- Scale not necessarily delivering economies
- Institutional funds need to be more competitive
The report: Superannuation trends and implications examines performance and challenges in the Australian superannuation sector from 2000 – 2011, a period marked by the impact of the global financial crisis and government changes to administration delivery and member choice1.
KPMG and ACFS found the growth of the self-managed super fund segment since 2000, and the ageing Australian population, provide the greatest threat to the future of superannuation institutions. The self-managed fund segment increased by 461 percent and the industry funds segment by 410 percent, against a more sombre growth in retail funds of 177 percent, and public sector funds, 100 percent.2
“Many superannuation institutions face increased rollovers to self-managed superannuation funds and increased benefit payments at the same time their contribution inflows slow. This perfect storm potentially threatens their future viability,” said Sean Hill, head of KPMG’s superannuation group.
Institutional funds are struggling to reduce member costs despite the phenomenal growth in the average size of superannuation institutions in recent years. “As superannuation funds increase in size, trustees should be able to exploit economies of scale and reduce costs. However, only in 2009 did costs per member decrease, before rising slightly the following year,” said Professor Deborah Ralston, Director ACFS.
The report found that superannuation institutions that fail to adapt and respond to changing landscape face the prospect of negative funds flow, diminishing assets and terminal decline.
“Superannuation institutions need to recognise that their growth strategy, which may have been successful over the last decade, may no longer be appropriate,” Sean Hill said. “They must review the competitiveness of their offering, particularly with regard to fees and cost, consider alternatives to organic growth and, formulate a strategy and transition plan specifically in relation to the upcoming Stronger Super reforms,” he added.
KPMG and ACFS cite the attractiveness of the self-managed super fund segment to members as the single greatest challenge to institutional funds. “The popularity of self-managed funds could potentially lead to the decline in institutional funds as more members transfer benefits and contributions to self-managed funds. As their assets diminish, superannuation institutions’ operating costs per member will increase, thereby perpetuating a vicious cycle,” Professor Ralston said.
The growth options for superannuation institutions are limited but achievable provided they can reduce costs per member. “This may be achieved through an increased focus on operational efficiency, or by merging with a larger, more efficient institution,” Mr Hill said.
- A KPMG-ACFS Monograph, Superannuation trends and implications, September 2011
- Growth measured by the change in nominal assets.