Appearing before the House of Representatives standing committee on economics on Friday (2 June), Margaret Cole, deputy chair of the Australian Prudential Regulation Authority (APRA), brushed off concerns over an erosion of competition in the superannuation industry.
According to the latest statistics from the Association of Superannuation Funds of Australia (ASFA), the number of funds with more than seven members fell 14 per cent over the past 12 months, 162 in May 2022 to 137 as at 31 May 2023.
But Ms Cole said this reflects an improvement in outcomes for members, with APRA’s periodic performance disclosures helping to stamp out inefficiencies in the industry.
“The heat maps on the performance tests and the push to transparency, that we’ve been very much pursuing for several years now, have driven efficiencies, and those efficiencies are consolidation of superannuation funds,” she said.
“That might be somewhat counterintuitive to the notion of competition, but in fact, it’s squarely appropriate.
“We would say that some of the entities that are not operating efficiently and delivering good value to members should be consolidating with others that can deliver better outcomes to members.”
Ms Cole noted that of the APRA-regulated super funds, the 10 largest funds have roughly 50 per cent of the industry’s total member base.
“What you have is a small number who have the large proportion of the market, and a large number who are relatively small,” she continued.
“We know that size and scale is an important feature of efficiency, performance, and lower fees.”
However, Ms Cole acknowledged the dangers of excessive consolidation and the subsequent impacts on competition.
“…Clearly, no one would want to get to a world in which that market became so shrunken down that there were problems with competition,” she added.
But she said, ultimately, the Australian superannuation industry is “nowhere near concentrated”.
“Truthfully, [competition] very far from a concern and probably for better, more efficient outcomes for members — more consolidation would actually be beneficial,” she said.
Ms Cole’s remarks come just a day after the news of the latest merger in the superannuation industry.
CareSuper and Spirit Super announced on Thursday (1 June) that they have entered into a binding agreement to merge the two superannuation funds.
The merger, which is expected to be completed in late 2024, will create a combined fund with more than 500,000 members and almost $50 billion in funds under management.