Nearly 12 years after the iconic Virgin brand entered Australia’s superannuation market amid much fanfare, the struggling fund has folded into the Mercer Super Trust.
Virgin Super announced on Tuesday, December 13, 2016, that it had completed a successor fund transfer of its $550 million in assets into the $21 billion Mercer Super Trust. The fund will continue to be segregated under the Virgin Money Australia brand.
It comes at a time when the Australian Prudential Regulation Authority (APRA) has made it clear to the industry it is focused on ensuring all funds can continue to deliver sufficient economies of scale to their members.
Mercer financial services business leader Andrew Godfrey said: “We have been looking at the capabilities Mercer brings to the table and aligning those with the capabilities of an iconic brand like Virgin … Bringing that together can fuel significant growth.”
The deal is a win for Mercer’s partnership model, which aims to attract smaller super funds by giving them an alternative to full white labelling.
Other funds that have recently folded into the Mercer Super Trust include chemical and explosives company Orica’s corporate super fund.
Virgin Super has now completed the transfer of control of its asset management and trusteeship over to Mercer, which has provided administration services to Virgin Money since 2015.
Losing member, FUM
Virgin Super has struggled to grow, despite beating the industry average for net returns.
Over the year to June 30, 2016, the fund’s balanced option returned 3.4 per cent, against the industry’s median annual return of 2.8 per cent, SuperRatings research manager Kirby Rappell said.
Despite this, members have been leaving the fund. Total accounts decreased from 20,857 in 2015 to 19,485 in 2016 – a drop of 6.58 per cent. However, this was a slowdown in member leakage from the previous year, when there was a 10 per cent fall in the number of accounts. Total contributions were also down 12.4 per cent in 2016, Rappell said.
The average member account balance of $27,572 was also well below the $42,000 average for the superannuation sector as a whole, APRA statistics showed.
Godfrey said the merger would help leverage the respective strengths of the two organisations, to reverse the downward trends and generate strong growth for both funds under management and membership numbers.
“The fee price point, the access to new digital capabilities, leveraging the iconic brand of Virgin, together with our data analytic capabilities, will really support that acquisition and retention of members,” he said. “That is where that partnership can come to the fore.”
Virgin Super was the first super fund in the country to bring a lifecycle product to market. More than 10,000 Australians, attracted by the offering and low fees from its heavy weighting to passive investments, had pre-registered to join Virgin Super before its launch in June 2005.
Richard Branson said at the time that Australians deserved a “straight-talking” super fund that did not steal away their “hard-earned retirement savings in high fees and hidden commissions”.
The default lifecycle product has only four asset classes: Australian shares; international shares; property and infrastructure; and defensive fixed interest and cash. The balance between these classes changes depending on the age of the member, ranging from 80 per cent in shares for young members to a 55 per cent weighting in defensive fixed interest and cash for those 65 and over. Property and infrastructure maintain a steady 5 per cent, regardless of a member’s age.
When asked if there was a plan to diversify the asset classes in the default product, Godfrey said the platform gave members the ability to select their own investment options, if they wished.
Fees have been reworked to an even lower level following the merger. Investment fees in the default product are at 0.116 per cent, admin fees are at 0.394 per cent and indirect costs are 0.04 per cent. This means a member with an account balance of $50,000 would be charged $333 dollar a year – down from $553.
Godfrey said Mercer was focused on its partnership with Virgin at the moment, but hoped to run similar schemes with other super funds in the future.
Merger activity heating up
Recent weeks have included an uptick in merger activity for funds, following a slow period.
Earlier in December, Mercer announced it had acquired the NSW Government’s superannuation administration business, Pillar Administration, for $35 million, making it the second-biggest super fund administrator in Australia, behind Link Group.
At the beginning of December, the $114 million Transport Super merged into MyLifeMyMoney Super’s master trust.