Super funds, say hello to the zero-sum world

For superannuation funds, the membership pie has begun its inevitable decline – and fast. The total number of accounts in the system peaked at 34 million in the last year and will fall as the rate of membership growth falls and the tax office pulls small accounts it deems as ownerless from the system, according to researcher SuperRatings. The rate of membership growth fell from 6.1 per cent in 2005 to 2.5 per cent in 2009 (see table), and shows no signs of abating as account consolidation continued and the tax office claimed small balances with no fixed addresses, Jeff Bresnahan, managing director of the ratings agency told the 2010 Day of Confrontation. The era of automatic membership growth for all funds had ended, he said, and a period in which growth could only be achieved by winning market share from competing funds in a zerosum game had begun. “The free ride is over. Competition is here in a big way.”

Bresnahan predicted the rate of growth within super fund memberships would fall by up to 25 per cent in the next decade, and said some industry funds stood to lose up to 30 per cent of their members in the same period. “We can see which funds have plateaued and those that have entered negative territory. Some funds have lost between 15-18 per cent of their memberships in a single year. If that continues they’re going to struggle. If your membership growth is negative, you’ve got problems because the supply is full. “We’ve been talking about mergers. That hasn’t happened. Mergers will happen because funds will feel the pressure of declining memberships.” A major force driving declining membership growth was the tax office’s move to collect small balances with no fixed addresses, based on member data at June 30 this year, resulting in 9 per cent of accounts disappearing from the system, Bresnahan said.

SuperRatings’ analysis of the eligible rollover fund sector earlier this year found 1.5 million accounts of less than $200 that were classified as being lost. It was expected that these balances would be swept up by the tax office. This would exert a small impact on funds’ volumes of assets under management, but could significantly reduce their member populations. It was also likely to increase costs per member as funds would be forced to spread costs across fewer accounts. SuperRatings found that costs per member across the industry increased from $96 in 2005 to $129 in 2009. Bresnahan said small funds that tailored their offering to members’ needs would not necessarily be endangered by declining rates of account growth. “Small funds just need to be professional.