A majority of superannuation funds are currently having conversations about potential mergers, according to Maree Pallisco, national superannuation leader at EY (formerly Ernst and Young), due to the impact of the Stronger Super reforms.
As a leading provider of independent advice on the business structures of super funds, EY hears regularly from trustees who are anxious about fulfilling the Australian Prudential Regulation Authority (APRA) requirement that funds have the necessary scale to act in their members’ best interests. It is also hearing from funds who do not have a desire to merge, but who are being approached by other funds.
“The impact of the Stronger Super reforms has seen superannuation funds revisit their business strategies and consider how they will operate in the future,” Pallisco said. “A number are either in discussions with – and this could be flirting with the idea [of a merger] – or in negotiation stages with other funds.”
Despite such widespread discussions, Pallisco did not foresee much activity in 2013 or 2014, as many funds wanted to carry out a full assessment of the impact of MySuper and Stronger Super before they seriously consider a merger.
“While potential mergers are certainly on the radar of many superannuation funds, we are unlikely to see significant amounts of activity occurring before the impacts of the MySuper and Stronger Super reforms, such as APRA’s comparison of all funds across the industry on costs and investment performance, come to fruition.”
Increasing competition in the market, Pallisco said, was also forcing trustees and management to consider what is required to position them to effectively meet cost, efficiency and capability challenges.
In June AUST(Q) Super agreed to merge its $181-million fund into AustralianSuper.
Bob Henricks, chair of AUST(Q), said his members were increasingly asking for investment choice and pension products, which the fund did not provide. He also complained of the inflexibility of APRA regulation, which forced effective funds through a costly and time-consuming compliance process.