GigSuper, a four-year-old fintech jostling for a foothold in the $3.4 trillion superannuation sector appointed administrators on December 10 last year and informed members on Christmas eve that the fund would likely close by the end of January.
The fintech had a bold ambition to create a new category of superannuation for self-employed Australians.
Co-founder Peter Stanhope feels that regulations introduced over the past few years aimed at encouraging fund consolidation had made it much harder for smaller operations like his aimed at important but niche sectors.
While fund consolidation had been a worthwhile objective for many reasons and suited certain fund types, regulators needed to ensure consolidation objectives weren’t at the “expense of all others”, Stanhope said.
Solutions needed
“ASFA has been calling out for more solutions to help self-employed people since at least 2016, but apart from GigSuper I don’t think there’s been any other significant solutions offered,” he said.
“From talking to other funds, I don’t think it’s a lack of will on their part that has stopped them tackling it, but the pressure to consolidate means there’s very little bandwidth available to tackle… problems [like super for the self-employed].”
GigSuper was co-founded by Peter Stanhope and Martin Batur, who met while working at online stockbroking institution IG Australia.
After the board placed the fund into voluntary administration, a letter to members explained that the decision by Diversa (the trustee of GigSuper) to close the operation followed significant regulatory change introduced by the federal government and regulatory bodies over the past few years.
It read: “These changes have increased the complexity and cost of administering superannuation funds, making it more difficult for superannuation trustees to achieve the best retirement outcomes for members where there is insufficient scale”.
The superannuation funds will be transferred to the Australian Taxation Office, while savings held by members were returned on February 22.
Tight timeframe
The Australian Prudential Regulation Authority (APRA) has been actively pushing for industry consolidation in the superannuation sector, increasing scrutiny of underperforming super funds by publishing the MySuper product heatmap that highlights underperforming funds. It names the poorest performing products, and encouraged some funds to reconsider whether a merger was the best way forward. The regulator says it wants to improve retirement savings for everyone, and shed light on trustees who are failing their members by charging high fees and not delivering good long-run returns.
APRA says: “while the decision to pursue a merger or transfer of trusteeship requires serious consideration and research, and there can be some operational issues to work through, many trustees appear to over-estimate the degree of difficulty and expense involved in the process, and under-estimate the benefits. Moreover, there are important steps all trustees can take now to put them in the best possible position to pursue or accept a merger offer should the need or opportunity arise.”
Others agree that the landscape will hold less funds in the years to come, which means niche funds may ultimately be pushed out.
Indeed, the chair of Togethr Trustees, Andrew Fairley AM has predicted that the Australian landscape is on track to have less than 20 funds remaining within five years as pressure rises on smaller and underperforming funds to exit the industry or merge.
Stanhope said its trustee, Diversa, notified him of its intention to wind up its head fund, the DIY Master Plan, “within a surprisingly short timeframe”, which was “disappointing”.
“The business immediately sought, within a limited timeframe, to find alternative operating models, however wasn’t able to gain sufficient confidence in the viability and likelihood of success of any of these options,” he said.
APRA confirmed that GigSuper was a sub-fund of DIY Master Plan, one of the registrable superannuation entities under the trusteeship of Diversa Trustees Limited, which is the entity that APRA regulates directly.
Difficult problem to tackle
While the issue of super for self-employed people is a difficult problem to tackle, he said: “we were well on the way to solving it and, in the process, building a meaningful superannuation business”.
“So the business being put into administration was no doubt very disappointing for a lot of people, not least of all our staff, our shareholders and suppliers, and lots of other people in the self-employed ecosystem that were all pitching in to help us solve the community’s problem.
“That said, I’m incredibly grateful for the opportunity we were given and for the support of our team and investors. Whilst I know we gave it everything, I’m also sorry we couldn’t make what we were all working towards a reality.
“As a small consolation, with a bit of luck, I’m hopeful that another fund will pick up where we left off and self-employed people will get the super fund that I still believe they need,” he said.
Diversa also folded small superannuation fund Zuper Super a year ago because it was concerned it didn’t have the scale to act in the best interests of its members.
Is bigger always better?
The move raises questions about when it comes to superannuation funds, is bigger really better, and whether or not small funds have the capacity to act in the best interests of its members. And does the current regulatory environment make it too challenging for fintechs and newcomers to serve a niche sector of the superannuation market?
FinTech Australia (an advocacy body for the industry) CEO Andrew Porter said tightening regulations may seem like the obvious move in response to a collapse, but he warned it would also potentially halt other innovations in the industry. “It’s a balancing act,” he said.
“Given the sector as a whole is performing well, and providing positive consumer and investor outcomes, we’d say the balance is right at the moment from a regulatory perspective.
“Fintech drives competition and choice in our financial services sector, which benefits all consumers. It’s also driving foreign investment into Australia too.”
Porter acknowledged that there’s an extra level of complexity with collapses for a financial services business.
“But perhaps more can be done from an industry support perspective to ensure in such a situation that founders work in the best interest of their customers and investors,” he said.
“This in turn protects their reputation too. Failure is a hard topic to broach with all startups. In most instances, there is a way to fail that doesn’t devastate those involved, and ensuring founders are equipped to manage this delicate process in such a way should be our focus,” Porter added.
Sizing up the market
But the fact is that a gap in the market remains. According to GigSuper data, there are 2.2 million self-employed people in Australia, with folk starting their own businesses at a two-decade high. That could feed a sizeable super fund.
And the number of gig economy workers in Australia is likely to increase rapidly over coming years from the current 150,000 workers (who use web-based platforms to obtain work on a regular basis). Most new gig workers will be self-employed contractors.
ASFA acknowledges that the issue of inadequate retirement savings of the self-employed will become increasingly important with the rise of the gig economy. On average, self-employed Australians retire with 50 per cent less in super, while as many as one in five could retire with no super at all.
