The superannuation sector is seeing the rise of the $100bn “mega-funds”, with Australia’s major industry funds growing market share at the expense of smaller funds and retail funds, consulting firm KPMG says.
Australia’s largest super fund, the $260bn AustralianSuper, recorded another $25bn in net cash inflows in the last financial year, pulling ahead of its rivals, while most other super funds are now at close to or at net zero inflows.
The KPMG Super Insights report notes that the industry super funds have increased their share of the total superannuation market – rising from 31 per cent in the financial year ended June 2021 to 37 per cent in the period ended June last year, overtaking the self-managed super fund sector.
“Mergers, and the rise of the mega funds, are a continuing driver of change in the superannuation landscape,” said KPMG Australia’s national sector leader, asset & wealth management, Linda Elkins.
“Five more mergers took place in the year, with nine other funds making merger announcements or signing memorandums of agreement.” She said the growth in the super sector last year had been restricted to the larger funds, mostly as a result of mergers. “The Australian superannuation sector is becoming more clearly stratified by size of funds,” she said.
The industry is now dominated by two mega-funds with assets of more than $200bn – AustralianSuper and the Australian Retirement Trust.
Another five funds have assets of more than $100bn, with another five with assets of $60bn- $100bn. But the total industry of 140 funds still has many smaller funds with assets below $20bn.
Mergers have boosted the role of industry funds.
At the end of 2021, AustralianSuper was the only industry fund in the ranks of the top seven funds. By the end of the 2022 financial year, four industry funds were in the top seven.
The top seven super funds along with four industry funds – AustralianSuper (the Australian Retirement Trust, Aware and UniSuper), and three retail funds (Insignia, AMP and Colonial First State) – now make up well over half, or 58 per cent, of the non-self-managed super fund sector.
Ms Elkins said the continued mergers in the sector would still leave room for a range of funds – including retail funds and smaller funds.
“Mergers will continue to drive the consolidation of the industry, but with 140 funds there is still a long way to go,” she said.
Retail super funds, which had been hit by the fallout from the banking royal commission, were still “fighting in the middle of the pack” and were relatively stronger with members in retirement.
“The retail funds still have an important and significant role to play with features which serve their members well, especially in the retirement space,” Ms Elkins said.
The financial year to the end of June 2022 saw total assets in the superannuation sector go backwards as a result of a sharp fall in markets early last year as the world’s central banks aggressively increased interest rates in response to inflation.
“The inexorable growth of Australia’s super sector hit the brakes last year with a small reduction in assets,” the report notes.
With most superannuation funds reporting negative returns for the financial year, there was a reduction in funds under management from $2.8 trillion in 2021 to $2.79 trillion in 2022.
The report predicts increasingly fierce competition with the superannuation sector as funds come under the spotlight of the Your Future, Your Super performance tests, and new legislation “stapling” super funds to members unless they specifically decide to change.
“A continuing and intensifying trend is the direct competition between funds to attract and retain members,” Ms Elkins said.
“The introduction of ‘stapling’ of members to funds under the Your Future, Your Super legislation has meant there is less automatic change to a new employer’s fund when someone takes a new job.” She said super funds were increasingly investing in digital capabilities and improving their online offerings as part of their pitch for new members.
A new factor in the competitive landscape is the focus on retirement income products by super funds as more members retire. This has been accelerated by the introduction of the Retirement Income Covenant, which came into force on July 1 last year, requiring super funds to develop a retirement income strategy for their members.
Licensed by Copyright Agency. You must not copy this work without permission.
back to Insights