In a submission to the Productivity Commission's inquiry into alternative default models, NESS Super chief executive Angie Mastrippolito said smaller super funds can be both efficient and competitive.
Ms Mastrippolito was responding to the recent submission of industry consultant Rice Warner, which argued that super funds with assets below $2 billion should be encouraged to merge with larger funds.
According to Rice Warner, it is "clear" that larger funds have "significant advantages" over smaller funds – and the Productivity Commission ought to consider making it easier for mergers to take place.
But NESS Super's submission argued that forcing smaller funds into a merger protocol would be confusing to members, expensive to implement and could potentially expose small, well-run funds to "predatory behaviour by larger funds".
Smaller superannuation funds such as NESS Super can already tap into the benefits of scale via relationships with outsourced providers – whether it is for administration, financial planning or insurance arrangements, said the submission.
Governance is not necessarily better within large institutions, said the submission, pointing to recent comments by APRA in a paper on Risk Culture.
"Larger institutions noted that size and complexity introduced additional challenges, particularly regarding the greater prevalence of sub-cultures," the APRA paper said.
NESS Super said it is possible that the lack of complexity in smaller super funds could potentially assist in the process of governance, as opposed to the boards of larger funds.
"The emphasis on increased scale and mergers as the mechanism to deliver efficiency has been a significant distraction to the determination of what actually drives efficiency and inefficiency in both large and small funds," said Ms Mastrippolito.
Smaller super funds can be both efficient and competitive, she said.
"If it is not scale which drives efficiency, the real issue to be addressed is looking beyond scale to what factors actually drive efficiency and what are the practices that detract from providing value to members that should be stamped out," said Ms Mastrippolito.
"If the goal of a superannuation fund is to be efficient, rather than subject only small funds to scrutiny, it is our recommendation that all funds be required to publish an efficiency ratio and, where this ratio exceeds an industry benchmark, be required to justify their use of members’ funds."
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