Why So Many Superannuation Funds Are Merging

Fees and government reforms are driving consolidation among Australian retirement funds.

Illustration by II

Illustration by II

A flurry of mergers are taking place among Australian superannuation funds.

The most recent of these deals was revealed Monday by Mercer. The consulting and outsourced chief investment officer firm, which also operates a superannuation fund, announced that it was merging with BT Super to create a A$63 billion (US$42.3 billion) defined contribution fund for Australians.

“Cost and performance are two drivers for the combination,” said Rich Nuzum, executive director for investments and global chief investment strategist at Mercer.

Mercer and BT Super aren’t the only ones facing those pressures. According to Nuzum, Australian funds typically include a 35 percent allocation to alternative asset classes, which generally charge higher fees. “Australia is a market that leads the rest of the world in a lot of ways including inclusion of alternative investments in flagship investment default option,” he said.

With a larger pool of capital, superannuation funds gain more leverage to negotiate on investment terms like fees — as well as tap into better investment opportunities for their pensioners. Nuzum noted that the top-performing alternative investment funds rarely have capacity for new investors, until an existing investor can no longer re-up.


These alternative investment firms want to be able to call the large, sophisticated allocators that they know can more easily deploy $100 million or $200 million, he said. “If you’re bigger and seen as more sophisticated, you’ll get more of that access,” Nuzum added. “It’s a competitive fight for performance and fees. All else equal, more scale is better.”

But the spate of mergers among Australian superannuation funds isn’t just driven by the desire to save on fees. The Australian Prudential Regulation Authority, the financial oversight arm of the nation’s government, has been urging superannuation funds to consolidate in an effort to improve defined contribution plans for participants.

In 2021, the country passed a “Your Future, Your Super” law, which requires superannuation funds to undergo annual performance testing. The test compares a super fund’s eight-year rolling annualized performance to APRA’s strategic asset allocation benchmark. If the fund underperforms by more than 50 basis points, it fails.

“It kind of drew a hard line with commercial consequences,” Nuzum said. “If you fail the APRA performance test twice, you’re not allowed to take on new members.”

According to data from KPMG’s 2022 Super Insights report, between 2011 and 2016, there were 15 mergers — also known as successor fund transfers — larger than A$500 million. In the three years between 2017 and 2019, that number grew to 17. Seventeen more deals were announced in just the two years between 2020 and 2021.

There are a number of deals on the table now, including a merger between Vision Super and Active Super, a merger between Cbus and EiSS, and a merger between Care Super and Spirit Super.

The Australian Retirement Trust has been particularly active, having made three merger announcements just this year. The most recent is a memorandum of understanding, announced on March 13, to explore a merger with Alcoa Super, which manages A$2 billion.

More combinations are likely to come.

In 2022, Margaret Cole, deputy chair at APRA, said in a speech that the group believes that there are still “too many” superannuation funds on the market. And KPMG reported that in 2022, APRA said that 38 out of the country’s 78 funds were “sub-scale.” In other words, these funds are ripe for consolidation.

“Beyond the confusion it causes members, we see far too much duplication in design and strategy, which is inefficient and contrary to the functioning of a vibrant competitive market and contrary to the best financial interests of members,” Cole said during that speech.