The superannuation industry will see a downward trend in the popularity of self-managed super and a rise in migration to traditional funds, VicSuper boss Michael Dundon predicts.
The chief executive predicts the recent uptick in unwinding of SMSFs is the start of an increasing trend, despite figures from the Australian Taxation Office showing their steady growth over the last five years.
“We have noticed a 12 per cent increase, over the past 12 months, in people aged over 55 winding up their SMSF and rolling the money into our fund, largely because managing their own SMSF was more complex and time consuming than they’d anticipated and they know it may be difficult to run a pension fund as an SMSF,” Dundon says.
The changes to superannuation rules in the 2016 federal budget flooded SMSF trustees and advisers with changes, such as the introduction of a new lifetime transfer balance cap of $1.6 million, and the reduction of the annual cap for concessional (before tax) contributions to $25,000.
Dundon warns that the federal government’s continued modifications to the tax and regulatory structures pose a “major threat to the superannuation system” and that any government regulation must be executed appropriately to boost confidence.
“[Yes] increased regulation, if focused and implemented well, would increase member confidence, but frequent and adverse changes to, in particular, tax settings, could erode members’ confidence,” Dundon argues. “There is a danger that continued tinkering with these settings will result in deterioration in member confidence and an attendant drop in the volume of non-mandatory member money flowing into the super system.”
Furthermore, Dundon predicts the industry will soon face a number of challenges that could affect funds’ growth, such as ageing membership, slower labour force growth and changes to traditional default models.
“The Productivity Commission’s inquiry into default superannuation funds in modern awards could have implications for the distribution models of some superannuation funds in the future,” Dundon says. Naming “four models [assisted employee choice, assisted employer choice (with employee protections), multi-criteria tender, and fee-based auction] in the commission’s draft report implies that only a handful of funds would be permitted to receive new default members. This could represent significant disruption to the superannuation industry.”
Another challenge for the industry, he says, comes from the rapid advancement of technology. Funds must learn how to use it to meet members’ changing expectations.
Dundon says VicSuper, which has $19 billion in funds under management and 240,000 members, is not in merger discussions with anyone. However, the fund is actively looking for potential partners and alliances to “build scale as a defence against increasing competitive pressures over the long term”.
VicSuper piled up three trophies at the Conexus Financial Superannuation Awards 2018, winning Best Advice Offering, Member Services Fund of the Year, and the award for Innovation and Transformation.