Larger industry super funds have a definite cost advantage over smaller industry super funds, new research has revealed.
The Deloitte study looked at returns achieved by 60 industry funds to see if there was evidence to suggest smaller funds were able to generate higher returns to offset the typically higher operational costs they were incurring, with results showing on average that most were not.
“Large funds appear to be delivering genuinely better investment performance to the bulk of their members who use the default option,” Deloitte Actuaries & Consultants superannuation partner Wayne Walker said.
Higher returns were generated by lower investment costs of large funds, as well as large funds having access to more rewarding strategies and smaller funds potentially using more conservative investments, Walker said.
Lower operational/investment costs together with the higher returns achieved by large funds was also enough to increase the retirement benefit of Australians by almost 25 per cent over a working lifetime, he said.
In terms of expenses, funds with over 500,000 members had operational costs per member of $1.08 per week, while those with less than 50,000 members cost $2.18 per week.
“Scale offers a clear potential for funds to deliver extra benefits to their members, which adds some logical impetus to the government’s desire to rationalise funds into fewer and larger entities – something that is already happening,” Walker said.
The findings did not signal a death sentence for smaller funds, with some high performers defying the trend, he said.
“Smaller funds need to work harder to deliver extra benefits and services to members to offset the scale advantages of their large competitors, through things such as better insurance cover, personalised service and quality advice,” Walker said.
“They could also access scale benefits through strategic partnerships with the better scaled service providers or by merging with other funds.”
According to Walker, size does matter but the value offered by a fund can also outweigh the size of one.
