Two-tier super system emerging: KPMG

The 2018 installment of KPMG's Super Insights report highlights the emergence of a two-tiered superannuation system.

According to KPMG's analysis, the superannuation system in Australia is splitting into two tiers, as small funds experience initial net outflows after leaner contributions and more transfers to other funds. Conversely, large funds experienced higher increases in assets under management and greater contribution flows than smaller counterparts.

KPMG head of asset and wealth management Paul Howes forecasted challenges for smaller funds as a result of the Productivity Commission's review into the efficiency of the superannuation system.

"The evidence suggests that a two-speed economy is beginning to develop within the industry," Howes said.

"The Productivity Commission's (PC) review into the efficiency of the system will place significant challenges on smaller funds - and should it recommend a limitation of existing default awards then this could spell the end for many small funds. While rationalisation has happened very slowly, we believe the pace will quicken sharply in the next few years."

The former AustralianSuper deputy chair and director added that corporate funds would most likely face the greatest consolidation pressure.

"The corporate fund sector is likely to face the greatest consolidation pressures, while the industry and public sector funds are expected to see a 50% reduction in fund numbers and we expect this to be slightly less in retail. By contrast we see the SMSF sector continuing to expand," Howes said.

Commenting on the firm's expectations that superannuation regulatory changes will not end immediately, KPMG superannuation advisory partner Adam Gee said Royal Commission scrutiny on the vertical-integration business models used by wealth businesses may impact other areas of the industry.

"It seems likely that the RC scrutiny on banks' vertically-integrated wealth businesses will see greater pressure placed on some sectors of the industry - we must hope that nothing happens which would run counter to the interest of fund members - and possibly prejudice the ability of funds to meet the new 'member outcomes' requirements," Gee said.

Read more: KPMGProductivity CommissionSuper InsightsPaul HowesAdam GeeAustralianSuperRoyal Commission
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