The Productivity Commission has made another "compelling" argument for economies of scale in superannuation, estimating it to save the industry $340 million each year. The benefits however, aren't flowing to members.
In its final supplementary paper, the Productivity Commission presents strong evidence for scale opportunities that are not being realised by super funds.
Over the last 13 years, scale benefits have mounted to $4.5 billion, but is hasn't translated to lower fees charged to members. This could signal a lack of competitive pressure on funds to reduce costs, or impediments to gaining scale that could contribute to inefficiency, the report said.
Modelling over the period shows the majority of funds realised economies of scale in administration and investment fees.
On average, administration expenses are typically lower in larger funds, while corporate funds are realising economies most rapidly, it said.
The average fund, for example, grew from about $900 million to $8 billion over the period and reduced its admin expenses from 58 to 44 basis points.
On the investment side, economies of scale in investment expenses are more pronounced for corporate, public sector and retail funds than industry funds.
This could be reflected in industry funds using higher-cost, unlisted assets with members potentially benefiting through higher returns, it said.
At the system level, potential cost savings associated with scale could be achieved through organic growth and investment returns or contributions, as well as the exit of higher cost funds.
Furthermore, the Productivity Commission said gains "can and should" also come from super funds consolidating.
By way of example, significant potential savings of $1.8 billion can be realised from a merger between the 50 highest-cost and 10 lowest-cost funds.