Industry consolidation, rapid system growth, downward trending expense ratios and changed cashflow and rollover dynamics across funds are all combining to create a more complex operating environment – a report from APRA published on Thursday says that funds facing into multiple challenges must think carefully about their future.  

“Some super trustees face multiple challenges, not just in relation to matters that affect all super trustees, but specific to their own circumstances,” said APRA deputy chair Margaret Cole in a statement accompanying the report, Delivering member outcomes into the future. 

“They must have credible strategic plans to face and address the challenges in the best interests of members. Consistent with APRA’s approach over many years, such trustees can expect ongoing engagement from APRA to ensure credible strategic plans are in place and that long-term outcomes for member are firmly front of mind.” 

Of particular concern to the prudential regulator are four funds facing an “especially challenging outlook” due to weaker operational efficiency and a declining membership base, with APRA saying they “often do not appear to be in a position” to improve their outlook.  

“These funds tend to have higher fees relative to peers, which can affect their competitiveness and member retention,” the report said. “On this basis, the ability of these trustees to improve member outcomes over the medium to long term is a particular focus of APRA.” 

That’s because, according to their ability to make meaningful change without impacting their members in the short to medium term might be hindered by the challenges they face. The cost of undertaking an initiative to improve organic growth might be shouldered by existing members, placing pressure on them and the fund’s operational efficiency – especially when that member base is already declining.  

“APRA expects these trustees to develop credible strategic plans that provide clear evidence of their ability to improve member outcomes over the medium to long term,” the report said.  

“APRA further expects these trustees to demonstrate progress against such plans. Where trustees are unable to develop or execute on credible strategic plans, trustees should consider, in line with SPS 515, whether their members are likely to be better served in another fund given the challenges they face. 

“APRA will continue to maintain a heightened supervisory stance to ensure they are planning and implementing timely and credible actions to improve member outcomes.” 

APRA estimates that over the last five years, the market share of the 15 largest funds has increased from 69 per cent to 78 per cent – mostly driven by the largest funds – challenging the ability of other funds to grow their membership base and driving further consolidation activity. 

The introduction of stapling has also contributed to significant reductions in member account growth across approximately half the industry, while an increasingly complex operating environment, where funds must continually invest in updating their capabilities, is likely to have less of an impact on those with more members to spread their costs across. The report also notes that larger funds are now leading on administration internalisation, which has been a significant boon for those funds trying to improve their member services offering.  

“It is imperative that trustees continue to focus on fund performance, operational efficiency and improving services to members, while also investing in good risk management,” the APRA said.