No superannuation fund merger or successor fund transfer ever goes exactly according to plan  but few have run off the rails quite as abruptly or unexpectedly as the planned merger of TelstraSuper and Equip Super.

The TelstraSuper board announced on Wednesday it had walked away from a merger with Equip, citing unspecified objectives that it now believes cannot be achieved in members’ best financial interests.

A statement from Equip Super yesterday made it clear that the decision to terminate the merger was TelstraSuper’s. Equip chair Michael Cameron said the Equip board was “disappointed that TelstraSuper’s board has taken this decision”.

“Over the past 10 years we have grown significantly through a number of successful mergers, including with Catholic Super and with the Rio Tinto, BOC Gases and Toyota corporate funds.”

Cameron noted that Equip’s “current scale enables us to maintain our primary focus which will always be delivering the best possible retirement outcomes for our members”.

The merger SFT was not expected to be executed until late this year, and the operations of the funds integrated and bedded down a year after that. Notwithstanding Cameron’s optimism, both funds now face the prospect of continuing to operate as separate, potentially sub-scale entities, and their future directions are unclear. And they’re back on the market when the pool of potential alternative suitors has been whittled down by successful mergers elsewhere.

Analysis by The Conexus Institute* based on published APRA data suggests both TelstraSuper and Equip experienced competitive outflows – the net outcome of rollover activity as members switch between funds – of 1.2 per cent of AUM and 2 per cent of AUM, respectively, in the year ended 30 June 2024.

TelstraSuper experienced a natural outflow – essentially, contributions less benefit payments – of 0.7 per cent of AUM for the year, and Equip a modest inflow of 0.2 per cent of AUM. Overall, the funds experienced respective total outflows of 1.9 per cent of AUM and 1.2 per cent of AUM.

The Institute’s State of Super 2025 Report said completing a merger would be “transformational for the scale of the joint entity”.

The pair announced merger plans in September last year when TelstraSuper said the “signing of a non-binding memorandum of understanding and due diligence process confirmed the merger is expected to be in the best financial interests of members of each fund”.

By December they had signed a binding heads of agreement. But in the less than six months since then, the TelstraSuper board has either uncovered something that thoroughly spooked it or found that its due diligence was lacking in the first instance.

The failure of the merger also raises questions about motivations – whether it was ever genuinely likely to be in members’ best financial interests, or whether there were more trustee- and board-centric reasons for it.

“As the merger process has progressed, and particularly in the period since the binding agreement was signed, it has become evident that TelstraSuper is unlikely to achieve our objectives for the merger, in the best financial interests of the fund’s members,” the TelstraSuper board said in a statement.

“As a result, the board has made the decision to bring planning of a proposed merger to a close. The board believes this is the right outcome for members.

“The TelstraSuper board continues to review the strategic direction of the fund and options that are in members’ best financial interests over the longer term.”

TelstraSuper declined to comment further on any aspect of the merger or its disintegration, leaving its own 85,000 members and the 140,000 members of Equip in the dark as to why merger benefits it had identified with such clarity and in such detail a mere six months ago are suddenly deemed unachievable.

The original plan was to create an entity with $60 billion of assets under management and 225,000 members, with clear benefits set out for the expanded membership.

The TelstraSuper board said it would have “combined strengths in member and employer servicing, retirement planning, investments and tailored corporate arrangements (including management of defined benefit plans), and retain strong connections to its heritage industries and connected communities”.

It also cited “significant scale benefits” and “improved retirement outcomes” to the members of each fund. It even got as far as quantifying post-merger reductions in administration fees (to 0.15 per cent a year) and a reduction in an administration fee cap (to $750 a year).

“The merged entity will leverage TelstraSuper’s operational capability and digital experience to service and support members,” it said.

It now seems that these benefits were illusory.

By December 2, even the board structure had been thrashed out. The merged entity would have an equal number of TelstraSuper and Equip Super directors; the equal representation structure would be retained; and TelstraSuper said the new board would have “the expertise and experience required to take the merged fund forward”.

It was planned for Equip Super chair Michael Cameron to chair the new board, with TelstraSuper chair Anne-Marie O’Loghlin as deputy. TelstraSuper chief executive officer Chris Davies was to be CEO of the new entity, with Equip CEO Scott Cameron as Davies’ deputy and focused on merger integration. TelstraSuper has also recently transitioned its custody from J.P. Morgan – its contract with the bank was due to expire in 2025, which formed part of its motivation for a merger – to Northern Trust, Equip’s provider.

TelstraSuper’s chief investment officer of nine years Graeme Miller left the fund for Mercer, but that was announced in February, a full three months ago. In a planned succession Kate Misic was appointed interim and then acting CIO while the merger progressed.

The merger partners clearly identified the supposedly substantial benefits that they expected to deliver to members, which for reasons they decline to divulge are now not possible.

Those members have been offered a vision of a brighter future, and will rightly be confusedabout what TelstraSuper discovered that they probably should be told about, and how such a positive outlook could suddenly evaporate.

* The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, publisher of Investment Magazine.