Superannuation industry consultant and managing partner of Tria Investment Partners, Andrew Baker, said asset under management growth for the super industry is comprised of investment returns around an average 6.5 per cent and member-driven net inflows as a percentage of assets at around 3.5 per cent.
“Take away investment returns and the growth rate of super is not exactly crash hot – and yes, that includes compulsory contributions,” said Mr Baker.
“Indeed, on that view, you might argue that the super system has reached maturity already.”
Mr Baker noted that three-year member growth in the system has largely come to a halt, with almost every Australian of working age in the system.
“While the working-age population is still growing, that is being offset by account consolidation,” Mr Baker said.
He added that there are very few superannuation entities enjoying above-average market share of members, as well as growth in members.
“The stars here are AustralianSuper and First State Super, but part of their superiority is thanks to large infusions of members from fund mergers,” he said.
While super funds can grow revenues, the model of the fund is based on a percentage of assets, Mr Baker said, with growth “largely dependent on investment returns”.
“The business metrics may look great when the market is up, but it’s cloaking underlying weakness,” he said.
“For most not-for-profits, the challenge is different: the only way you can grow revenues, other than increasing fee levels, is to take members from someone else.”
Mr Baker said there are also a large number of smaller funds with memberships that are static or falling, meaning there is a large chunk of the industry with static or falling revenues.
“The only way such funds can respond to rising operating costs and the need to develop products and services for members is to increase fees – potentially significantly,” said Mr Baker.
“That’s not a strategy you can pursue forever.”
