The Next Wave of Super Consolidation

The Next Wave of Superannuation Industry Consolidation: Insights for 2025

As Australia heads into 2025, the superannuation industry is at the brink of a major shift, with consolidation being the defining trend. The landscape is evolving rapidly, driven by economic pressures, regulatory scrutiny, and the need for enhanced operational efficiencies. For senior leaders and executives in superannuation, understanding the factors behind this wave of mergers is crucial for strategic planning.

A Look Back: Recent Mergers and Their Impacts

The Australian superannuation industry has been consolidating at an accelerated pace in recent years. From 2021 to 2023, the sector saw a surge in mergers, driven primarily by the need to achieve economies of scale and deliver better outcomes for members. A notable example was the creation of the Australian Retirement Trust in February 2022, formed by the merger of QSuper and Sunsuper. This $231 billion entity became a major player in the industry, signalling the beginning of a trend towards fewer but larger funds​. By the first half of 2023, the trend continued, with over 10 major mergers taking place, such as the mergers of Cbus Super with Media Super, and HESTA with Mercy Super. As noted in KPMG’s Super Insights 2023, the rise of “mega funds” has created new battlegrounds, particularly in terms of member acquisition, retention, and retirement strategies. These large funds are well-positioned to offer enhanced services and lower fees.

While there has been a slowdown in the number of mergers since 2021, 2023 saw the completion of several high-profile consolidations, including the merger between Spirit Super and Care Super, creating a $50 billion fund​

2025: Why More Mergers Are on the Horizon

The outlook for 2025 suggests that the Australian superannuation industry will see even more merger activity. According to J.P. Morgan’s Future of Superannuation report, up to 20 mergers annually could become the norm as funds strive to remain competitive and comply with stricter regulations.

KPMG highlights that mergers will continue to be driven by both regulatory pressures and the need for economies of scale to reduce fees, improve member outcomes, and enhance investment strategies

Key drivers of these mergers include:

1. Regulatory Pressures: Initiatives such as “Your Future, Your Super” (YFYS) have imposed stricter performance benchmarks and reporting requirements on funds. APRA’s performance test has been a catalyst for smaller or underperforming funds to seek merger partners​.
2. Economic and Investment Challenges: The past few years have seen significant volatility in global markets, prompting super funds to diversify their investments, particularly in offshore and private market assets such as real estate, infrastructure, and private equity​.
3. Operational Efficiencies: Mergers allow funds to scale up their operations, reduce costs, and improve performance through enhanced investment management capabilities. As more funds exceed AUD$100 billion in assets, they can leverage their size to invest in global markets and pursue alpha in private assets​.

As super funds grow, their investment strategies have increasingly shifted towards private assets and global diversification. J.P. Morgan’s report Future of Superannuation highlights how funds are leveraging their size to access unlisted assets, such as infrastructure, real estate, and private equity, which provide stable cash flows and diversification benefits​. This trend has been particularly prominent among larger funds, such as AustralianSuper, which allocates a significant portion of its portfolio to private assets​.

UniSuper, for example, has increased its exposure to unlisted infrastructure and private equity, a strategy that has delivered strong returns and helped diversify risk. Funds like UniSuper are also expanding their global footprint, with some establishing offices overseas to access new investment opportunities​.

This shift towards global investment and private assets has been essential for super funds as they navigate the challenging investment environment. The rise of alternative assets, particularly infrastructure, has been a key performance driver for many large funds, allowing them to achieve long-term outperformance even during market volatility​.

For senior leaders in the superannuation industry, the consolidation trend presents both opportunities and challenges.

Opportunities:

• Enhanced Member Outcomes: Larger funds are better positioned to offer members improved investment options and potentially lower fees. With greater assets under management, they can also access a wider range of investment opportunities, particularly in global markets and unlisted assets​.
• Strengthened Competitive Positioning: As the number of funds shrinks, the remaining larger funds will dominate the industry. This consolidation could allow for more focused growth strategies, particularly in asset classes like infrastructure, real estate, and private equity​.

Challenges:

• Cultural and Operational Integration: Merging two or more funds is never straightforward. Executives must navigate the complexities of integrating different operational systems, investment strategies and assets, and corporate cultures. The success of these mergers often hinges on how effectively leaders manage this transition​.
• Member Communication: As funds merge, there is a risk that members may feel disconnected or uncertain about the changes. Clear and consistent communication about how these mergers benefit members is crucial for maintaining trust​.

What to Expect in 2024 and Beyond

Looking ahead, several mergers are expected to be completed in 2024, such as the Australian Retirement Trust’s acquisition of AvSuper and Alcoa Super​. As mega-funds grow, their focus will increasingly shift towards enhancing member services, improving retirement income solutions, and pursuing more innovative investment strategies.

Key Takeaways:

1. Prepare for a Competitive Landscape: The industry is evolving towards fewer, larger funds. To stay competitive, leaders must focus on building resilient investment strategies, improving operational efficiencies, and exploring global investment opportunities​.
2. Manage Member Expectations: Mergers offer opportunities for growth but can also create uncertainty. Prioritising clear communication with members about the benefits of mergers is essential for retaining trust and member satisfaction​.
3. Focus on Integration: Successful mergers depend on the seamless integration of systems, people, and strategies. Leaders must be proactive in addressing potential friction points to ensure that the merger process is smooth and beneficial for all stakeholders​.

A New Era for Superannuation

The Australian superannuation industry is at a pivotal juncture. The consolidation trend that began in the early 2020s is set to continue, with 2025 likely to see a dramatic reduction in the number of funds. For executives and senior leaders, this presents both opportunities and challenges. By understanding the drivers of mergers and positioning your fund to thrive in this new landscape, you can ensure that your organisation remains competitive while continuing to deliver strong outcomes for members.

As we move into this new era, strategic foresight, operational excellence, and member-centric communication will be the keys to success.