Personal contributions to superannuation fell into a funk last year as savers closed their wallets while the debate raged around the Turnbull government’s controversial superannuation reform package.
The latest figures from APRA show that Super Guarantee payments and defined benefit payments grew at a decent clip, in fact at better rates than wages growth and employment. Salary sacrifice payments were also strong as workers chose to put aside some extra cash from their fortnightly pay.
But when you get to the voluntary payments area things changed. Personal, or non-concessional, contributions fell 12.2 per cent to $19.3 billion seemingly as a result of people losing confidence in the system while the debate raged over the shaper of superannuation reforms.
The nadir for personal contributions was the September quarter, the period that the super debate raged at its most fierce, with some Coalition members threatening to cross the floor and vote against the measures.
After the original measures were watered down with a lifetime non-concessional cap of $500,000 being scrapped, confidence appeared to return. Contributions in the December quarter recovered reasonably well.
This decline in personal contributions combined with a 7.6 jump in benefit payouts to $67.2 billion to reduce the net position. That rise in payouts is being driven by a rise in retirements among baby boomers and is a trend set to continue into the future.
As a result, net contribution flows were down from $37.9 billion in 2015 to $30.7 billion last year.
Overall, superannuation assets grew strongly for the year, rising 7.4 per cent to $2.19 billion. APRA regulated funds rose 8.8 per cent n value to $1.36 billion while the burgeoning self-managed sector grew a little more slowly at 8.3 per cent.
However SMSFs appear to be retaining their popularity. The number of funds operating rose from 562,215 min December 2015 to 585,260 in December 2016, according to APRA figures.
However, outside the SMSF sector, consolidation is under way in the sector. This is driven by two factors: the move away from corporate funds as companies give over their super responsibilities to bigger industry and retail operators: there is also a move for smaller funds lacking economies of scale to fold into larger competitors.
What’s more, this trend is expected to continue, especially given APRA’s recent commitments to encourage consolidation.
“In April 2015, APRA issued shots across the bows of underperforming funds when (deputy chair) Helen Rowell suggested that the regulator was expecting continued consolidation and would focus on ensuring that trustees were proactive about their future, including the possibility of mergers.”
“When funds created their MySuper products, they provided a three-year business plan. None anticipated negative growth in membership,” Rice Warner said in a recent report.
“Yet many funds are shrinking. In 2016 there were 83 of 219 funds with negative net flows. It is not reasonable to expect these funds to be able to provide their members with the best possible service whilst under this type of fiscal pressure.”
“Rice Warner research into superannuation fund expense levels has confirmed that scale benefits are a major driver in reducing costs. Operating expenses reduce significantly with scale. In particular, funds with more than $10 billion tend to have materially lower investment expenses than other funds,” the research house confirmed.