The uncertainty on capital gains tax (CGT) relief is stopping many not-for-profit superannuation funds from merging.
A recent poll of members of the Australian Institute of Superannuation Trustees (AIST) showed as many as 20 not-for-profit (NFP) funds “considered the lack of certainty on capital gains tax relief as a major impediment to proceeding with a merger”, AIST chief executive Fiona Reynolds said.
The poll also surveyed the estimate of costs to members, with the average figure being in the hundreds of dollars, Reynolds said.
“Many funds say that without capital gains tax relief, a merger won’t go ahead, with one fund calculating that the cost per member of the capital gains tax bill at $400,” she said.
“Given the obligation that funds have to operate in members’ best interest, it is difficult for funds to proceed with a merger when members’ retirement savings will be hard hit.”
The AIST’s comments were made in light of research, published on Monday, from the Australian Prudential Regulation Authority (APRA), which found larger NFPs had more economies of scale than retail funds, and also had lower investment expense ratios than retail funds.
Reynolds said that research showed the federal government had to move on CGT relief.
“There is now an even stronger argument that the government acts quickly to provide certainty on capital gains tax relief for the many funds that we know are contemplating a merger,” she said.
While there were NFP funds with funds under management as small as $50 million, a small fund these days was probably less than $3 billion to $4 billion – given that the biggest funds were now around 10 times that amount.
“The APRA research is another strong vote of confidence in the governance model of the not-for-profit funds,” Reynolds said.
Based on this evidence, she said, “it’s clear that big isn’t so beautiful when it comes to retail super funds”.
“The report raises concerns about the growth and consolidation among retail super funds,” she said.
“It clearly shows that the structure and operation of many retail funds inhibits their performance and their ability to pass on benefits to members.
“If their structure prevents retail funds from delivering economies of scale and driving a hard bargain on the negotiating table, then that structure is flawed and it certainly isn’t serving their members’ interests.”
In contrast, she said, the APRA report highlighted the benefits of mergers within the NFP sector.
“While it needs to be recognised that small not-for-profit funds are among the top-performing funds in the country, the research suggests that at least some small funds would benefit from the economies of scale available through a merger,” she said.
