A new analysis of the Australian superannuation industry has run counter to claims by the Australian Prudential Regulation Authority (APRA) that there are no significant barriers to entry.
The analysis, contained in the latest IBISWorld Industry Report on Superannuation Funds in Australia state that the industry is “characterised by a high level of barriers to entry, although barriers are lower for self-managed super funds”.
This runs counter to an APRA analysis provided to the Productivity Commission which, while acknowledging there had been few new funds established, barriers were comparatively low.
Looking at the situation facing APRA-regulated funds, the IBISWorld report pointed out that to obtain APRA approval a trustee had to meet minimum capital requirements or provide an equivalent bank guarantee, or have a custodian that meets the requirements.
“Prospective trustees must also meet other guidelines for consideration by APRA, including the ability to carry out investment and administration functions; provide adequate resources such as staffing, computer and financial resources; and having adequate contingency plans in the event of unforeseen events, such as system failures,” it said.
The IBISWorld report said the superannuation licensing regime instituted by the Superannuation Safety Amendment Act 2004 had raised the barriers of entry into the industry. Trustees of APRA-regulated superannuation entities (RSE) were required to obtain a new RSE licence and register their entity. Self-managed superannuation funds and public sector funds have been exempt from this regime.
It said many larger funds had a substantial amount of funds under management and benefited from economies of scale, which could reduce expense ratios and provide investment opportunities in areas that are less accessible to smaller funds.
“Furthermore, the superannuation funds that are affiliated or owned by major banks have a competitive advantage, given the amount of cross-selling opportunities available to these financial institutions,” it said.
“For potential entrants, the sheer scale of distribution channels available to banks poses a major barrier and cannot be replicated easily, particularly without substantial capital.”
