Super squeeze as big funds get bigger

·2-min read

Australia's 10 biggest superannuation funds will hold an estimated 80 per cent of the market within four years, with a wave of mergers expected to dramatically affect competition.

A major benchmarking report released by financial research provider, Rainmaker Information, shows the number of Australian funds is contracting at its fastest rate in a decade.

The researcher notes mergers were put on the national agenda in 2019, with the Productivity Commission delivering a landmark report into competition and efficiency.

However it says this simply sped up what was already happening.

The number of superannuation funds nationwide has halved from 389 to 179 since 2010, the biggest consolidation affecting the number of smaller funds.

Those with less than $1 billion under management have shrunk 70 per cent, from 176 to 52.

The number of boutique funds with $5 to $10 billion worth of funds have also fallen from 72 to 36, while larger and mid-sized funds of $20 to $30 billion have increased from 16 to 19.

However those with more than $50 billion worth of funds have expanded from two to 18 and those larger than $100 billion have tripled over the past decade.

Recent "stapling" reforms to make it easier for employees to remain in funds, along with the expected impact of a fund performance test administered by regulator APRA, is likely to speed up the pace of mergers, according to Rainmaker research and compliance boss Alex Dunnin.

"Regulators and political leaders are continuing to pressure super funds to merge, particularly those lacking scale or showing persistent underperformance," he said.

"This super fund consolidation is leading to a massive increase in market concentration."

This could "profoundly change Australia's capital markets," Mr Dunnin said.

"Super funds are getting bigger and they are able to achieve significant scale.

"They are able to service more clients at a lower cost which also brings down the cost for members."

Rainmaker's long-term research has found mergers cut fees by an average of almost 20 per cent.

Most that have occurred recently are from the not-for-profit sector.

It's anticipated Australia's five biggest funds by 2025 will be AustralianSuper, Qsuper/Sunsuper, Aware Super, UniSuper and Hostplus.

While retail groups like AMP and BT will remain large players, they aren't growing at the same rate.

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