Insights into a $120 billion merger

  • By Kate Weber

More superannuation mergers will continue to take place over the next decade on the back of greater regulatory scrutiny and greater focus on governance. 

Speaking at the last AB+F/Randstad Leaders Lecture for 2019, First State Super Deanne Stewart made this assessment of the changing super industry as First State Super plans ahead with its own merger with VicSuper. 

According to Stewart, there will be “significant consolidation” over the next five to ten years with the 200 approximate players in the market.

This will lead to further mergers like First State Super and VicSuper resulting in less funds but more dominant players, similar to the landscape in the banking industry. Indeed, it was only recently that P&N Bank finalised its merger with bcu as it eyes further merges in the sector. 

First State Super and VicSuper first announced their merger in July this year resulting in the second largest profit-to member super fund, managing $120 billon in retirement savings across 1.1 million members. The fund is expected to grow to $130 billion by mid next year. 

“What $130 billion does is it enables you to really drive down costs for your members and ultimately fees. 

“Which then means that's more dollars for retirement and for a better future for our members. “That's really at the heart of why we're doing,” Stewart said.

Asked what the name of the new combined superannuation fund would be – one audience member advised it should be: Australians First – Stewart noted that it was important that the branding would incorporate the message that deal was a “merger but not with a takeover mindset”. 

Here she highlighted that the biggest risk confronting the merger fund was around managing people. Stewart recognised that there could be a level of anxiety felt by staff during the merger. “For us it was about going hard and fast to reduce the people risk and this meant communicate; communicate and communicate. We made sure that all the leaders were across the big issues.”

Execution was another risk. “Anyone involved in a merger knows they are not easy beasts to manage. Superannuation is a highly complex business. We knew that there was much risk involved by bringing the two funds together along with all the systems in place.

“We brought in an A team to keep across the issues and that meant strong resourcing on BAU [business as usual] to effectively execute the merger. It was a delicate balancing between resourcing and ensuring we had the capability to manage those risks.”

Not surprisingly, technology was another big risk and the funds remain focused on bringing all the systems together while also focusing on BAU. Stewart also spoke about other key drivers in superannuation. 

Stewart praised Australia’s global leadership in superannuation, considering the population is around 25 million, Australia is the largest pension player in the world despite the ongoing changes. 

“There is significant change going on post royal commission into financial services and a productivity commission specifically into superannuation. 

“What that's meant is on top of almost annual regulatory changes, a whole wave of changes that are coming our way as well as very heightened expectations of regulators being ASIC and APRA and their whole way of operating is also changing.”

One aspect Stewart said the superannuation industry has failed is the structure of funds which are unable to offer benefits to those who work part-time. 

According to Stewart the current fund structure sees fulltime corporate workers rewarded the most as employers don’t have to pay superannuation into part-time workers. 

Often this demographic are women who juggle a home-work life balance resulting in one in three women are retiring with no super said Stewart. 

“Lots of companies don't pay superannuation on paternity leave or maternity leave. 

“They might for those during the first 12 weeks but then if you take a year off or two years off, there's no superannuation pay. 

“What you're finding therefore is that when women and men are retiring, women on average are retiring with 42 per cent less superannuation because it just has this compounding impact.

This creates a societal issue of both 40 per cent of all the single women retiring in poverty and exacerbating homelessness. 

“This is an area that we are certainly advocating needs to change in our industry and that needs to be dealt with head on.”

The full report is included in the AB+F December/January edition.