Although COVID-19 monopolised our collective attention in 2020, the superannuation industry continued to experience plenty of active merger activity, as it has over the last few years.
The merger trend is giving rise to the further formation of mega funds (greater than $100 billion) with 5 major merger announcements in 2019/20 having an average transferring fund Funds Under Management (FUM) of $22.7 billion and receiving fund FUM of $45.0 billion. 7 further mergers have been announced since 30 June 2020.
On completion of the current merger activity, based on 30 June 2020 data, 76 percent of Assets Under Management (AUM) and 77 percent of member accounts will be managed by the top 12 funds, all with AUM greater than $50 billion.
Whilst the long-term consequences of COVID-19 on the economy and industry are yet to be fully realised, it comes as no surprise that the early release measures introduced to support people has had an impact. Now complete, the scheme contributed (with Protecting Your Super transfers) to a 12 percent reduction in number of member accounts as well as no growth of AUM for the sector over 2019/20.
The KPMG Super Insights Dashboard which was developed by our data and analytics team, presents analysis based on a combination of leading analytics applied to 16 years of APRA and ATO-published statistics, supported by insights from our asset and wealth management specialists.
|From our discussions with superannuation funds, KPMG believes the following areas will be among the key focal points in 2021.|
We see maturing regulatory & government settings, business model sustainability, separation and integration, globalisation, and rising member expectations as key drivers of change for superannuation fund mergers and business model transformation. The pace of change – with continuing fund consolidation and retail fund transformation – continues to grow.
Governance, risk and controls during a merger transition
Trustee directors and fund executives need to actively manage the risks associated with fund mergers. We describe the good governance activities that should be conducted pre and post-merger, as well as during the merger.
Member Centric Operating Models
Funds have a broad array of areas to consider when developing their future operating models, from regulatory changes to digital experience for members and opportunities to leverage automation, as well as the role of the trustee. We explore areas that, if purposely adopted as a Member Centric Operating Model, can better meet increasing member expectations and the evolving needs of their member base.
Retirement – how to move forward
The need for development in the retirement space is well recognised, with the government announcing a string of measures to encourage activity. However, the industry has struggled to respond with any major change. We consider the reasons why, as well as look at how funds can move forward in this space.
Insurance in super
Insurance in super continues to be subject to impactful regulatory change. Uplifts to data and reporting as part of APRA’s broader Superannuation Data Transformation project – particularly new reporting standard SRS251 – will provide significant benefits to funds once initial challenges are overcome.
A climate of risk and opportunity
A recent case has highlighted legal exposure in relation to how trustees manage climate related risks. We contemplate developments that are driving the 'act now' expectations of the community and regulators as well as the difficulties faced by trustees in operationalising climate related risks.
Several elements of regulatory change are due for implementation in 2021 – key recommendations from the Financial Services Royal Commission, the new Design & Distribution Obligations, the Your Future, Your Super reforms, the uplift in reporting under APRA’s Superannuation Data Transformation project and the changes under RG97.
Risk and regulation
We see no reprieve for Chief Risk and Compliance Officers in 2021 as the push to lift governance, culture, remuneration and accountability standards across the industry continues.
There were a number of challenges for many funds and providers completing the first iteration of the member outcomes framework. We’ve summarised these challenges and considered what’s next as funds embark on the next round of the requirements.
General v personal advice – where to draw the line
The High Court decision in Westpac/BT and the new anti-hawking laws will impact member acquisition, engagement and retention strategies. Trustees should revisit their interactive contact points with new and existing members across all channels against these new developments in the law.
Data Protection & Privacy
The use of third-party arrangements gives rise to additional challenges for superannuation funds in an environment highly regulated for privacy. We outline key areas for considerations by funds when managing members’ personal information.
Eighty two of largest superannuation funds have now been issued Streamlined Assurance Reports (STARs) by the ATO, allowing us to understand common areas that received lower assurance ratings. We also discuss tax governance and risk management, tax issues flagged to market and technology: data and automation.
Technology plays an important role in how funds respond to change. More now than ever, technology executives are facing key questions on their ability to respond and we are seeing increasing efforts and investment in digital and data capabilities across a range of areas.