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No excuses left for super funds not to merge
There are no excuses left for superannuation fund trustees who are reluctant to merge, according to Assistant Minister for Superannuation, Financial Services, and Financial Technology, Senator Jane Hume.
Some of the excuses were myths and some were attributed to bad behaviour that would not be tolerated in the post-Royal Commission era, she said at the Association of Superannuation Funds of Australia’s (ASFA) conference in Melbourne today.
Hume pointed to an excuse that said “that no self-respecting trustees would ever want to merge with it and absorb its investments. This fund is the desperate and dateless of the superannuation world. Horrified that such a fund exists I have asked exactly who it is, but no one ever seems to be able to name this notorious fund”.
She said that all assets must legally be marked to market regularly and if there was a problem with assets, trustees were already under a legal obligation to own up to it.
“Moreover, APRA [the Australian Prudential Regulation Authority] has already shown they’re willing to grant ‘extended public offer’ licenses, which allow trustees to operate a public offer fund, as well as one or more non-public offer funds. This mechanism could be used to allow for a separate ‘sleeve’ of new members from the incoming fund to remain segregated for a while, as impaired assets are worked out,” she said.
“Effectively, this would enable two funds to merge in stages: First, combine their back offices to extract administrative cost savings, and then merge the asset pools at a later stage.”
Hume said there was also a common concern of difficulties in combining two products previously offered by two separate trustees.
“But again we’re seeing funds merge right now while operating two products with an ‘extended public offer’ licence granted by APRA,” she said.
“The funds can retain individual arrangements in areas such as strategy, brand development and member/employer relations.”
Hume said she also did not buy the excuse that the tax implication for members could be disincentive preventing funds from merging as there was a temporary tax relief for merging super funds and the government was working through making it permanent through passing legislation.
“So, tax uncertainties should not be an impediment to fund mergers. We’re running out of excuses,” she said.
Hume noted that there were also some assumptions that trustee directors were reluctant to merge their funds for fear of losing their own jobs in the process.
“Equally, I have heard that their appointing shareholders, to whom director remuneration is sometimes channelled, and who may be concerned about losing an income stream, might be the cause of a directors’ reluctance to approve a merger,” she said.
“I find this accusation outrageous. There is no chance that directors are unaware of their duties and obligations. And we hear almost daily that super funds themselves are increasingly imposing significant governance demands on the companies in which they invest.
“So, they must know that what is good for the goose is good for the gander.”
Hume pointed to the fact that when listed companies merged, Australian Securities Exchange (ASX) directors might not get appointed and that ASX Corporate Governance Principles specified that in such cases directors are not entitled to severance pay.
“Such principles must equally apply to trustee directors in a merger. But if you are a professional, ethical, trustee director – as the vast majority I know certainly are – you know this already,” she said.
“Fear of losing a sinecure is the last thing on your mind when considering what’s in the best interests of members and weighing up a possible merger. So, that too can’t be the reason for funds failing to merge.”
She noted that funds that had under $1 billion should be looking to merge and said the Productivity Commission found that many of the APRA-regulated funds that had less than $1 billion in assets consistently underperformed.
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