KPMG predicts quicker pace of super fund mergers - KPMG Australia
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KPMG predicts quicker pace of super fund mergers

KPMG predicts quicker pace of super fund mergers

Increasing regulatory pressures will lead to an acceleration in super fund mergers taking place, KPMG says in a report, Superannuation merger insights, published today.

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The firm also believes that the Productivity Commission’s recommendation of ten ‘Best in Show’ funds as a default list for new workforce entrants will not be adopted

David Bardsley, KPMG Wealth Advisory Partner, said: “Last year KPMG assessed that the number of funds in Australia would halve over the next decade. This now seems likely to happen sooner as there are numerous tailwinds supporting industry consolidation. We are seeing increased merger discussions in the market, and we expect this to intensify.”

“There had already been greater regulatory oversight in the super sector and the Royal Commission will give this a rocket boost. Trustees and shareholders in super entities will increasingly question whether their members would be better served in a larger entity with the scale, processes and functions more able to effectively manage greater regulatory obligations.”

KPMG identifies the key pressures driving fund merger acceleration as:

  • APRA’s Member Outcomes package – funds will, from January 2020, have to undertake an annual assessment of member outcomes, which the regulator will then review and use as a remedy for action. It will be a holistic assessment of how funds are performing for their members. We are already seeing these proposals driving merger discussions as funds seek long-term sustainability.
  • Fees - both the Royal Commission and Productivity Commission reports focused significant attention on the level of fees and costs within superannuation, as well as the gaps and inconsistencies in how funds report on these. ASIC’s additional guidance on disclosure requirements, RG97, and APRA’s member outcomes assessment will further both increase the scrutiny in this area.
  • The 2018 Budget included three key proposals which will provide further motivation for fund consolidation – all super accounts with balances below $6,000 and have not received a contribution in the last year will be classified as inactive and must be transferred to the Tax Office; all super fund exit fees will be banned; and there will be a cap on admin and investment fees at 3 percent for accounts less than $6,000. These proposals have now been legislated and will result in a significant reduction in membership numbers for many funds. 
  • Default arrangements – while KPMG believes the Productivity Commission’s proposals for a “Best in Show” shortlist of 10 funds to use for new workforce entrants who don’t make their own selection are unlikely to be taken up, nonetheless there will still be significant changes in this area, which will reduce the number of accounts in the system.

The report also assesses the positive benefits to mergers, including reduction in costs and improved investment outcomes, products and services, and exposure to new member groups. It also highlights the many considerations involved in choosing the right merger partners and the optimum structure to adopt.

KPMG also spells out the reasons why mergers sometimes do not succeed – such as lack of cultural alignment, materially different demographics, varying investment philosophies and underlying shareholder interests.

David Bardsley said: “While there are currently many push factors for funds considering mergers, they should also be mindful of the pull factors. Funds must be careful not to panic over the increased regulatory pressures and rush into a poorly-conceived or under-resourced merger as this can have serious detrimental reputational consequences. There are extremely complex considerations in mergers and great care must be taken.”
 

For further information

Ian Welch
KPMG Communications
0400 818 891
iwelch@kpmg.com.au

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