Industry superannuation funds will become the largest single segment in the superannuation industry by 2020, according to new research from KPMG.
The growth in the industry funds sector has been so strong that in 2018 assets in the sector overtook those in retail funds, a sector traditionally larger than the industry sector. In December 2018 industry fund assets totalled $629 billion compared with $589 billion in the retail sector.
And by the end of 2020, industry funds are expected to have more assets under management than the self-managed super fund sector which has been the industry leader, KPMG found.
In December 2018, the SMSF sector had $726 billion under management but was growing more slowly than the industry sector.
The overall performance of the superannuation industry was strong in 2018, with the APRA-regulated (Australian Prudential Regulation Authority) sector growing by 10.3 per cent in 2018, despite the cloud created over the retail sector by the banking royal commission. The self-managed superannuation fund sector grew by 6.4 per cent in 2018.
KPMG’s report, based on 2017/18 APRA figures, found that the APRA-regulated sector ended the year with assets under management (AUM) of $1.8 trillion while the SMSF sector closed at almost $750 billion.
In total, the assets supporting the superannuation sector closed 2018 at almost $2.72 trillion, some 39 per cent higher than the market capitalisation of the Australian share market.
The industry fund sector grew membership over the year with member numbers growing by 1.39 per cent. This growth was largely at the expense of the retail sector, where membership declined 5.2 per cent during 2018. Industry fund assets under management grew by 16.3 per cent, compared with the retail fund sector growth of 5.9 per cent.
Public sector funds grew at 11.2 per cent, whilst corporate funds continued to struggle with assets declining by 4.5 per cent, mainly due to a number of mergers during the year.
The industry has performed well
Paul Howes, KPMG head of asset & wealth said: “Despite the increased volatility in the market and greater competitive pressures, the superannuation industry continued to deliver strong outcomes for members overall.
“But with the royal commission final report released in the current financial year, it is likely that the trends identified in our review, particularly between the retail and industry fund sectors, will be exacerbated, driving materially different growth rates across these sectors.”
Mergers will rise
KPMG found that increased regulatory and competitive pressures will lead to more fund mergers in the next few years, significantly reshaping the structure of the market.
“We also see an acceleration in mergers in the sector – last year we predicted that the number of funds would halve over the next decade, but we now believe this will be nearer to five years than 10,” Mr Howes said.
“Assets across the super industry are expected to grow, although more slowly than in prior years. That will be driven by the likelihood of lower returns and increasing outflows due to the ageing population and recent policy changes,” Mr Howes said.
By 2029, KPMG predicts the total super asset pool is projected to reach $5.4 trillion. Growth in industry fund assets is likely to accelerate relative to other sectors, with employers and members leaving the retail sector and transferring their assets to industry funds after the royal commission, KPMG found.
By 2029 industry funds will be the largest sector with over $2 trillion in assets. Both retail and public sector fund assets twill grow at half the rate of industry funds and will reach $1.2 trillion and $0.9 trillion respectively by 2029.
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