A new job market entrant placed in one of these underperforming funds, compared to a fund performing in the top 25 percentile, could expect to be $660,000 worse off in retirement.
The Productivity Commission’s analysis also identified 93 funds with less than $1 billion in funds under management, robbing members of the potential economies of scale available to larger funds.
Ms Chester on Tuesday predicted “close to 100” super funds could cease to exist over the coming half decade as regulators home in on underperforming funds and implement a planned “right to remain” test.
“You’re looking at close to 100 funds exiting the system.” Ms Chester said.
She said ASIC already possessed powers to act against super trustees thanks to recent legislative changes introducing civil penalties for financial services licence holders who fail to act “efficiently, honestly and fairly”.
“It beggars belief that you couldn’t argue that merging those folk into a better performing fund wouldn’t be overall in their best interests.
“These funds are on notice… They should be either lowering their fees, sorting out their related party transactions, or lifting their performance and if not, withdrawing that product; and if they’re persistently underperforming themselves, working out which fund would be in their members’ best interest for them to merge with, and not waiting for regulators to come knocking on the door.
“But rest assured, ASIC and APRA [Australian Prudential Regulation Authority] will be knocking on the door.”
A senior executive at AustralianSuper, Paul Schroder, told Tuesday’s panel that individual super funds had no broader responsibility to pursue fund mergers unless it was in their own members’ best interests.
“Our trustee responsibility is to act in the best interests of the members of our funds and to make it as attractive as possible for other people to join the fund – that’s as far as our trustee responsibility goes,” he said.
The deputy chair of Industry Super Australia, Peter Collins, welcomed the regulator action.
But rest assured, ASIC and APRA [Australian Prudential Regulation Authority] will be knocking on the door.
Karen Chester, deputy chair of ASIC
“The priority has to be to weed out underperforming funds and get super fund members into top performing funds for the best possible financial outcome. I can assure you all industry super funds regularly look at merger opportunities, but there is really no stimulus at the moment – there is nothing to compel anyone – any director – to make any decision to merge.
“If you’re the fund that’s going to have the smaller fund merged into yours, it’s great. If you’re the small fund that’s going to be merged, it’s not so great. So, you’ve got a very human factor there and I think to prod things along, there is a role for the regulator.”
Jessica Irvine is a senior economics writer with The Sydney Morning Herald.