The idea that consolidation in the superannuation industry would see the number of funds decline from 350 to 100 is 'quite plausible', according to Towers Watson head of portfolio construction Ross Barry.
"The number of superannuation fund entities has declined from over 2,200 in 2003 to just over 350 in the present," Barry said at an Australian Institute of Superannuation Trustees presentation yesterday.
"A lot of this occurred in the lead up to Choice of fund," he said.
"That trend by and large has continued with about 30, 40, 50 funds disappearing each year for the last three or four years," he said.
"Now, a number of people are forecasting that the number of funds will fall to less than 100 by 2020; that is quite a sobering thing."
"If you assume that the total funds under management (FUM) in the industry would double, and most people have assumed that they will, that would assume that the average size of a super fund by 2020 would be $25 billion," he said.
"It is estimated that if that is the case, that there will be four or five very large funds that have on average $100 billion dollars in FUM."
"Now, I'm not completely convinced that will happen, but it is quite plausible," Barry said.
"It would only imply losing about 30 to 40 funds per year, which is pretty much what has been happening for the last four or five years."
"And potentially the impact of MySuper and Stronger Super, may be the catalyst for that."
Under the Stronger Super rules, super funds will have the obligation to assess whether their size is adequate enough to offer their members competitive prices or cost efficiencies.
Although the Australian Prudential Regulation Authority has indicated it will not set minimum requirements, it is generally expected that the requirement to review the impact of scale will drive further consolidation.
Barry also argued that consolidation would take place as funds would try to gain a greater market share.
"Essentially, competitive positioning is about contest for that market share," he said.
Self-managed super funds (SMSFs) have taken a large share of the market over the years and now represent about a third of the market, but Barry said this rise might have stalled.
He said that in relative terms the SMSF sector had not gained any further market share in the last five years.
"There is a general feeling that there is a big flow going out of funds into self-managed super, but interestingly in 2007 the share of self-managed super was about 33 per cent of total assets," he said.
"It is still about 33 per cent, so in the last four to five years that hasn't changed proportionally."
There is still much money flowing into SMSFs over this period, but that represents the growth of the industry overall, he said.
