Good old Sir Joh Bjelke-Petersen didn't much like the prospect of good Queensland superannuation money being managed by a bunch of southerners back in the 1980s. So, whereas construction workers outside Queensland might typically be a member of the $19 billion C-Bus, in Queensland they are more likely to be members of the much smaller Brisbane-based BussQ.
Despite some consolidation over the past decade, there are still almost 400 industry, corporate, retail and public sector superannuation funds regulated by the Australian Prudential Regulation Authority.
And despite the rapid growth of self-managed super funds, it is in these APRA-regulated funds that the bulk of Australia's $1.4 trillion of superannuation money is held.
The Catholics have got a $4 billion super fund and the Lutherans and the Uniting Church each have (smaller) funds.
The canegrowers and the truckies also have modest funds.
Then there is the troubled Bookmakers Superannuation Fund with total assets of more than $100 million. Investors with the misfortune of having pension funds stuck in its illiquid investment strategy racked up a 29 per cent fall in the value of their investment in the 2012 financial year, on top of a 19 per cent fall in the 2011 finan-
cial year.
The fund's investment manager, Joseph Palmer & Sons, which can trace its history back 140 years, said realisation of mortgage assets in the portfolio remained extremely challenging. "Each property is potentially for sale but the process will take a long time to complete as buyers are scarce," it said.
At its simplest level, superannuation is a tax structure. Increasingly, personal wealth is going to be held through this structure, yet the understanding of it by the public is appalling and too many people in the industry think this is a good thing.
There are about 31.3 million member superannuation accounts. The average balance in a retail account is just $24,500 and the average balance in an industry fund just $21,900 - clearly not enough to retire on.
But industry restructuring is gathering pace.
A recent report suggested that about half the subscale funds are already in talks with rivals about mergers, or developing closer relationships to share management and advisory services.
One sticking point is that the funds often don't like each other and some industries don't like the prospect of having money under the influence of unions.
As is this country's way, no ideal industry structure has been enunciated, but Jeremy Cooper, the author of a key industry report, has noted that any fund with $2 billion or less under management is "clearly" too small. "And even a $20 billion fund, certainly globally, is really just not a player," he said.
The federal government's Stronger Super changes are hastening consolidation, knocking it into a shape that APRA will feel more comfortable regulating.
The Stronger Super changes will promote the automation of the sector's transactions, permit mandatory consolidation of individual accounts, and see the introduction of low-cost MySuper accounts.
The country's biggest industry fund, AustralianSuper, is often heralded as the blueprint for the future of the industry. Last week, AustralianSuper unveiled plans to build an internal management team as its next initiative to reduce costs and boost returns to members.
AustralianSuper is growing rapidly, with $46 billion in funds under management expected to increase to $100 billion by 2016 - the result of employer and member contributions, market returns, and merger activity. But its challenge will be to remain close to its members, despite having about 2 million of them. Some see the likes of AustralianSuper morphing into an AMP or a bank-like institution.
Some in the industry wonder whether a concentrated industry with, say, 10 AustralianSuper-like players is best for Australia's ambition of becoming a hub for financial services in the region.
One issue is that the bigger a fund gets, the more difficult it is to outperform the market - encouraging the fund to invest more money in passive investment strategies.
One thing is certain and that is AustralianSuper is more professionally run than many of the largely unregulated 442,528 self-managed superannuation funds supposedly overseen by the Australian Taxation Office.
But that's another story.
Stewart Oldfield is a research analyst at Investorfirst Securities. soldfield@investorfirst.com.au
Frequently Asked Questions about this Article…
What’s the difference between APRA‑regulated super funds and self‑managed super funds (SMSFs)?
APRA‑regulated funds are industry, corporate, retail and public sector funds overseen by the Australian Prudential Regulation Authority and hold the bulk of Australia’s roughly $1.4 trillion in super. Self‑managed super funds (SMSFs) have grown rapidly—there are about 442,528 SMSFs—and are mainly overseen by the Australian Taxation Office. SMSFs give control to individuals but are less centrally regulated than APRA funds.
How many superannuation funds are there and are many of them very small?
Despite consolidation, there are still almost 400 APRA‑regulated industry, corporate, retail and public sector funds. The industry also has many small, niche funds (for example BussQ or religious funds). Industry reports and experts like Jeremy Cooper have suggested funds with $2 billion or less under management are ‘clearly’ too small, and even $20 billion is limited globally.
What are the average superannuation account balances for everyday Australians?
There are about 31.3 million member superannuation accounts. The average balance in a retail account is around $24,500 and the average in an industry fund is about $21,900—figures the article notes are clearly not enough on their own to retire on for most people.
What are the federal ‘Stronger Super’ changes and how might they affect my super account?
Stronger Super reforms aim to make the sector more efficient and easier to regulate by promoting automation of transactions, allowing mandatory consolidation of individual accounts and introducing low‑cost MySuper default accounts. These changes are accelerating consolidation and are intended to lower costs and simplify accounts for members.
Why are smaller super funds being pushed toward mergers or consolidation?
Smaller or ‘subscale’ funds often lack the size to achieve cost efficiencies, sophisticated management or diversified investments. The article notes about half of subscale funds were reported to be in talks about mergers or sharing management and advisory services. Regulators and industry analysts believe consolidation will make funds easier for APRA to regulate and can reduce costs for members.
What can the troubles of the Bookmakers Superannuation Fund teach everyday investors?
The Bookmakers Superannuation Fund, with just over $100 million in assets, suffered large losses—about a 29% fall in 2012 after a 19% fall in 2011—because its portfolio included illiquid mortgage and property assets that were hard to sell. The example highlights liquidity risk in smaller funds and the danger of concentrated, hard‑to‑exit investments.
Why is AustralianSuper often described as a blueprint for the future of super funds?
AustralianSuper is the country’s biggest industry fund and has been held up as a model because it is growing fast (about $46 billion at the time of the article and expected to reach $100 billion by 2016) and is building internal capabilities to reduce costs and boost member returns. It also faces the challenge of staying close to roughly 2 million members while scaling up.
Will consolidation of super funds be good for everyday investors?
Consolidation can bring benefits like lower costs, simpler accounts (MySuper defaults), and easier regulation, which may help members. But the article also warns of trade‑offs: very large funds can find it harder to outperform the market and may shift toward passive investments, and some worry a concentrated industry could become less competitive or more bank‑like. The net effect depends on how consolidation is managed and how well large funds serve members’ interests.
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