APRA cites 63 super funds not big enough to survive

The Australian Prudential Regulation Authority (APRA) has ramped up its rhetoric around removing smaller superannuation funds from the industry citing 63 funds which have less than $2 billion in assets under management.

At the same time, the APRA member in charge of superannuation, Margaret Cole has claimed that this compared to Australia’s largest superannuation fund which is growing by $20 billion every year.

Addressing a Melbourne forum, Cole said that it was “clear that standing still is going backwards”.

She claimed that APRA had found that half of small funds (with assets under $10 billion) faced sustainability issues with declining net cash flows and member accounts.

“The smallest funds (with assets under $10 billion) are facing the most adverse trends in net cash flows. Even medium-sized funds (in the $10 billion to $50 billion range) generally displayed negative trends, with only six funds having positive net cash flow ratios,” she said. “Unless they can reverse those trends, many, if not most, of these smaller funds will likely face challenges in addressing underperformance, such as high fees and poor investment returns for members.”

Elsewhere in her address Cole said that APRA was aware of at least 10 superannuation fund mergers currently under formal discussion but added that “there are still too many funds and products in the market”.

“Beyond the confusion it causes members, we see far too much duplication in design and strategy, which is inefficient and contrary to the functioning of a vibrant competitive market and contrary to the best financial interests of members,” she said.