The compliance and cost burden created by Stronger Super reforms will put unprecedented pressure on corporate super funds, according to Mercer.
Mercer has developed a digital infographic highlighting its point of view entitled ‘Time to act: taking charge of your corporate fund’s future’, that demonstrates since the introduction of compulsory super, the number of corporate super funds has fallen from 4,000 in 1996 to around 50 today with funds under management of more than $20 million.
Now, the introduction of the Federal Government’s Stronger Super reforms means the Australian Prudential Regulatory Authority (APRA) will require corporate super funds to meet the same stringent standards faced by banking and insurance companies, effectively turning these funds into financial institutions.
With the reforms fast approaching, corporate funds must act now to plan their business future, said David Anderson, Mercer’s Managing Director for Australia & New Zealand.
“If corporate super funds want to stay in business after the introduction of Stronger Super reforms in October 2013, they will need to make significant financial, structural and risk management changes to remain compliant and competitive in the market. With the 2013 deadline looming, it is essential for corporate funds to decide how they will meet future challenges in the superannuation industry,” Mr Anderson said.
Mercer says the costs associated with Stronger Super compliance will be significant. To provide a MySuper account, for example, funds may need to renegotiate insurance contracts and revise fee structures, investment menus, forms, product disclosure statements and websites.
At a recent panel session organised by the Association of Superannuation Funds of Australia (ASFA) Mr Anderson stated the implementation costs to Mercer for the Stronger Super and FOFA reforms could amount to as much as $25 million over the next five years.
“Moving to a master trust arrangement could help corporate funds reduce cost and risk while providing access to a wider range of competitive member services. It is also the only way they can avoid becoming a financial institution,” said Mr Anderson.
“Mercer anticipates the polarisation of the corporate fund segment to accelerate over the next two years – with only the most committed funds continuing to evolve and compete and the rest deciding to outsource. As a result, we are developing more flexible services and governance models to meet the needs of even the largest corporate funds. These flexible models will help corporate funds meet the challenges of the future while preserving the things that make them unique and valued by members,” he said.
Regardless of the path these funds take, planning is crucial, Mercer argues.
“Whether corporate funds decide to stick it out and embrace the new era of compliance and regulation, or look to superannuation outsource providers to manage their services, the October 2013 deadline has been set for the industry,” Mr Anderson said.
Mercer is a global 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 20,000 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 team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @MercerAU @MercerInsights