of the market share followed by self-managed superannuation funds (SMSFs) (26%), retail super funds (25%), public funds (6%), and corporate funds (2%).

However, by 2041, the market share would shift with industry funds making up 51%, followed by retail funds (24%), SMSFs (22%), public (3%), and corporate (under 1%).

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Deloitte said the YFYS package would favour industry funds as most young people joining the workforce for the first time would likely join an employer whose default super arrangement was an industry fund under and awards system.

While retail funds were expected to grow, the growth rates were not expected to be strong as retail funds would progressively win back the trust of consumers following the Hayne Royal Commission, along with the impacts of the prudential regulator’s heatmap and underperformance reporting.

SMSFs were expected to remain popular but growth was expected to be less strong for pre-retirement assets than post-retirement assets.

“Many industry funds are also improving their investment propositions for members by allowing members to be able to directly invest in equities of large Australian Securities Exchange (ASX) listed companies, exchange traded funds and managed funds,” Deloitte said.

“This provides a viable alternative for members to setting up their own SMSF in order to take more control over the selection of investments in their fund, although there are generally limitations on how much of a member’s accounts can be allocated to direct investments and a more restricted range of permitted direct investments.

“The low fees and strong investment performance of industry funds, combined with strong inflows, will result in a growth rate of approximately 10% per annum for industry fund post-retirement assets, compared to 6.5% for retail funds and 5.5% for SMSFs.”

The report also noted that total super assets were at $3.4 trillion as at 30 September, 2021, but was projected to increase to $9.2 trillion by 2041.

It said funds that failed to reach scale or underperformed relative to their peers would struggle to survive unless they could transform their businesses quickly.

“We expect the superannuation industry will continue to rationalise and we will end up with a modest number of very large funds,” the report said.

“These funds will increase their foreign investments due to their size and the relative size of global opportunities compared to the small Australian market. They will also increase investment in privately-held assets.

“In addition, we will see an increasing shift from employer-driven superannuation to being focused at the individual level. Initiatives such as account ‘stapling’ and proactive consolidation of small accounts by the Australian Taxation Office will boost further consolidation of accounts which will reduce the drag of unnecessary fees associated with multiple accounts for one person as well as make it easier for people to keep track of their superannuation.”