The decline and fall of corporate super

The days of corporate superannuation funds and specialist corporate superannuation fund advisers are numbered with new analysis pointing to them remaining in steady decline in terms of both members and funds under management for at least the next decade.

The bottom line is that establishing a corporate superannuation fund is no longer attractive to employers and consultants advising the corporate superannuation fund sector say they cannot remember a new corporate superannuation fund being started in the past 20 years.

Corporate superannuation funds were once regarded by major companies as a means of gaining and retaining employees, but new analysis from specialist research house Dexx&r has spotlighted the fact that even those major corporates that remain are outsourcing their funds to industry funds and master trusts.

This has prompted Dexx&r to radically accelerate the rate at which it believes funds under management and advice (FUM/A) in the corporate funds sector will fall over the next 10 years.

“Employer-Sponsored Master Trust segment FUM/A is projected to decrease at an average rate of 1.1% per annum to $138.4 billion at 30 June 2031, down from the $155.0 billion reported at June 2021,” the Dexx&r analysis said.

“Net cash flows are estimated to be negative $4.9 billion at 30 June 2031.”

What is more, Dexx&r is predicting that 60% of these outflows will be into industry funds with the balance of 40% being transferred into the incumbent administrator’s Personal Super facility.

The Dexx&r analysis was validated by Deloitte superannuation partner, Russell Mason who said that with the exception of a small number of multi-nationals, major corporates were no longer being attracted to providing superannuation funds for their employees.

“It used to be that the superannuation funds could be used to attract and retain staff by offering higher superannuation guarantee contributions and more generous insurance but that rarely any longer the case,” he said.

“Establishing a corporate fund is expensive and time-consuming from a regulatory standpoint and mid-sized corporates are just not that interested any more.”

The Dexx&r analysis said the decline in corporate funds had been “accelerated to a greater or less degree by the following factors:

• The Your Future, Your Super measures;
• Ongoing APRA recommendation that smaller funds merge to achieve economies of scale;
• Continued downward pressure on administration fees when compared to industry funds making this segment increasingly less profitable for current administrators;
• Cost of migration of legacy Employer Super platforms onto current platforms; and
• The absence of a specialist distribution channel to generate new business and provide employers and members with personal advice.

Mason said that in addition to the factors itemised by Dexx&r he believed that choice of fund and stapling would also act as significant drags on corporate funds.