The three-month extension of the capital gains tax (CGT) rollover relief is a win for trustees seeking to partner with a larger fund, but fund mergers are not the be-all-and-end-all of capturing scale benefits.
That's according to Deloitte Australia partner Wayne Walker, who said Deloitte supported the Cooper Review's conclusion "that there were clear, demonstrable, and substantial scale benefits "whereby larger super funds could generally deliver equivalent performance at a lower cost to members" than smaller funds.
"Without this relief, those funds intending to merge could only do so if they were prepared to effectively write off their deferred tax assets," he said.
"These assets are substantial for many funds and can amount to as much as 2 per cent or even more, of total fund assets. To write this off is a major decision that in the short term would translate into lower account balances for those members changing funds."
Walker said he also supported the Government's decision to not mandate a threshold fund size that would constitute a fund merger, arguing that mergers are not the only avenue for capturing scale benefits.
It is possible for small- to -medium sized funds to access scale through partnerships with service providers including administrators, asset managers and insurers.
This approach has the added benefit of maintaining a fund's focus on meeting the specific needs of a relatively small target market, Walker added.
Walker said that in spite of the extension to the CGT relief, it was still important for a super fund to regularly and objectively assess its competitive position on a case-by-case basis.
Evidence is mixed on whether larger funds do deliver superior net long-term returns to members than smaller funds, Deloitte stated.
"What is certain is that the investment strategy decisions taken by trustees and their advisers have the potential to far outweigh scale benefits," Walker said.
