Administration & Management
Superannuation fund mergers
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On 1 July 2020, First State Super and VicSuper merged to become Australia's second largest superannuation fund, managing $125 billion in savings on behalf of more than 1.1 million members across the education, health and public service industries.

Further, First State Super also announced that it will merge with WA Super later this year, resulting in almost $130 billion in combined assets under management.

With mounting pressure from the regulator and the burden of administrative costs, superannuation funds are making the decision to merge more often than before; at least 28 have taken the step since 2014.

COVID-19 has placed additional pressure on superannuation funds to merge as a result of poor liquidity and asset prices, increasing unemployment (hence no super contributions) and the fast tracking of super withdrawals on compassionate grounds. Long-lasting effects may include declining returns, reduced portfolios and membership bases. As members whose jobs have been affected by the pandemic seek assistance from their super fund, the higher the administration costs associated with this.

To undergo a merger through the common process known as a 'successor funds transfer' (SFT), a super fund trustee must turn its mind to several key considerations.

This paper aims to assist super fund trustees to navigate the pitfalls of a merger under an SFT, with the pressures to merge heightened by COVID-19 being hard to ignore.

Pressure to merge

Since December 2019, APRA has produced a new performance appraisal system—heatmaps—designed to place pressure on those super funds that it has deemed to be underperforming.

APRA has flagged that this mechanism will extend over time to insurance and choice products. Assistant Minister for Superannuation, Jane Hume, said in 2019 that funds with less than $1 billion should be considering their future. There are approximately 93 or so funds in this category. It is predicted that funds will merge rather than be shamed, and potentially litigated, by APRA.

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