AustralianSuper and the $3.4 billion West Australian super fund Westscheme have signed a memorandum of understanding to merge on 30 June 2011, creating a $40 billion super fund.
"In making this decision, Westscheme puts members first," Westscheme chief executive Howard Rosario said in a conference call yesterday.
Rosario said it was increasingly difficult for a fund the size of Westscheme to offer competitive services without increasing member fees.
"Westscheme aspires to improve its products, services and tools available to members to ensure that they can improve their lifestyles in retirement," he said.
"In recent times, it has become increasingly challenging to deliver improved services and solutions in a cost-effective way to members and the way ahead looks no easier.
"The question the Westscheme trustee had to ask itself was: 'Should it use members' retirement savings by charging them more fees to build improved products and services for them and improve their access to resources, or could it do better for them by accessing these services and products elsewhere?'
"After an exhaustive process, we decided that a merger with AustralianSuper was the best solution."
Although the investment performance of Westscheme has not been exemplary, Rosario denied the merger was motivated by investment returns.
"This merger is about our capacity to deliver competitive services," he said.
AustralianSuper will establish a new division that will service Westscheme members and 100,000 of AustralianSuper members in WA.
In total, the new division will services 310,000 members and will have $5 billion in assets under management.
The division will be run by the funds' combined staff and redundancies among Westscheme's 32 staff members are not expected.
The merger proposal did not insist on the transfer of Westscheme board members to AustralianSuper's board, but AustralianSuper has committed to appointing a WA representative to its board.
AustralianSuper will also establish an advisory board, which will include representatives of Westscheme, that will advise on the operation of the Westscheme business.
AustralianSuper chief executive Ian Silk described the approach by Westscheme as a "bold move".
"AustralianSuper is delighted that Westscheme was proactive in approaching AustralianSuper. This merger will result in real benefits for members of both funds," Silk said.
He said the two funds were similar in culture and had the benefit of sharing the same insurance and administration services providers.
Among the benefits for Westscheme members are an increase in total and permanent disability insurance coverage by 36 per cent.
Silk said he did not expect the $1.50 a week membership fee of Westscheme members would increase.
