Super funds merging, is it good or bad for members

I am not sure if you have noticed, but in the last year alone we had that many super funds’ mergers, that I can no longer follow who is who and who merged with whom. There are new super funds names appearing, and the old long-standing funds disappearing, and lots of members are worried thinking: “Is that good or bad for my fund, for my retirement and for my future?” And those are very legitimate questions that you should be asking, trying to understand why there is a merger, is the move beneficial for you and why, and what course of action, if any you should take to ensure your long-term benefit is protected.

And today I want to answer the question that I keep receiving:

“Why are super funds merging?”
and
“What impact do those mergers have on your bottom line?”

So let’s start with those basic questions first:

Why are super fund merging?

As explained in my video: “8 Changes to super“ in 2021/22 financial year, our government has introduced many changes to our superannuation system and that also includes many changes to super funds that all trustees need to follow, for example: “best financial interest duty test” or introduction of “naming and shaming super funds that would not have met the annual performance test”.

This high degree of pressure, together with a scrutiny of fees charged by super funds introduced the situation, when some smaller funds decided to merge with bigger funds, or bigger funds just want to swallow smaller ones once they have the chance to improve their market share.

Therefore, we could say that this recently passed “Your Future, Your Super” legislation, together with APRA’s performance test forced number of super funds rethink their ability to continue the business while providing a benefit to their members.

some are now in progress:

As a member of either a smaller, joining fund or the bigger fund that acquires a smaller fund, you should really start paying attention how such a merger impacts you and your long-term benefit, and not just simply accept the marketing spill that super funds keep feeding you.

Things you should check before accepting a new fund:

1.Fees
2. Available investments and performance
3. Insurance provided
4. Other services, such as for example advice

So let’s go over each in more details:

1.     Fees

Fees are most likely just about the only thing that you can control within the fund. The lower the fee charged, the more money stays in your fund, the higher the balance that can be invested. In theory, the more you save on fees, the more should stay in your fund and be available for your retirement. Therefore, reduction of ongoing fees is important and beneficial for the long-term outcome of your fund. So it only makes sense to check if by joining a new fund, you will actually benefit from the change and that your fees will not increase due to that compulsory merger. If you are not sure how to assess your super fund’s fees, please read: “Fees you pay in super”. This video will explain different types of fees charged by different types of super funds.

2.     Available investments and performance

Investment choice is greatly underestimated by many investors, who tend to accept the default option, which does not need to the be the most suited option for your needs or for your risk profile. But when funds are merging, you need to check if the investment portfolio you are in will continue to be available, and if not, which option you would be transferred to and what choices are available to you. At the end of the day, the long-term investment returns are the most important ingredient in achieving the satisfactory retirement balance in your super.

3.     Insurance provided

You might not appreciate the importance of insurance in your super but keeping your insurance intact during and post a merger should be your goal. You should inquire if there is going to be increase in the premium charged or decrease in a benefit provided, or any other rules to be introduced for your insurance to stay current and appropriate. As a general rule, you as a member should not suffer any insurance cover loss due to a merger, but it is essential that you double-check if this is really going to be the case.

4.     Other services, such as for example providing advice

Some advice is better than no advice, therefore if your super fund can provide you with some even basic information about the superannuation as your long-term investment, that should only be beneficial. Please don’t expect your super fund to provide you as a member with the full financial planning advice for free. Also, this advice is not going to be independent or impartial, purely because it is in the super fund’s interest that you stay with them and not move to another fund. Super funds are limited to a general advice of the actual fund or some basic superannuation rules. Some super funds employ their own financial planning team, but it is not a free service and most certainly the advice is far from being independent. Nothing will replace the true, unbiased advice you receive from the licenced financial planner that is not aligned with any financial institution, but as I said before, the basic super fund advice might be a good start.

So what is the bottom line for you as an investor? Well, those mergers are now a fact of life, they will happen whether you like it or not, whether you approve or not. So it is your job to assess if the merger is to you benefit, or your detriment. If unsure, speak to a financial planner that does not work for either of the companies to give you a true picture of the merger outcome.

I do hope we will not end up with the same situation as in banking: big 4 and few little banks in the superannuation space. I have always been a believer that competition is healthy and beneficial for consumers. If we ever end up with a big 4 super funds due to ongoing mergers, there is no point of reference, the competition is gone and we might as well forget about trying to achieve better retirement outcomes, as it would be completely out of your control.

So as for now, we do have far too many super funds in Australia and some consolidation is not a bad idea, I just hope this is where it will stop, otherwise the superannuation system will become a one huge joke and a source of business for big industry funds or corporations rather than a real retirement fund that honestly has your benefit at heart.

If you need an unbiased advice, then book a meeting with me via my website, we can spend an hour together going over your situation and I am certain even that one hour will assist you get some clarity how to deal with your savings, super and your cashflow to improve your overall financial position.

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement