The government should encourage super fund consolidation by creating a more transparent framework for merger proposals, argues Rice Warner.
In a submission to the Productivity Commission's inquiry into superannuation efficiency and competitiveness, Rice Warner said it is "clear" that the largest super funds have "significant advantages" over smaller funds.
These advantages include lower fees for members due to the benefits of scale, better governance standards, access to unlisted investment opportunities, and better range of service to members, said Rice Warner.
The submission argued that MySuper funds should be part of a trust fund with assets exceeding $2 billion and/or active members exceeding 50,000.
According to APRA there were 151 funds with assets below $2 billion as at June 2015 – 34 of which had no assets disclosed at all.
Rice Warner said a much greater number of approaches to merge have been made by funds than have proceeded to completion – even when there was a reasonable case made that both sets of members would benefit from the merger.
"Clearly boards can reject approaches, but the lack of transparency regarding merger proposals appears to be hindering the process," said the submission.
While there do not appear to be problems with funds formulating and presenting proposals to other funds, there are issues with the way the proposals are considered, said Rice Warner – particularly when it comes to the way decisions are reached in members' best interests.
"The process would be enhanced by a formal framework for approaches and the consideration of those approaches," said the submission.
The Productivity Commission should consider a similar system to the process for listed firms entering merger discussions, said Rice Warner, including:
The government has delayed the inclusion of trustee-directed products in the test. ...
ASIC has conducted surveillance on the complaints handling of funds. ...
APRA has shared its view on the ideal size of the superannuation industry. ...