Mergers, market volatility, climate risk and member acquisition are just some of the themes that KPMG believes will shape super fund discussions and decisions over the coming year.
Melinda Howes, Lisa Butler Beatty and Linda Elkins from KPMG Superannuation Advisory have identified 10 key themes for 2023, including forces directly impacting the super industry as well as broader macroeconomic issues.
They said that merger activity in the industry has continued apace, with many funds either having just completed a merger, in the midst of one or currently contemplating one.
“These funds are questioning whether they have the balance right on the resources, time and strategic focus devoted to mergers versus continuing to grow and compete,” they said.
“As competition for members heats up, the successful funds will be those that can do both these things successfully at the same time — run their merger and realise the planned benefits, whilst growing and defending their scale.”
KPMG pointed out that APRA’s MySuper heatmap and its discussion paper on superannuation transfer planning require super funds to transfer their members to another fund within 90 days of an RSE licence being cancelled or on a second failure of the performance test.
Meanwhile, the firm’s experts have predicted that continuing volatility will likely be the order of the day for share markets in 2023, given the likelihood of a global recession alongside the ongoing effects of the pandemic and conflict in Europe.
“Some retirees who may have switched their investments into higher growth options or shares to try to replace the returns they have lost through low-interest rates, will be finding these markets a bumpy ride,” said Ms Howes, Ms Butler Beatty and Ms Elkins.
“It is also important to remember the many retirees who rely on fixed interest investments and would be welcoming the return of some higher income.”
While seeking out long-term returns, the experts said that super funds have been considering the internalisation of investment functions and the balance of public and private assets in order to deliver the retirement outcomes that they are promising to members.
They suggested that, given the long-term nature of superannuation, funds also need to be concerned about the impact that climate risk has on their investment portfolios.
“Australian superannuation funds, as the long-term owner of many direct assets, play a critical role in assisting in the transition to net zero,” KPMG’s experts said.
“Fund members expect their super fund to not only protect their investments from climate change risks but also consider how they are using their investment clout to drive better environmental and social outcomes.”
Funds with investment concentration in Australia have been found to be increasingly looking offshore as they consider their global footprint, and overseas investors are also entering the Australian market as they seek to diversify their portfolios and offices internationally.
According to Ms Howes, Ms Butler Beatty and Ms Elkins, attracting and retaining members will be critical for super funds that wish to create scale and ensure they are sustainable, which they said will be particularly important as members move into retirement.
Financial advice was also highlighted as a key theme for this year, with KPMG’s experts noting the difficulties in how funds provide or make quality advice accessible due to the current regulatory settings, concerns about the financial viability and the risks of providing advice.
Additionally, transformation and digitisation as well as increased prudential requirements from APRA are also anticipated to be dominant themes in the year ahead.
“2023 sees no respite from the hard work superannuation executives and trustees need to do to ensure they are providing excellent member outcomes and keeping up with member expectations,” Ms Howes, Ms Butler Beatty and Ms Elkins said.
“With the growing size and importance of superannuation funds in the financial services system, regulatory reform and scrutiny will also continue at pace to ensure Australia continues to have a world-leading superannuation system.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.