Super’s biggest problem likely lies within funds themselves, with many using legacy operational infrastructure ill-suited to the needs of the major financial organisations they’ve become.
The race to the bottom on low cost, benchmark aware solutions for a post-YFYS world has pretty much been run. But while the perception of value currently sits on price, that might not be where it ends up, according to Fidelity’s Simon Glazier.
YFYS survivors still need to merge: Cole
The great scale debate rages again. Tuesday’s (October 11) hearing of the standing committee on economics – the first under the new government – saw APRA questioned on one of superannuation’s most controversial issues, with teal independent Allegra Spender asking the regulator whether it was concerned about the pace of consolidation in the industry and whether that consolidation could have unforeseen consequences.
“If you look at the landscape of super as it still is, there’s clearly been consolidation over the years and there’s been significant consolidation over the past two years, perhaps driven by the (Your Future Your Super) performance test,” said APRA superannuation chief Margaret Cole (photo at top). “But we still have a very large number of trustees in the industry – 212 in 2013 and we’re down to 160 in 2021.”
“It’s still a large number. We also find that there are a significant number of small funds remaining in this industry that have relatively a small number of members and relatively a small amount of money under management. So I think in terms of ongoing consolidation we don’t feel that there are going to be structural issues or competition issues anytime soon, and I don’t think that is the concern of the regulators.”
APRA believes that funds with more than $50 billion FUM are better placed to deliver “quality, value-for-money member outcomes into the future”. But while the performance test has been the main tool for forcing consolidation in an industry that most dispassionate observers agree is still too fragmented, it’s not the only tool the prudential regulator will use.
“More of a concern really is that we’ve got a focus on consolidation for those that have failed the performance test, and that’s rightly so,” Cole said. “But there is this question of sustainability of others that have passed the performance test for the time being but are, on our observations and calculations… there are some that don’t look like they will have a longer-term sustainable future.
“We encourage those trustees to think about the future – the importance of the future of their members on good governance and good returns in the businesses that they’re trustees of. We will continue, even when they aren’t fails, to nudge some of those that we see probably don’t have sustainability to consider their options for the future and how their members could be better served.”
But Cole said that APRA was not making a submission to the Your Future, Your Super consultation process, given its role was mainly around execution of the reforms, though it would express a view on the “workability” of any changes.
“Certainly the results of the performance test and the implications they have for underperforming funds have driven consolidation and we feel very positively about that, because what it means is that funds are moving to better-performing funds and better-performing funds typically have higher investment returns and lower fees and they’re better off as a result of that consolidation,” Cole said. “To the extent the test has driven that that is a positive thing.”
