Should a merger between First State Super and VicSuper go ahead, the provision of retirement advice will be a major competitive advantage for the combined group, according to chief executives Deanne Stewart and Michael Dundon.
Consequently, both superannuation fund heads are keen to see an overhaul of the sole purpose test.
According to Stewart, the best retirement outcomes can depend on a lot of different things, not just investment returns.
For example, she says, the right advice can have a life-altering impact on a member’s retirement outcome.
“Currently the sole purpose test does not touch on our responsibility to our members in retirement. It covers how we assist members up to that point and then they are on their own,”she argues.
“We think it’s important that we clarify the sole purpose test – provide the guard rails if you like – to provide a level of clarity that will allow for modern-day funds like First State Super and VicSuper to strive for greater innovation particularly in the advice area.”
Continuing to develop and deliver VicSuper’s retirement income strategy underpinned by great value, quality financial advice is a key strategic priority for Dundon.
“We certainly see it as a competitive advantage. Over 70 per cent of our members with average or more account balances move into our income solution and 90 per cent of those have been advised,” he says.
“Gaining greater clarity around the sole purpose test for the retirement income phase will help us understand the boundaries to providing what we hope will be more extensive products and services to help our members in the retirement phase. It’s an enormous opportunity and one that certainly needs more attention.”
Their comments come just after the two leading superannuation funds said they were in early stage talks to explore a tie-up.
A deal would see the combined group will become one of the nation’s largest profit-to-member funds, managing more than $110 billion in retirement savings for over 1.1 million members.
First State Super is one of Australia’s largest industry funds with $91 billion in assets. VicSuper is a $22 billion-strong profit-to-member superannuation fund with over 249,000 members and over 24,000 employers.
A tie-up would see the combined group inching closer to AustralianSuper which has $140 billion of funds under management.
The merger talks come just as Queensland industry fund, Sunsuper completed its merger with rural fund AustSafe Super, creating Queensland’s second-largest non-profit fund with 1.4 million members and $64 billion under management.
At the same time, Statewide Super says it is in advanced merger talks with WA Super and Tasplan.
A wave of consolidation is sweeping the superannuation industry which is expected to see the number of funds in the market halved in under a decade.
This is spurred on by the prudential regulator which is ramping up the pressure on trustees to merge funds. The Productivity Commission has further added to this pressure by quantifying the benefits of consolidation to the sector.
According to Stewart, there are a number of merger conversations taking place in the industry between smaller, medium-sized and large-sized funds.
“There is a sense there are strong dynamics at force and real opportunities and benefits from achieving scale,” she says.
Unsurprisingly, given the focus of both commissions on mergers and members’ interests, Dundon points to the benefits of scale to growing member returns as a key reason to join forces.
“Merging with First State Super would enable us to achieve greater benefits of scale, including access to a broader range of investment opportunities,” he argues.
“There are certainly diversification benefits with scale that would provide opportunities that a smaller fund wouldn’t have.”
For Stewart, the ability to have “meaningful investment” in the direct space is a huge plus.
“A lot of global infrastructure opportunities involve $1 billion deals so the ability to combine forces is another way to provide benefits for members,” she adds.
In her view, initial discussions with VicSuper indicate a strong cultural alignment between the two funds which makes merger discussions far more fruitful.
“We share a lot in common with VicSuper. We both have a member-first culture and a heritage in the public sector. Many of our members work in education, community services and health and we’re both seeing strong private sector growth. Importantly, we believe quality financial advice can help our members make the most of their retirement savings.”