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Superannuation is now very much super-sized.
At September 2019 there was $2.9 trillion invested in super, up 7.1% in just 12 months. That’s significantly more than the $1.9 trillion combined value of all the stocks on the ASX. And with 9.5% of everyone’s wages being added each year, Australia’s superannuation system is only going to get bigger.
There are also a lot of super funds. At 30 September 2019 there were 187 funds regulated by APRA, although this number is predicted to fall significantly as the industry consolidates.
The 2018 Productivity Commission inquiry into superannuation, and the banking Royal Commission that followed, put the spotlight on underperforming funds. As a result, APRA has published its first ‘heatmap’ of fund performance and warned it’s prepared to put pressure on poor performers to merge or exit the industry.
Another consequence of the Royal Commission has been an outflow of members and their money from the retail superannuation sector to the not-for-profit sectors. This trend is highlighted in the latest list of 20 largest super funds.
All five funds to lift their ranking in the 12 months to 30 June 2019 were not-for-profit industry or public sector funds. Of the seven funds that dropped in the rankings, six were retail funds. The only public sector fund to lose ground has stopped accepting members.
The top 20 funds with the biggest inflow of members were Sunsuper (up 10%), and FirstState Super and HOSTPLUS both with an increase of 9%.
Australian Super remains the biggest fund, with assets worth $172.4 billion as at 30 June 2019, up 18.8% in a year.
The Productivity Commission ran an inquiry into superannuation in 2018 and found that it can pay to be with one of the larger funds:
Evidence of economies of scale is compelling – larger fund size is strongly associated with lower average costs in the Australian superannuation system… Significant unrealised economies of scale remain. For example, annual cost savings of at least $1.8 billion could be realised if the 50 highest cost funds merged with the 10 lowest cost funds. The presence of these potential gains, particularly from further consolidation, reflects a lack of effective competition in the system.
Productivity Commission
So, collectively, Australians would be paying less fees if there were fewer, larger funds. But does that mean larger funds have delivered better performance and lower fees?
Scale benefits also manifest through increasing returns to scale. Net returns are positively related to size for not-for-profit funds. (No corresponding correlation was found for retail funds.) Stronger net returns among larger not-for-profit funds might be due to higher exposure to unlisted asset classes, but data limitations rule out strong conclusions. Larger funds do appear, however, to make better investment decisions within asset classes.
There is little evidence that realised economies of scale have systematically been passed through to members in the form of lower fees. Scale benefits may have been passed through in the form of member services or increases in reserves or offset by the costs of meeting new regulatory requirements. And not for profit funds, on average, might have passed through some scale economies by investing more heavily in (higher cost) unlisted assets and obtaining higher returns. Data limitations preclude firm conclusions about the form of pass through of economies of scale, and thus how members are actually benefitting and whether they are benefitting in a form they value.
Productivity Commission
Whatever your objectives, it pays to at least be aware of who the largest funds are as a point of reference when benchmarking your own fund.
In the following table you can find the 20 largest super funds, ranked according to the value of total assets under management as at 30 June 2019.
| Rank | Fund name | Total assets ($ billion) | Total number of member accounts | Average member account balance | Growth in number of member accounts | Fund type | RSE Regulatory classification |
|---|---|---|---|---|---|---|---|
| 1 | AustralianSuper | 172.4 | 2,155,463 | $77,000 | -3% | Industry | Public offer |
| 2 | QSuper | 115.3 | 588,434 | $177,000 | 1% | Public Sector | Public offer |
| 3 | First State Superannuation Scheme | 103.1 | 861,118 | $112,000 | 9% | Public Sector | Public offer |
| 4 | Public Sector Superannuation Scheme | 83.3 | 223,147 | N/A | -1% | Public Sector | Non public offer |
| 5 | Unisuper | 83.2 | 474,772 | $153,000 | 7% | Industry | Non public offer |
| 6 | MLC Super Fund | 82.0 | 1,180,621 | $68,000 | 1% | Retail | Public offer |
| 7 | Colonial First State FirstChoice Superannuation Trust | 80.3 | 720,423 | $111,000 | -7% | Retail | Public offer |
| 8 | Sunsuper Superannuation Fund | 72.6 | 1,613,865 | $41,000 | 10% | Industry | Public offer |
| 9 | Retirement Wrap (run by BT) | 69.9 | 811,389 | $86,000 | 3% | Retail | Public offer |
| 10 | CSS Fund | 64.1 | 111,894 | N/A | -3% | Public Sector | Non public offer |
| 11 | Retail Employees Superannuation Trust (REST) | 58.2 | 2,026,582 | $27,000 | 1% | Industry | Public offer |
| 12 | AMP Superannuation Savings Trust | 55.5 | 1,501,221 | $37,000 | -9% | Retail | Public offer |
| 13 | Military Superannuation & Benefits Fund No 1 | 54.7 | 179,862 | N/A | 0% | Public Sector | Non public offer |
| 14 | Health Employees Superannuation Trust Australia (HESTA) | 53.8 | 858,438 | $60,000 | -2% | Industry | Public offer |
| 15 | Construction & Building Unions Superannuation (CBUS) | 53.2 | 766,494 | $67,000 | -2% | Industry | Public offer |
| 16 | Hostplus Superannuation Fund | 46.0 | 1,193,243 | $37,000 | 9% | Industry | Public offer |
| 17 | Wealth Personal Superannuation and Pension Fund (run by AMP) | 45.4 | 307,147 | $147,000 | 6% | Retail | Public offer |
| 18 | Retirement Portfolio Service (run by OnePath) | 39.4 | 919,797 | $42,000 | 17180% | Retail | Public offer |
| 19 | IOOF Portfolio Service Superannuation Fund | 29.7 | 301,878 | $97,000 | -6% | Retail | Public offer |
| 20 | Mercer Super Trust | 25.4 | 249,056 | $99,000 | 1% | Retail | Public offer |
Source: APRA
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