Superannuation industry stakeholders are in talks with the prudential regulator to devise a lower cost option for fund mergers, with smaller funds currently facing the potential of being priced out of merger opportunities.
Appearing as part of a session on super mergers, PwC partner Catherine Nance has said it's not unusual for the total cost of a super fund merger to reach 10 basis points, a cost that has a greater impact on smaller funds as they could see their reserves wiped out overnight.
As such, Nance confirmed that some industry participants are currently discussing alternatives with APRA.
"A few of us are talking to APRA about finding a lower cost option, particularly for smaller funds to move into larger ones," Nance confirmed.
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Of the roughly 180 super funds currently operational, Nance said half are less than $1 billion in size and a further 60 are less than $10 billion.
"Our view is that over the next three to five years, we will get down to 30-50 super funds; five to 10 in the mega range, 20-30 in the mid-sized and five to 10 smaller funds that will still be left, because there is a role for smaller funds," she said.
She said this means there is currently about $1.5 trillion in assets in play when it comes to potential industry consolidation over the coming years.
"If you're talking about $1.5 trillion in play, the 10bps is an awful lot of money to wash up against the wall to get a consolidated, rationalised industry," she said.
However, she did say merger costs can also be an impediment to larger funds too. Where a large fund is "like an elephant swallowing a pea", that fund will incur costs when undertaking due diligence on the smaller fund.
"It's very hard for them to prove that's actually in the best interests of their members, because they're not going to see a cost saving but they will see a cost to do it," she explained.
"I think there is a whole bigger issue around the cost of merging at the moment."