Why some funds are struggling, and some not

Some superannuation funds are struggling despite what appears the exponential growth in superannuation assets, according to actuarial research house, Rice Warner.

Examining the state of the superannuation industry and the number of fund mergers which have occurred, Rice Warner pointed to the fact that 46 per cent of superannuation funds experienced negative net member benefit flows in the year to June, 2016.

It said there were multiple reasons why so many funds were struggling and the reality was that growth in the industry had not been uniform with many funds being sub-scale and with little prospect of growth.

“Funds charge fees for each member account, yet there has been a reduction of more than four million accounts in the last seven years,” it said. “The very large funds are increasingly winning more Choice members and more of their members are consolidating their superannuation accounts.”

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“These funds provide a wider range of services and have large marketing budgets and growing brand awareness.  They are winning business from smaller funds.

Some funds are exposed to sectors of the economy with low employment growth, and they will lag funds operating in faster growth sectors such as health and aged care,” the Rice Warner analysis said.

It said that, in addition, some funds were concerned about the shift of the large cohort of baby boomers reaching retirement and were predicting large outflows from the industry in the form of lump sums over the next decade with some even postulating this will push the industry into net outflow territory.

However, Rice Warner said such an analysis ignored a number of facts including that most assets were rolled over to pension products at the point of retirement rather than taken as lump sums, over half of pensioners took the minimum drawdown (which is less than the earnings on the fund in many years), growth at younger ages was still strong and the Superannuation Guarantee was to rise to 12 per cent.

“The reality is that, although long-term growth will be slower, the superannuation industry still has many golden years ahead of it,” it said.