Global investment can change Australia’s superannuation landscape, for the better
Tim Barber, Mercer Super CEO
International investment in the Australian superannuation sector can drive innovation, foster competition, and bring global scale and capability that improves outcomes for members.
Better still is a scenario where global players have a significant presence in and a commitment to Australia and, by definition, an interest in seeing the local market grow and prosper.
Leveraging global scale and capability for a local setting, with the associated resources and world-view approach, will help to propel the industry forward, particularly as it continues to evolve.
Ultimately, the retirement of Australians will be stronger for it.
We’ve seen this dynamic play out in sectors like banking or custody and administration in recent decades, with the steady influx of international players creating a competitive tension that demanded better products and services, sharper pricing, and an innovation mindset that raised the bar for the domestic ‘incumbents’.
The Australian superannuation ‘establishment’ is faced with the same challenge, and opportunity.
With the average life expectancy rising and cost of living pressures mounting, we’re working longer and contributing more to our superannuation balances. According to the latest Intergenerational Report, Australia’s superannuation system is expected to be worth $34 trillion by 2061.
And, as our collective retirement savings continue to grow, so must the structure that houses and protects it go to a new level.
But it’s a two-way street.
In addition to increased attention from global firms, we’re seeing Australian funds pursuing opportunities offshore. Australian funds have increased their exposure to global private markets, like infrastructure and property, in the hunt for attractive, risk-adjusted returns. This requires deep local knowledge and a boots-on-the-ground approach.
An industry ripe for innovation, and transformation
Australia’s super fund industry is highly regulated and has a rigorous licensing process. Those with the credibility, scale, capital backing, and a propensity to invest will thrive.
As the fourth largest pension system in the world with assets that consistently deliver strong performance, Australia’s superannuation industry is an attractive market and has already caught the eye of large multinational players like Mercer, KKR and Vanguard.
And it’s why Mercer chose to pursue a successor fund transfer with BT Super. In going down this path, we know that it serves a fundamental shift in the order of things. It shakes up a domestic superannuation industry in need of genuine competition, and it delivers a range of benefits for the 850,000 plus members that come together – benefits that come from global backing and a balance sheet to invest in a wholly better member experience.
Capital and footprint matters
Global firms mean global backing and global capital.
But, big is only better where there’s a capacity to access and direct significant capital resources in a local context. Scale is one thing. Deriving economies of scale is where the global-local model comes to the fore. It allows funds with assets that meet critical scale thresholds (as stated by the regulator), the capacity to spread costs across a bigger membership base and, in turn, push fees lower.
Certainly, the transfer of assets from BT Super, which adds local scale to Mercer’s global scale, will see fees for the Mercer Super Trust sit at up to 25 per cent lower than the cohort of Australia’s so-called mega funds.
A global perspective allows for a deeper understanding of offshore markets, and the capacity to leverage opportunities that local funds may not be able to harness. This ultimately means improved investment outcomes and more choice for members.
Notwithstanding the push towards consolidation, and if we accept that diversification promotes competition, there remains an important place for small and medium-sized funds including profit-for-member offerings, for those which serve particular niche customer segments or communities.
That said, they need to consider how they remain sustainable and competitive, and where partnering with larger outsourced providers can deliver scale and efficiency on behalf of their members.
The industry has a duty to keep striving for better on behalf of Australia’s superannuation beneficiaries.
Funds that can bring a global perspective and capability to the market, backed by the scale and financial means to drive better member outcomes, will be the ones that remain relevant and sustainable for the long term.