The competition regulator has warned that the cost of managing Australian retirement savings accounts could increase if a potential merger between two leading superannuation administrators is approved.

The NSW government is preparing to privatise its superannuation administration business, known as Pillar, and some super funds are worried that it will be acquired by the sector’s largest provider, Link Administration Holdings.

Most local super funds outsource all or part of their administration tasks to the specialist third party providers and Link already accounts for around 80 per cent of that market.

The tasks include document management, payments processing and accounting.

Earlier this year Link publicly indicated its interest in acquiring the Pillar operation, which currently administers more than 1.1 million superannuation accounts for various funds including First State Super and State Super.

However, the chairman of the Australian Competition and Consumer Commission, Rod Sims, warned that the merger could come at a cost to millions of super fund members across the country.

“The ACCC is concerned that the possible acquisition is likely to substantially lessen competition in the supply of superannuation administration services by entrenching Link’s dominant position, resulting in lower service levels or higher prices, which will ultimately be passed on to fund members,” he said.

Mr Sims observed that Link and Pillar were the only providers competing for business among the largest super funds in the country.

“The ACCC is concerned that the possible acquisition will remove the only alternative superannuation administration services provider with the demonstrated capacity to supply administration services to larger funds in competition with Link,” he said.

ACCC chief Rod Sims worries about costs. Photo: AAP

“It would also remove the potential for an alternative owner to further invest in Pillar’s offering and make it an even stronger competitor to Link in the future.”

Bill Watson, the chief executive of First Super, believes a merger of the two rivals would likely result in higher costs being passed on to members of super funds that relied heavily on outsourcing.

“This would be like Coles and Woolies merging in the supermarket industry,” he said. “There simply will be no competition and that would not be in the best interests of super members.”

David Haynes, the executive manager of policy at the Australian Institute of Superannuation Trustees said that systemic risk was also an issue for the retirement savings sector if most of the administration was outsourced to one provider.

The ACCC will consider submissions from superannuation industry participants before deciding whether it could approve a merger of the two companies