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Forcing super funds to hold certain levels of capital reserves could stymie future mergers between funds with different reserve balances, according to managing director of Towers Watson Andrew Boal.
Speaking at the Association of Superannuation Funds of Australia briefing in Melbourne last week, Boal suggested that dictating a compulsory level of capital reserves could become a stumbling block to future fund mergers as members of a fund with greater reserves try to prevent the other fund from gaining access to those reserves in case of investment loss.
“I can see this situation coming through in our industry, [that] if one fund has a reserve of 1.3 per cent of assets, and other fund has a reserve of 0.2 per cent of assets, the members [can say]: ‘If we merge, I don’t want those members to have access to my reserve’,” Boal said.
“So that can actually start to become a bit of a roadblock to mergers or complications down the track of how reserves get used, post-merger environment,” he added.
Such a situation had already arisen with corporate super funds, Boal said.
While he was in favour of the Cooper Review’s recommendations of risk reserves being established and being used by fund members, talking about a minimum and maximum level of reserves was “a little strange”, Boal said.
“Reserves are there to be built up, and when you have an incident you use them. So I can foresee situations where the reserve will be run back down to zero, and then you start again. That’s the nature of reserving,” he said.
