Source : THE AGE NEWS
Superannuation funds will need to keep getting bigger through mergers, says KPMG, as the $4.2 trillion sector tackles rising costs, and a run of high-profile incidents revealed gaps in the services provided to members.
While Australia’s super funds continue to grow, and latest fund returns have been solid, the past year has been a rocky one for the sector. Some notable funds were rocked by landmark court cases from the corporate watchdog and five came under major cyberattacks.
KPMG’s head of asset and wealth management, Linda Elkins.
In November, the Australian Securities and Investments Commission launched court proceedings against Cbus Super for delays in failing to process death and disability insurance claims, which cost their members $20 million.
Then in March, ASIC released a damning report on industry-wide failures to process death and disability benefit claims after it sued AustralianSuper for failing to process close to 7000 death insurance claims earlier the same month.
The challenging year for the industry continued in April when thousands of Australians’ accounts were accessed in a cyberattack on five super funds. Four customers of AustralianSuper lost a combined total of $500,000.
In a report published on Tuesday, KPMG says meeting the growing expectations of customer service from members would be a key focus for funds, while they also grappled with higher operating costs. The KPMG report, which analysed data from the Australian Prudential Regulation Authority, shows per-member operating costs across the industry increased from $230 to $237 in the 2023-24 financial year.
Head of asset and wealth management at KPMG, Linda Elkins, said that with costs creeping up, super funds needed to manage their spending while continuing to improve customer experience and mitigating risks like cyberattacks.
Super funds have been consolidating through a series of mergers in recent years, and Elkins said one way for funds to deal with the extra costs was by joining forces.
“The challenge to meet stakeholder expectations is increasing. On the one hand, the industry continues to pursue a consolidation agenda with the promise to deliver scale efficiencies, and on the other, we are witnessing increasing expectations on strengthening administration and service arrangements,” Elkins said.
“Cost management will be key to managing sustainability challenges that are being faced throughout the industry. Considering how costs are managed ongoing is becoming increasingly important for super funds.”
Australia’s super assets grew from $3.5 trillion to $3.9 trillion in the year to June, and figures from APRA show the sector’s assets hit $4.2 trillion at the end of December.
The report showed not-for-profit industry funds expanded their share of the super pool in 2023-24, from 38.2 to 40 per cent, while industry funds’ share has swelled by about 10 percentage points in the past five years.
Another key trend in super has been the rise of “mega funds” (funds sized over $100 billion) – partly due to a spate of mergers.
The KPMG report highlighted the addition of Hostplus to the now eight-strong group of mega funds after reaching $115 billion in assets under management. Without making predictions for whether there will be more mega funds, Elkins said it was possible, especially with more mergers of mid-sized funds.
“It’s the sort of movement you see in a more mature market as entities really think about their strategic intent and how they will best pursue that for their members.”
The eight mega funds are comprised of four industry funds, one public sector fund and three retail funds. A further six funds are sized between $50 billion and $100 billion, which was the same in the 2022-23 financial year, and there are twice the number of funds since the 2022-23 financial year that are now sized between $25 billion and $50 billion.
The merger between CareSuper and Spirit Super was the largest transaction last financial year, with the combined CareSuper having had a more than 150 per cent growth rate for assets under management and for members. It now has 590,000 members.
