APRA puts more than 116 super funds on notice with retail sector in firing line

The Australian

20 October 2021

Cliona O’Dowd

The prudential regulator has taken aim at nearly 120 superannuation funds it says will struggle to remain competitive into the future, with the retail sector set to bear the brunt of the pain.

Australian Prudential Regulation Authority’s chief super enforcer Margaret Cole warned Wednesday that the sheer number of super funds and investment options in the market was a detriment to members. She said time was running out for 116 of 156 regulated super funds as mega funds bolster their position and influence.

While 17 super funds manage 70 per cent of all assets in the APRA-regulated system, a “shocking” 116 funds manage less than $10bn each, with the bulk of those — 78 in total — operating in the retail sector, Ms Cole said.

“It’s here in particular where we can see the potential vulnerabilities the retail sector faces in coming years,” she told a Financial Services Council event.

“Size is not the sole determinant of performance … But it is absolutely a key factor influencing not only member outcomes, but also the sustainability of outcomes into the future.”

Ms Cole, who was appointed to the regulator for a term of five years from July 1, said increased scale allowed trustees to spread fees and costs over a larger membership base while accessing higher earning investments in unlisted assets, such as major infrastructure projects.

“APRA doesn’t have a rigid view of what size a funds needs to be to compete with the emerging cohort of so-called “mega-funds”, but we broadly agree with industry sentiment that any fund with less than $30bn may struggle – and any fund with less than $10bn, without some other redeeming feature, will definitely struggle to stay competitive into the future,” Ms Cole warned.


The performance and sustainability challenges facing the smaller end of the industry long tail will not get any easier, she told the audience.

“If anything, they are likely to accelerate, as the mega-funds use their financial strength and higher profile to grow further by attracting new members, and fund stapling breaks the traditional nexus between employers and default super funds.”

Greater transparency, through APRA’s heatmaps and expanded data collection, and the recent Your Future, Your Super reforms, would make it easier for workers to identify the poor performers, and move their money elsewhere, she predicted.

Already, all but one of the 13 funds that failed the first MySuper annual performance test had seen a decline in membership, she revealed.

The named-and-shamed funds that failed the test include AMG Super, LUCRF, Colonial First State’s First Choice Employer Super Fund, Maritime Super, Christian Super and Commonwealth Bank Group Super. (See the full list here.)

“These drops are marginal to date but any reduction in scale is unhelpful for trustees trying to improve their performance,” Ms Cole said.

APRA is watching for a similar response when the results of the first performance test for choice products are published next August.

At the other end of the spectrum, the nation’s largest super funds are gaining 1000 new members every day, and $500m of net new cash flow each week, she noted.

“The funds (members) move to will often be those brands they are most familiar with, further bolstering the influence of the largest funds,” Ms Cole said as she pointed to the problems besetting the retail sector: substantially higher average administration fees than for MySuper products; far greater variation in performance; and significantly higher levels of underperformance

“The challenges many retail funds face will become evident in coming weeks when we publish the findings of APRA’s new information paper analysing the choice sector in preparation for our first choice product heatmap in December,” Ms Cole warned.

While the regulator’s analysis covers choice products in all industry sectors, including industry funds, the majority of products and options analysed were operated by retail funds.

As consolidation in the sector ramps up, Ms Cole warned smaller funds against “bus stop” mergers, telling them to join forces with larger, better performing funds.

Ms Cole also took aim at the sector’s “serial acquirers” who take over one fund after another and often move on to a new deal before bedding down the previous one.

“Given the time and cost involved in executing a merger, it’s vital the benefit to members isn’t squandered through poor execution or deferral of the integration needed to avoid problems down the track.”

Retail funds, in particular, should consider the benefits of consolidating their own product lines, she said.