The superannuation sector is splitting in two, with big industry funds increasingly dominating in terms of membership and overall funds under management.

But the for-profit retail sector is becoming the domain of an increasingly wealthy clientele that makes big personal contributions, according to consultancy KPMG’s comprehensive Super Insights 2023 research paper.

KPMG highlights the continued concentration among the big funds, reporting that five new mergers were announced in the calendar year 2022, and at least 13 mergers occurred from July 1, 2021, to June 30, 2022.

That consolidation “has produced a dramatic change in the superannuation landscape, and as at June 30, 2022, there were three funds over $150 billion with one of these over $250 billion”, the report said.

The top seven funds, listed below, all have assets of more than $100 billion, and between them account for 58 per cent of all the monies in pooled superannuation.

The increasing consolidation of super funds will benefit members, said Brendan Coates, Grattan Institute superannuation lead.

“Mergers are being driven by factors like APRA heat maps and legislative changes around performance measuring,” Mr Coates said.

“There is clear evidence that economies of scale gained through mergers lead to increased returns for members.

“We don’t need 100 super funds. We need fewer, more efficient funds.”

The top 19 funds account for 87 per cent of total assets of the pooled superannuation industry, KPMG stated.

The concentration of funds has been driven by two factors: One is the mergers, and the second is the increasing exposure of merged funds to default, MySuper contributions.

As the mega-funds grow through mergers their super guarantee contributions from members increases dramatically. AustralianSuper, for example, shot the lights out in 2022, receiving $25 billion in positive cash flows in 2022 compared to only $14 billion in 2021.

Second place in the inflow stakes was the Australian Retirement Trust, (ART) a composite fund made up of a couple of Queensland giants. It received net inflows of $6.1 billion in 2022, down from $7 billion a year earlier.

Those net inflow figures don’t include money coming as a result of mergers. The net inflows and outflows are from members joining, leaving and moving into pension mode along with investment returns.

The big funds showed how effective they were in 2022. In a year when the super sector overall lost 0.5 per cent of its value, the big industry funds performed much better.

AustralianSuper gained 10.1 per cent in net inflows; ART, Rest and UniSuper gained 3.7 per cent; Hostplus gained 7 per cent, and HESTA gained 3.9 per cent.

The large retail funds lost ground as the chart, above, demonstrates.

Where the money is

The industry fund sector is the fastest growing and holds the majority of member contributions, but there is one area in which the retail funds hold sway – voluntary member contributions.

That is because their membership tends to be wealthier and “they tend to have financial advisers”, said Ian Fryer, research director at Chant West.

“Typically voluntary contributions are adviser driven,” he said.

Advisers keep an active eye on their clients’ financial situation and direct extra funds into superannuation where tax advantages make saving attractive.

The difference between average voluntary contributions per member in the retail and industry sectors is stark. The average voluntary contribution for a retail fund was $3699 annually in 2022 while for an industry fund it was $1911.

For the big retail funds with high net-worth members the difference is even starker.

Platform management group Fiducian saw average voluntary contributions of $24,199 last year while Macquarie averaged $21,526 and another platform group, Netwealth saw average contributions of $19,307.

The maximum allowable tax concessional voluntary contribution is $27,500.

The heavy hitters in the industry sector lag behind those figures dramatically. ART averaged voluntary contributions of $2819, while for AustralianSuper the figure was $1996.

The growth in the number of industry fund accounts has been dramatic, with that sector accounting for 56 per cent of members in 2022 compared to 39 per cent back in 2014.

Retail funds have had the opposite experience, accounting for 30 per cent of members in 2022 compared to 53 per cent in 2014.

Hayne wash-up

There have been a number of reasons for that, including bad publicity stemming from reporting of rorts, and poor practices in the retail sector unearthed by the 2018 Hayne royal commission into banking and superannuation.

Another is the decline in the number of financial advisers as education demands and fee restrictions have driven people out of the industry.

“In recent years the number of financial advisers has fallen from 29,000 to 16,000 and some people predict that a further 20 per cent of advisers will leave the industry,” said Wayne Leggett, principal of Paramount Financial Solutions.

Retail funds will continue to lose market share as financial adviser numbers fall. But their remaining clients are likely to be increasingly wealthy, making them more profitable and attractive to funds.

Retail funds will continue to be attractive to high net-worth individuals, while industry funds “are less likely to be in a position to offer strategic advice”, Mr Leggett said.

That is because industry funds are set up to service average workers rather than the wealthy, and so are less likely to have sophisticated investment options available, he said.

However, many industry funds are improving their strategic capacity in response to member needs.

The New Daily is owned by Industry Super Holdings