Stronger super to instigate more fund mergers

The number of major superannuation funds is projected to decline over the next five years, but at a slower rate than over the past five years, according to an IBISWorld report.

The report said competitive pressures and thestronger super reforms were likely to instigate more fund mergers, reducing the number of industry enterprises.

"The large number of medium-size players provides opportunities for mergers, as many funds can benefit from the larger scale achieved by combining assets and resources."

The report found that the industry's revenue was projected to grow at an annualised 3.6 per cent over the five years through 2021 to 2022 to $339.3 billion.

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"A more accurate measure of industry performance is assets under administration, which are anticipated to increase at an annualised 5.9 per cent over the same period," the report said.

Currently, the industry is estimated to have a revenue of $284.1 billion in 2016 to 2017, but the estimated revenue for 2017 to 2018 would drop to $119.5 billion.

IBISWorld's senior industry analyst, Tommy Wu, said this was due to the cyclical downturn in terms of investment revenue.

"We’ve already kind of seen that this year as there’s been a decline and even across the list where there’s just been weaker equity market returns, given a large proportion of equity for the funds for cyclical downturn so it’s largely due to consumer sentiment, and just capex dragging the revenue down," Wu said.

"But returns are still expected to be positive given that with super you get that steady stream of contributions revenue, it's just a slowdown in investment revenue."

The freeze on the Superannuation Guarantee would likely constrain industry growth over the next five years, IBISWorld said.

Industry superannuation fund, AustralianSuper, was found as the largest super fund, excluding bank funds, with $22.05 billion in revenue and 4.6 per cent of the market share.

This was due to a rising member base contributing to the assets under administration, and mergers with other super funds.

First State Super followed at $10.24 billion, UniSuper at $8.15 billion, and Sunsuper at $7.36 billion.

Tasplan was the only fund to go against the grain with a 135.2 per cent change in revenue thanks to its merger with Quadrant.

Wu noted that industry funds were seeing a flow of members coming from retail funds largely due to their not-for-profit status and their marketing of lower fees.

"Retail funds like AMP, and the Big Four are popular among self-employers and large employers too, but there has also been a shift towards self-managed super annuation funds (SMSFs) for high net worth individuals (HNWIs).