Reserving stipulations could stymie mergers

27 July 2010
| By Benjamin Levy |
image
image
expand image

Forcing super funds to hold certain levels of capital reserves could stymie future mergers between funds with different reserve balances, according to managing director of Towers Watson Andrew Boal.

Speaking at the Association of Superannuation Funds of Australia briefing in Melbourne last week, Boal suggested that dictating a compulsory level of capital reserves could become a stumbling block to future fund mergers as members of a fund with greater reserves try to prevent the other fund from gaining access to those reserves in case of investment loss.

“I can see this situation coming through in our industry, [that] if one fund has a reserve of 1.3 per cent of assets, and other fund has a reserve of 0.2 per cent of assets, the members [can say]: ‘If we merge, I don’t want those members to have access to my reserve’,” Boal said.

“So that can actually start to become a bit of a roadblock to mergers or complications down the track of how reserves get used, post-merger environment,” he added.

Such a situation had already arisen with corporate super funds, Boal said.

While he was in favour of the Cooper Review’s recommendations of risk reserves being established and being used by fund members, talking about a minimum and maximum level of reserves was “a little strange”, Boal said.

“Reserves are there to be built up, and when you have an incident you use them. So I can foresee situations where the reserve will be run back down to zero, and then you start again. That’s the nature of reserving,” he said.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

10 months 2 weeks ago
Kevin Gorman

Super director remuneration ...

10 months 3 weeks ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

10 months 3 weeks ago

The central bank has served up a disappointment for punters on Melbourne Cup Day....

53 minutes 54 seconds ago

The fund’s inaugural chief retirement officer is looking to establish a new venture. ...

5 hours 41 minutes ago

The sovereign wealth fund remains cautious of the impact of high inflation as it announces a strong return in its latest update....

23 hours 44 minutes ago