Deloitte eyes more mergers and product innovation

Superannuation funds will be focused on ongoing merger activity and strengthening retirement strategies and product solutions in the next few years, according to Deloitte's Dynamics of the Australian Superannuation System report.

The report forecasted that merger activity will continue, resulting in the development of larger funds and mega-funds with assets exceeding $100 billion. Subsequently, the number of market participants is expected to shrink, and up to 12 mega-funds are expected to emerge in the coming years. A similar prediction was made by Mercer in its recent Shaping Super report.

"These funds will increase their foreign investments due to their size and the relative size of global opportunities compared to the small Australian market. They will also increase investment in privately held assets," the report said.

Additionally, Deloitte observed that account consolidation has been continuing at pace, driven by market and legislative forces, including funds and financial services providers encouraging members to consolidate their superannuation arrangements. The ATO is also actively working to provide information through the MyGov portal to help individuals identify if they have multiple super accounts and consolidate them into the account of their choice.

The stapling measures under the Your Future, Your Super legislation, introduced in November 2021, have been an additional driver in this area.

"Initiatives such as account stapling and proactive consolidation of small accounts by the ATO seek to boost further consolidation of accounts which will reduce the drag of unnecessary fees associated with multiple accounts for an individual as well as make it easier for people to keep track of their superannuation," the report said.

Meanwhile, retiring members need guidance to manage their retirement savings. They'll need to balance not drawing down too quickly and risking outliving their savings with not drawing down too slowly and living more frugally than necessary, the report said.

The Retirement Income Covenant (RIC) aims to improve outcomes for members, but funds lack complete information on their members. As such, trustees must develop a plan to address the data gaps to "construct better segmented cohorts of members."

The RIC also provides "real opportunities as well as challenges" for the industry to innovate and develop retirement products to enable retirees to manage the dual risks of longevity and investments, while still being simple and easy to understand, Deloitte noted.