Industry super to dominate at $1 trillion by 2024

Industry super to dominate at $1 trillion by 2024

The lead will continue to open up until assets held by industry funds surpass $1 trillion in 2024, on their way to $1.7 trillion in 2033.

By that time they will have cornered 37 per cent of a market projected to be worth $4.8 trillion in today’s dollars.

SMSFs will hold 30 per cent of super assets, while for-profit retail funds such as those currently owned by banks will have 23 per cent of the market.

Once dominant funds losing share

Rice Warner chief executive Michael Rice said the once dominant corporate and retail funds were experiencing significant declines in market share.

“As recently as 15 years ago, they held more than 40 per cent of all superannuation assets; today they hold less than 30 per cent,” he said.

Mr Rice said retail funds were suffering because of their “relatively poor product offerings compared to the large industry funds”.

Russel Mason, who leads Deloitte’s super consulting and advisory services, said corporate Australia had completely shed its early reticence about using industry funds.

“In the early days they were called union funds and many employers were very anti them,” he said.

“We run a lot of corporate super tenders and it is exceptionally rare for an employer to say that they don’t want at least some industry funds included in the tender process.”

In the June quarter of last year, industry funds’ asset holdingsfor the first time exceeded retail funds– $632 billion to $622 billion.

‘Significant role’ in global economy

The milestone prompted Industry Super Australia chief executive Bernie Dean todeclare victory in a long-running fight with banks.

He estimated that industry funds could gain one-in-five retail fund members due to the fallout from the Hayne royal commission.

“Playing such a significant role in the national and global economy is not something that we take either for granted or as a right,” he has said.

Morethan $5 billion flowedout of super funds owned by AMP and the big four banks into industry funds AustralianSuper, Hostplus and Cbus in the six months to September last year, an influx influenced by the royal commission.

Industry funds now hold $23 of every $100 in Australia’s retirement savings.

The influence of non-profit super funds– which includes industry and public sector funds – on corporate Australia was on display during the 2018 AGM season.

Funds in this category are estimated to have accounted for half of the “no” vote against Telstra’s remuneration report,forcing chairman John Mullen to admit executive pay was “too high”and should be reviewed.

The SMSF establishment ratehit a 10-year low in 2017, dropping to 4.8 per cent from a high in 2010 of 9.3 per cent, according to a survey for investment management company Vanguard.

‘People choosing with their feet’

Mr Mason said SMSF growth had slowed because of a combination of people realising how expensive and difficult they can be to run and tighter restrictions on spruiking by accountants and financial advisers.

“I think they have their place for certain individuals who have the assets and skills to run them,” he said.

“But there has been a lot of rationalisation and a good portion of those people will have moved to industry or retail funds. I’ve seen a lot of smaller SMSFs wound up.”

There are demographic factors at play too. A large proportion of SMSFs are in pension mode, which means their assets are being run down.

Industry funds, on the other hand, dominate default funds in employment agreements, guaranteeing a steady flow of new members.

But as Industry Super Australia has previously noted, it is investment returns that have turbocharged the growth of that sector.

“The shift to industry super funds is not surprising,” an ISA spokesman said on Tuesday.

“Industry funds are run to benefit their members, and have largely avoided the scandals that have mired the retail sector.

“People are choosing with their feet.”

Industry funds tipped to keep growing

Industry funds had a market share of 15.5 per cent in 2004. It will have grown to 36.9 per by 2033 on Rice Warner’s projections.

Retail funds, on the other hand, will have gone from a market share of 35.7 per cent to 23.1 per cent.

“The sector has been declining steadily over many years, with an 18 per cent reduction in market share over the last decade,” Mr Rice said.

“This is due to its reliance on the adviser market and its relatively poor product offering compared to the large industry funds.

“While individual financial institutions have large superannuation assets, these have been diluted across products and platform investments, so there have been few scale benefits in investments or administration.

“The late entry into unlisted assets has also provided a competitive disadvantage on investments.”

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