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A notification that your super fund is about to merge with another may come as a surprise to members whose fund has performed consistently well for many years.
Some people have a strong connection with their fund through its association with the business sector in which they work, so the idea of merging with a fund in an entirely different sector can be puzzling, even confronting.
Why are funds merging?
The external influences and pressures on funds to merge is introducing a new level of pragmatism on the trustee boards responsible for these funds. While their heritage might be rooted in industrial negotiations and agreements, they recognise that this connection will be less important in future. Instead, funds realise their future will be sustained on delivering optimal retirement benefits to members at minimum cost.
The Your Future, Your Super (YFYS) legislation has undoubtedly added impetus to the merger trend. New regulations require funds failing to meet APRA’s performance tests to report their underperformance to members, while persistent underperformance will prevent them from signing new members. Industry analysts and commentators agree that, in the future, the industry will be dominated by between six and a dozen big-brand mega-funds, which will vacuum up the vast majority of new entrants to the workforce.
Which super funds have merged or are due to merge?
The status of mergers and acquisitions listed below is based on the best publicly available information.
|Completed mergers with or acquired
|Under discussion or in progress
|Australian Retirement Trust
Incitec Pivot Employees Superannuation Fund (IPE Super)
Australia Post Superannuation Scheme (APSS)
Woolworths and Endeavour Group Super
Commonwealth Bank Group Super
Oracle Superannuation Fund
|First State Super
Holden Employees Superannuation Fund (HESF)
|ING Living Super
|Australian Catholic Super
In addition to these mergers, a number of other corporations have rolled their super funds into industry and retail funds, as corporate superannuation trustees recognise that increasing regulation and fund complexity makes running funds exclusively for their own enterprises unviable.
Recognising the inevitably of industry consolidation over the next decade, when members receive the notification that their fund will merge their primary response should be less ‘why?‘ and more ‘what’s in this for me?’
What should members watch out for?
According to recent research from Investment Trends, 27% of members see the merger of their fund with a larger one as positive, with 11% negative. While the latter remains unchanged, positive sentiment declines to 21% if their fund is to merge with a smaller fund.
So let’s break it down into a the things that matter:
Industry analysts who compare funds rightly say that ensuring you are paying low fees is one of the few controls you have over maximising returns on your super investments. Basically, the less you pay, the more you leave for your retirement.
The principal reason for fund mergers is the cost benefit of scale, which should pass through to members. The evidence suggesting that members do benefit from scale is quite robust and consistent.
Calculations by independent industry analysts at Rainmaker Information showed that super fund mergers that took place over the three years to 2020 resulted in overall annual fee reductions for members of around 0.32 basis points per annum, or around 30% if you consider that a competitively priced fund will charge fees of under 1% (100 basis points) per year.
As the biggest component of fees for the typical member is calculated based on account balance (asset-based fees), the biggest benefit from these fee reductions is to members with higher account balances, but there are usually savings over time for members with low balances.
Super Consumers Australia calculated an average fee reduction of 13.4% for fund mergers undertaken from 2018 to 2020 – amounting to nearly $15,000 of savings over a member’s time in super.
By far the greatest influence on retirement benefits is a fund’s long-term investment performance. When funds merge, a number of things happen but most relevant to you are:
- Which investment options will be retained in the merged entity (for the majority of people, the MySuper default option is the most critical)
- Into which investment option will you be transferred if the one in which you’re currently invested no longer exists?
Once your fund has informed you of this, you can compare investment performance, the fees charged (usually a percentage of your account balance per year) and the risk rating for the option. This is determined by the percentage of growth and defensive assets your money is invested in.
One of the more complex areas for mergers is death and total and permanent disability (TPD) insurance. Having ticked the boxes on fees and investments, members should take note of any tweaks to insurance cover and premiums.
Adding to the complexity have been recent legislative changes to insurance through super. Without going into the details of those, it has resulted in increased premiums for some funds.
Occasionally, funds can minimise premium increases by adjusting the terms and conditions for cover. The areas up for negotiation are definitions and therefore eligibility for disability claims, caps on cover, waiting periods for claims payments, cover while working overseas and so on. In mergers, trustees recognise that there should be minimal or no detriment for members and often make arrangements for the existing policy to transfer to the new trustee.
4. Services and advice
Other factors can influence your perception of whether the merged fund looks right for you. These may include access to financial advice, quality of service, the effectiveness of fund communications, technology and even identification with your fund’s brand. Often, their importance is unknown and can only be confirmed after the merger.
The Investment Trends research suggests that there is a strong identification with brand among a significant 18% of members, who oppose changes of name and logo.
“Those who oppose a brand change most often believe the existing brand already represents their member base well and see a refresh as a waste of resources. To limit member attrition, super funds must ensure some semblance of their current identity and values is retained before rebranding to appeal to a wider member base,” said Investment Trends Senior Analyst, Bailey Hao.
Some smaller funds claim that more intangible benefits, such as proximity and engagement with members and employers, justify remaining small. For these funds, success is more about value to members than absolute fee competitiveness. They argue they can achieve economies of scale by partnering with key service providers, like member administration platforms.
This position will be tested in future as the industry regulator, APRA, applies various performance measures to determine whether funds are achieving optimal financial outcomes for members. While debate will continue about the validity of its performance assessment, its overall impact will be to add enforcement to oversight in industry regulation, providing impetus towards APRA’s goal of greater industry consolidation and mergers.
Super fund trustees are legally bound to ensure that mergers are in the best interests of their members and the evidence suggests they are diligent in this.
Super Consumers Australia Director, Xavier O’Halloran says: “It’s not a cause for alarm if your super fund merges – in fact, you might be better off.”
When it comes to ensuring your financial security and retirement outlook will be enhanced by a fund merger, the best advice is to be guided by the numbers. If your fund trustees are doing their job, the answer should be yes.