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APRA research confirms benefits of scale
The Australian Prudential Regulation Authority has delivered new research which seems to confirm the benefits of superannuation funds merging and achieving the benefits of scale.
According to the research, size definitely matters in terms of driving cost benefits.
The research, contained in a paper developed by Dr James Cummings titled 'Effect of fund size on the performance of Australian superannuation funds', found that larger funds, both in the not-for-profit and retail sectors, had significantly lower operational expense ratios to net assets.
It said this finding suggested that larger superannuation funds were able to spread fixed costs associated with administration and IT infrastructure over a larger asset base.
"Furthermore, not-for-profit funds with larger account balances per member have significantly lower operational expense ratios," the paper said.
It said this suggested that not-for-profit funds with larger member balances were also able to reduce variable costs, such as those associated with member interface and insurance claims management.
The paper said that while they benefited from spreading fixed costs over a larger asset base, retail superannuation funds did not realise any reduction in variable costs from administering larger member balances.
"In sum, this paper provides strong evidence that the performance of not-for-profit superannuation funds improves with fund size," it said.
"Based on this evidence, fund members are likely to benefit from further industry consolidation in the not-for-profit sector."
AUTHOR
Mike Taylor
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