Super Fund Mergers: What Does It Mean For Members?

A notification that your super fund is about to merge with another may come as a surprise, not to mention an unwanted demand on your time.

Some people have a strong connection with their fund through its association with the industry or business sector in which they work, so the idea of merging with a fund they may never have heard of can be unnerving.

The good news is that your fund is not alone. Fund mergers are common and while they sometimes indicate poor performance they are just as likely to be about improving outcomes and services for members.

Why are funds merging?

Industry reforms have put super funds under increased pressure to merge, introducing a new level of pragmatism on the trustee boards responsible for these funds. While their heritage might be rooted in industrial negotiations and agreements, they recognise that this connection will be less important in future. Instead, funds realise their future will depend on delivering optimal retirement benefits to members at minimum cost.

The 2021 Your Future, Your Super (YFYS) legislation got the ball rolling. Regulations now require funds failing to meet APRA’s performance tests to report their underperformance to members, while persistent underperformance will prevent them from signing new members.

Industry observers believe the pace of mergers is beginning to slow, following the forced mergers of underperforming funds identified by APRA performance tests and many of the more obvious megamergers such as the formation of Australian Retirement Trust and Aware Super.

However, further mergers are likely given the ongoing imperative to create sustainable super funds able to provide the investment returns and services required by members in a rapidly changing world.

In the five years to June 2024, the number of APRA-regulated funds (including industry, retail, corporate and public sector funds) fell from 190 to 111.

Industry analysts and commentators agree the industry will eventually be dominated by between six and a dozen megafunds, which will absorb most new entrants to the workforce.

Which super funds have merged or are due to merge?

The status of mergers and acquisitions listed below is based on the best publicly available information.

Further industry consolidation is inevitable over the next decade, so if you receive notice that your fund will merge you should probably ask ‘What’s in this for me?’ rather than ‘Why?’.

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What should members watch out for?

According to research by Roy Morgan, mergers can affect super members’ satisfaction with their fund. Key to their level of satisfaction are clear communication and a smooth transition process.

While some mergers can lead to fee reductions and other benefits, others may leave some members, especially of the smaller fund, feeling their new fund is not a good fit.  

So let’s break it down into the things that matter:

1. Fees

Ensuring you are paying low fees is one of the few controls you have over maximising returns on your super investments. In theory, the less you pay, the more you leave for your retirement.

The principal reason for fund mergers is economies of scale, which should pass through to members in the form of fees and other benefits. The impact of mergers on fees has been evident for some time.

For example, Super Consumers Australia calculated an average fee reduction of 13.4% for fund mergers undertaken from 2018 to 2020 – amounting to nearly $15,000 of savings over a member’s time in super.

More recently, the merger of TWUSUPER with Mine Super to create Team Super resulted in a 25% reduction in fixed administration fees. It also reported further enhancements of its insurance offering and investment menu.

2. Investments

By far the greatest influence on retirement benefits is a fund’s long-term investment performance, after fees.

• Which investment options will be retained in the merged entity? (For the majority of people, the MySuper default option is the most critical.)
• Which investment option will you be transferred into if the one you’re currently invested in no longer exists?

Once your fund has informed you of this, you can compare investment performance, the fees charged, and the risk rating for the option. This is determined by the percentage of growth and defensive assets your money is invested in.

3. Insurance

One of the more complex areas for mergers is insurance for death, total and permanent disability (TPD), and income protection. Having ticked the boxes on fees and investments, members should take note of any tweaks to insurance cover and premiums.

In mergers, trustees recognise that there should be minimal or no detriment for members and often arrange for the existing policy to transfer to the new trustee.

Economies of scale may in time allow the merged funds to offer more cost-effective insurance options.

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4. Services and advice

Other factors can influence your perception of whether the merged fund looks right for you. These may include access to financial advice, the effectiveness of fund communications, educational resources and technology.

With a digital transformation underway, funds are rapidly developing their digital technology, tools and resources to improve member engagement, especially among younger members who prefer to interact via digital channels. While this is costly upfront, it also helps create further long-term economies of scale.

Some smaller funds claim that more intangible benefits, such as proximity and engagement with members and employers, justify remaining small. For these funds, success is more about value to members than fees and returns alone. They argue they can achieve economies of scale by partnering with key service providers, like administration platforms.

This position is no doubt being tested as the industry regulator, APRA, applies various performance measures to determine whether funds are achieving optimal financial outcomes for members.

The bottom line

Super fund trustees are legally bound to ensure that mergers are in the best interests of their members and the evidence suggests they are diligent in this.

Super Consumers Australia Director, Xavier O’Halloran says: “It’s not a cause for alarm if your super fund merges – in fact, you might be better off.”

The only way of knowing if you should stay or go is by comparing what your fund is offering with other top-performing funds on fees, performance and member services. If your newly merged fund is still a good fit, then the answer should be to stay.