Mr Baker described auto account consolidation as “an informal force for consolidation within the [Stronger Super] reforms”. The reforms as a whole have the goal of encouraging, if not forcing, mergers of funds, he said.
Auto-consolidation implied a loss of around 40 per cent of members and up to 40 per cent of revenues for workplace super funds, which would force funds to consider large increases in fees, or mergers with other funds, Mr Baker wrote in his latest Trialogue update.
Mr Baker pointed to a discussion paper released by Treasury in June, Lost and unclaimed superannuation money, which outlines a delay to automatic account consolidation.
Although automatic consolidation of member accounts within a single super fund became effective on July 1 this year, with the first round of consolidation to occur by 30 June 2014, consolidation across funds has been put off indefinitely.
“Further account consolidation initiatives, including consolidation across funds, will be reviewed in late 2014 following further industry consultation,” Treasury stated.
“This consolidation process would be facilitated by the [Australian Taxation Office] and involve the auto-consolidation of low balance lost and inactive accounts and accounts in Eligible Rollover Funds across funds into a member’s active account.”
Mr Baker pointed out that consolidation within funds won’t have much of an effect on the industry since it will not cause funds to lose members, although they may lose some income from fees that are no longer duplicated.
“Inter-fund auto-consolidation – the main game in terms of lifting industry efficiency and improving member outcomes – has been kicked into the long grass and it's now hard to see it commencing before 2015/2016, if at all,” Mr Baker said.
The winners from the delay will be workplace super funds, especially the not-for-profits which tend to have large numbers of inactive members, he said. Major fund administrators will also be relieved, he added.
And although some retail competitors may be disappointed that not-for-profits have evaded “a turn of the regulatory screw” the real losers are members with inactive accounts and members of small funds in general, he said.
Many small funds “really should consolidate, but free of the threat of auto-consolidation for a while longer, [they] will hang on to their independence, delivering mediocre returns and falling further behind in the contest to provide quality products and services at a competitive price”, Mr Baker said.
“There are some great small funds, but these are the exception, not the rule.”
