The merger of superannuation funds (funds) is becoming a hot topic following several years of scrutiny. Indeed the Australian Securities and Investments Commission has recently stated publicly that it will look to litigate against underperforming funds and this may force at least 100 smaller funds out of the system.
Clearly funds that have apparently failed to act on behind-the-scenes encouragement from the Australian Prudential Regulation Authority (APRA) to merge may now be forced to do so or to act with far more urgency.
The Productivity Commission's review of the efficiency and competitiveness of the superannuation system and the Hayne Royal Commission into the financial services sector have both highlighted this as an issue of some concern in their reports released earlier this year. In particular, the Productivity Commission found that mergers were often abandoned against the best interests of the members.
In an effort to encourage mergers that would benefit members, the Productivity Commission, in its Superannuation: Assessing Efficiency and Competitiveness Inquiry Report, has recommended that trustee boards of APRA-regulated funds should be required to disclose to APRA when they enter into a memorandum of understanding in relation to any merger and if a merger does not proceed, to disclose the reasons why and what was in the members' best interests (recommendation 20).
In the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Commissioner Hayne appears to be in favour of mergers and also recommended that trustees be prohibited from being in other roles in order to prevent conflicts of interest, as well as the introduction of penalties where the duties of trustees are breached (recommendations 3.1 and 3.7).