Funds face a major retirement income challenge.

While Commonwealth Superannuation Corporation (CSC) is Australia’s largest pension fund, platforms have the largest proportion of their members in retirement. This creates an interesting dynamic around who will be the leader in the retirement segment. Here, we focus on members in retirement and put aside accumulation.

Applying APRA’s data and understanding inflow

Like other recent articles (scale, inflows, and super fund landscape) based off APRA’s annual fund-level data set (which relates to FY 2022), we aggregated offerings and accounted for announced mergers. We use information about assets and accounts in the tax-free phase as our measure of members in retirement.

This potentially understates the true number of retirees, some of whom may not have transitioned their assets across from accumulation to drawdown. We also analyse data on benefit payments to members. This helps to corroborate our findings based on tax-free phase account data.

Retirement accounts, assets and benefit payments

Just 6.3 per cent of members (just under 1.4 million) are in the retirement phase but, illustrating the power of ongoing contributions and compounding investment performance, this represents nearly half a trillion dollars, or 22.3 per cent of industry assets.

The seven largest funds, in terms of accounts, make up about 71 per cent of all industry retirement accounts.

Note that the BT Super data does not account for the transition of accounts across to Mercer Super.

When it comes to assets in retirement accounts the deck chairs shuffle slightly. Unfortunately the data does not allow us to accurately adjust CSC’s assets (regulatory reporting requires them to report defined benefit liabilities as assets). Six funds have retirement assets in excess of $30 billion. Put another way, if these retirement assets were treated as separate funds, each ‘new’ fund would exceed APRA’s indicated sustainable scale figure.

Last year over $33 billion in pension payments were paid out by APRA-regulated super funds. Nine funds account for nearly 80 per cent of these payments. Here the position of CSC as Australia’s largest pension fund, underpinned by the management of a sizable defined benefit book, becomes clearer.

Retirement and fund operating models

For some funds, pension-phase members make up a small component of their membership while, for other funds the share is large. This has consequences for the development of retirement income strategies. The best retirement income strategies will consist of high quality product-based solutions combined with a level of service which can result in an outcome tailored to the member’s circumstance. The business case aspect is critical (a highlighted by former Unisuper CEO Kevin O’Sullivan and invariably involves a degree of cross-subsidisation.

For those funds with a small proportion of pension assets the cross-subsidisation challenge is more confronting. Those funds with a high proportion of pension assets face an easier decision. Further, they have the opportunity to develop a leadership position should the retirement segment evolve into a competitive sector with a high levels of consumer choice.

There exists significant dispersion amongst funds based on pension proportions of membership.

Top ten super funds based on pension asset proportion (note this excludes CSC due to data constraints):

Pension asset proportion
Encircle Super 64.2 per cent
Perpetual 51.4 per cent
Fiducian 51.1 per cent
ClearView 50.4 per cent
Macquarie 47.8 per cent
Oasis 45.3 per cent
Netwealth 41.1 per cent
CFS 40.8 per cent
Praemium 40.1 per cent
HUB24 34.2 per cent

Some of the names in this list may look unfamiliar All these groups are platforms and are generally used by financial advisers to provide tailored portfolio solutions for their clients. For these groups it is likely important that they continue to develop a high quality retirement offering with products, tools and functionality which are valuable to advisers. An interesting reflection is how well these platform-based services can directly attract members, particularly important given shrinking adviser numbers.

Bottom ten super funds based on pension asset proportion (note this excludes CSC due to data constraints):

Pension asset proportion
Qantas Super 5.9 per cent
Australian Ethical 5.7 per cent
ANZ Staff Super 5.7 per cent
AMIST 4.7 per cent
Smart Future 3.9 per cent
OneSuper 3.5 per cent
Rei Super 2.7 per cent
Future Super 2.0 per cent
Tidswell 1.6 per cent
Guild 0.6 per cent

Most of these funds have a young demographic created through the nature of their workforce or their segment-based marketing strategies. For these funds the business case for significant investment into their retirement income strategies is more challenged.

 David Bell is executive director at The Conexus Institute.

Join the discussion