• Seven $100bn+ funds continue to grow; industry funds gain market share.
  • Negative investment returns cause overall small sector contraction.
  • Sector becomes increasingly stratified between mega funds, medium-sized and smaller funds.
  • Mergers, member retention and focus on retirement are the three main drivers of change.

The inexorable growth of Australia’s super sector hit the brakes last year, with a small reduction in fund assets in the year to 30 June 2022, KPMG’s annual Super Insights report has revealed.

But that contraction was not evenly split within the sector, with industry funds continuing to make ground – and with the largest seven funds pulling away from the rest of the field.

The review finds that, following market volatility , many super funds posted negative investment returns in FY22, with an average return of just under -3 percent. This led to a fall from total funds under management (FUM) from $2.8trn in 2021 to $2.799trn in 2022.

The top seven funds, however – all worth over $100bn – continued to grow, reflecting the ongoing impacts of mergers in the marketplace. But the composition has changed: in 2021, AustralianSuper was the only industry fund in the top seven – by the end of FY22, there were three industry funds were in that top cohort, replacing one public sector fund and one retail fund. These largest seven funds now represent well over half (58 percent) of the non-SMSF Australian super industry.

After the biggest seven, there are 5 funds of $60-100bn, then a significant gap to the next biggest fund at $32bn. There are 7 funds between $20-32bn and then a long line of smaller funds.    

Linda Elkins said; “Mergers, and the rise of the mega funds, are a continuing driver of change in the super landscape. Five more significant mergers took place in the year under review and nine other funds have now made merger or MOU announcements. The growth in the super sector was restricted to the largest funds, mostly due to that merger activity. The Australian super sector is becoming more clearly stratified by size of funds.”

The largest fund, AustralianSuper, added another $25bn in net cashflow in FY22 to strengthen its lead over the country’s 2nd biggest fund, Australian Retirement Trust (ART) – formed by the merger of Sunsuper and QSuper in 2021. Most funds in the industry are at, or close to, zero net flows.

In terms of growth by sector, only industry funds grew their overall assets – by 17 percent. This was in comparison to 2021, when retail, corporate and public sector funds also expanded. In 2022, public sector funds lost 40 percent of its assets although this was largely due to the creation of ART whereby QSuper’s $132bn fund was recategorized form public sector to industry. 

After overtaking the SMSF sector in terms of total net assets to become the largest category in 2021, industry funds enjoyed a significant 6 percent jump in market share – from 31 percent to 37 percent.

But there was some positive news for retail funds which enjoyed the largest average contributions per member – seven out of the top ten funds for average voluntary contributions were in the retail category.

Apart from mergers, the KPMG review looks at two other key drivers of competition between funds – member acquisition/retention and the increased focus on retirement in the sector.

Linda Elkins said: “A continuing and intensifying trend is the direct competition between funds to attract and retain members – the introduction of ‘stapling’ members to funds under the Your Future, Your Super legislation has meant there is less automatic change to a new employer’s fund when someone takes a new job.

"So in order to attract members and achieve organic growth funds are increasingly investing in digital capability and improving online offerings. We’ ae also seeing a variety of member retention initiatives and funds creating smooth member journeys – often including an advice element – from accumulation phase to retirement. This will be increasingly important with a more stable membership base who will age over time.”    

The report also focuses on the introduction of the Retirement Income Covenant, which requires trustees to prepare a retirement income strategy for members.

Linda Elkins said: “There is now a critical mass of retirees with a common unmet need – dealing with longevity risk and achieving a certain income for life. APRA requires that by the end of June trustees will have undertaken an assessment of their products and strategies. Members are now ranking certainty of income as a first priority in super fund surveys and will be increasingly looking to their funds to advise them on deciding the most appropriate strategy.

“Consideration of longevity insurance solutions is now front of mind for many funds, given members’ desire for secure income. A number of funds have now created Chief Retirement Officer roles, reflecting the market-wide shift in focus to retirement.” 

For further information

Ian Welch
KPMG Communications
0400 818 891