According to Mercer’s 2020 Super Fund Executive Report – Change or be Changed, the superannuation industry is at a turning point.
The Mercer report reveals the findings of its recent survey of 41 super fund executives and what they thought about the future of the industry, and how they are positioning themselves for change.
These findings highlight the challenges facing the superannuation industry and shed new light on the state of the industry.
Australia’s $2.2 trillion industry is expected to reach $10 trillion by 2035, yet despite this growth Mercer’s report reveals that many of today’s superannuation leaders are pre-occupied by regulatory uncertainty and change. Moreover, the report lays out for the industry what it needs to be thinking about in the years ahead – particularly those funds at the smaller end of the industry.
According to the report, 58% of funds regard government regulation and the Productivity Commission inquiry as their fund’s top risk. Moreover, 55% nominate it as a dominant force shaping the industry.
Ben Walsh, Managing Director & CEO of Mercer Australia said the report exposes the high level of uncertainty within the sector, reaffirming that now is the time for fund trustees and executives to take ownership of what the fund can control to ensure long-term growth and sustainability.
Furthermore, the report reveals that despite regulatory and industry pressure to merge, funds are taking a wait-and-see approach, with 68% believing further consolidation of funds in the industry is inevitable in the next five years, but only 13% expect consolidation to affect their own fund.
“Some funds are waiting for others to choose, some are waiting to be told and others are just in denial. There is confusion within the industry regarding how to best approach consolidation and how APRA will interpret the scale test going forward,” Mr Walsh said.
“The central issue is that the sub-scale tail of APRA-regulated funds face potential forced closure in the coming years, unless they can demonstrate that they are competitive and have a pathway for growth and sustainability,” he said.
Beyond government and consolidation pressures, the report also finds inconsistencies in how funds are seeking to grow. Specifically, from a pool of leaders who believe consolidation to be the top driver of how funds will look in 2020, (71%) expect organic growth tactics to be the largest source of member and FUM growth in the next five years, yet only 16% highlighted retention tactics as a strategic goal. That is, funds are optimistic that they can attract new members away from other funds but are less concerned about retaining their existing members.
Funds should look at the opportunity and cost-benefit of having a strategic member growth and retention plan in place. The big challenge is how to invest in growth and retention while also maintaining brand, connection with members, and trusteeship without the need to merge.
“Small niche funds are very passionate about their brand identity and the connection they have with their members. Moreover, a trustee understands the aspiration of its members and a merger often presents a loss of brand, loss of governance structure and trusteeship,” said Mr Walsh.
“Finding a way to achieve scale without merging is something Mercer is uniquely placed to assist the industry with. We believe scale can be achieved through outsourcing multiple parts of a fund’s front, middle and back office to materially reduce the cost base, enhance member service and engagement and, importantly, maintain the fund’s branding and market position – a unique pathway Mercer can offer funds because of its end-to-end outsourcing capability and scale that can be hubbed by industry,” he said.
For more information and to download Mercer’s 2020 Super Fund Executive Report, visit Mercer’s 2020 Super Fund Executive Report
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset—their people. Mercer’s more than 21,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With more than 59,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com.au Follow Mercer on Twitter @MercerAu