Superannuation funds face numerous challenges over the next decade and their chance of survival may come down to management of operational costs, says KPMG Australia.
KPMG Australia’s 2018 Super Insights Report has revealed that the average operational costs of superannuation funds had risen by 6.7 per cent over 2017.
“Operating expenses continued to increase unabated,” the report said, with the 6.7 per cent increase suggestive that the industry was “continuing to invest in new products and services, with many experiencing challenges in managing ongoing increases in expenses”.
“A fund’s ability to manage its ongoing operational efficiency, such that it can continue to invest in new products and services, remains the key determinant of a superannuation fund’s scale and long-term sustainability.
“Funds that remain constrained by budget pressures will continue to fall behind peers that are investing in change and transformation,” the report stated.
Furthermore, the number of Australian superannuation funds looks likely to dwindle over the approaching decade.
Where there are currently 238 APRA-regulated super funds, this number is expected to drop by 20 per cent to 192 by the year 2023.
Five years after that, the report projected the number of super funds would be nearly half that amount, dropping to 108.
“We believe there will be a material consolidation of funds in the coming ten years."
The corporate superfund sector would be most likely to undergo the highest level of consolidation, the report predicted.
“We expect the remaining sectors to experience reasonable consolidation, with the number of funds in the industry and public sector segments likely to halve, and the retail segment reducing, but at a lesser rate.”
The report from the major auditing firm also said that industry funds would increase its non-superannuation product offerings, such as “aged care solutions and broader banking solutions”.
Meanwhile, the retail fund sector “could move the opposite way, given the pressure on a number of banks’ wealth businesses and the scrutiny being placed on banking practices and vertically integrated businesses by the royal commission”.
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