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Slowing member growth driving consolidation
The maturity of the superannuation system when it comes to membership is the driving factor behind the consolidation in the industry, according to REST chief executive Damian Hill.
Considering there are just over two accounts for every person, the industry is almost "overripe" in terms of membership, he said.
However, he added the system was immature in terms of assets, because Australians had only been contributing 9 per cent of their income to their superannuation for the past 10 years. He stressed the need to increase the superannuation guarantee to 12 per cent to ensure Australians had enough for their retirement.
"Asset growth and contributions should grow going forward, but membership is not going to grow at anywhere near the rate it has. Indeed, many funds have zero or negative member growth," Hill said.
The decrease in member growth is putting pressure on costs and revenues, which explains the consolidation the industry has seen in recent years, he said.
"When account balances rise, you have a huge increase in engagement. And what do engaged members want? More service. So the whole revenue/cost model is coming under strain - regardless of the regulatory challenge," Hill said.
The industry was effectively dealing with the challenge of maturing membership by looking to mergers and economies of scale, he said. Most of the mergers at the moment were between smaller funds looking to become 'medium' funds, he added.
When it came to mergers for REST, Hill said it was not a top priority for the fund - but he was open to the idea if it could add capabilities.
"That's not to say we couldn't get more scale. We can be more selective in our process. We keep an open mind to mergers and acquisitions out there, but we want to be fairly strategic about what we do," he said.
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