What we have seen: Transformation in the superannuation industry
Since 2011 the superannuation industry has experienced large scale merger announcements across all sectors of the industry. The average consolidation transaction size has been steadily increasing over the past five years – from both a Successor / Receiving fund and Transferring fund perspective.
Following the activity of 2019 – 2020, characterised by mega, like-for-like, fund merger announcements, 2021 has seen a greater number of smaller funds consolidate into Australia’s largest incumbent superannuation funds.
Increased visibility of fund and product performance as a result of APRA’s MySuper Product heatmap (first published December 2019), the Annual Performance Test outcomes and other elements of the Your Future, Your Super legislation, has necessitated action from funds and encouraged the pursuit continuous improvement, and further consolidation across the industry.
What we expect: Superannuation industry trends
Consolidation activity to continue – This is most evident with small and medium funds partnering with large and mega funds over the coming years.
Fewer mega fund merger announcements – Following realisation from Boards and Management of the significant transition planning and integration activity required in order to complete a merger transaction.
Mega funds will look to execute simpler transactions – As “bus stop” transactions are deemed far less likely to deliver sustainable medium- and long-term benefits, larger super funds are more likely to consolidate smaller parties into their existing structures with minimal concession, when compared with consolidation with another major fund yet still seeking to deliver on the promises of increased scale for members.
Reflections across the superannuation sector
Ongoing merger activity is a dominant theme impacting the superannuation industry resulting in material transformation across the sector. This is evident by large change programs being undertaken across the profit-for-member, public sector and retail funds. Indeed, much recent commentary, including our own, has focused on the drivers and key challenges many funds are facing into.
For the Superannuation Transformation & Consolidation Report in 2021, we have taken a fresh perspective on merger activity, learning directly from engagements across all superannuation industry stakeholders, including funds, administrators, insurers, investment custodians and members to provide insights into:
- Sentiment regarding fund consolidation
- The importance of transaction readiness
- Drivers of successful transaction execution
- Challenges associated with consolidation
- Members’ perception of consolidation outcomes
Industry stakeholders insights
What it takes to deliver a merger or SFT
Seven funds between $0.9bn–$182bn assets under management
- Starting with the end in mind
- Importance of effective change management
- Balancing the transactions and the core business
- Developing realistic transaction timelines
Navigating a challenging consolidation landscape
Administrators, insurers, investment custodians, and legal and professional service firms
- Alignment with clearly defines strategic intent
- Understanding and navigating transaction complexity
- Planning through integration
impacts for members
~500 participants with active superannuation and/or account based pension funds
- Awareness and impact of members communication
- Member cohort engagement
- Merger impact on member satisfaction
Further insights from superannuation funds
Potential mergers must meet members’ best interests: Assess the merits of a merger through the lens of the fund’s strategic and business plans and whether Members Best Interests objectives will be met
Ensure financial benefits are clear: Develop a merger business case framework that allows you early visibility regarding potential financial and strategic benefits arising from a merger transaction
Assess potential partners: Develop partner selection frameworks and assessment criteria to identify potential roadblocks as early as possible
Define governance structures: Implement clearly defined governance frameworks to support efficient and appropriate decision making
Assess internal fund capabilities: Review existing internal capabilities, key resources and identify potential capability gaps
Further insights from service providers
Engage partners early: Engage partners early in the transaction to identify areas of complexity and to enable improved sequencing of support activities
Align stakeholders: Align all stakeholders on strategic imperatives
Effective transaction governance: To help create well defined decision-making frameworks and improve efficiency
Work with providers to identify complexity: Collaborate to identify areas of potential transactional complexity during due diligence
Implementation roadmap is key: Define upfront the implementation roadmap for the end state target operating model
Further insights from fund members
Frequent communication required: Transaction awareness remains low, but is positively impacted by frequent communication
Member awareness linked to outlook: Transaction aware members are also typically the most positive towards merger activity
Improved member satisfaction: Merged funds likely to see small increases in member satisfaction