In her role as Assistant Minister for Superannuation, Financial Services and Financial Technology, senator Jane Hume was addressing the Association of Superannuation Funds of Australia (ASFA) when she said mergers of underperforming funds “would make our super system more efficient and could significantly benefit members”.

Pointing to the Australian Prudential Regulation Authority’s (APRA) pending release of a heatmap that will draw attention to areas of underperformance, Ms Hume said, “Trustee directors will have no choice but to look each other squarely in the eye and ask: Is our current business model really delivering the best outcomes for our members?”

“And if their fund is not delivering the best outcomes for members, or if it stands at increasing risk of not doing so, it [raises] the question: Should that fund merge? And, increasingly, regulators may come knocking to ask: Why has that fund not yet merged?”

While conceding that there are other ways for super funds to grow, the senator said: “Mergers provide a more sure-footed route to economies of scale than other activities, which may not have such a clear or readily measurable link to that outcome.”

Ms Hume cited findings from the Productivity Commission that approximately half of all APRA-regulated funds had less than $1 billion in assets, “many of which consistently underperform”.

“By way of illustration, the [commission] estimated that cost savings of more than $1.8 billion a year could be made if the 50 highest-cost funds merged with 10 of the lowest-cost funds,” she outlined.

“What does this mean for members though? Potentially an extra $22,000 at retirement for the average member.”

The senator indicated that “the pressure to create a higher-performing and more consolidated industry is only likely to increase”.

She said it’s no surprise Australia is seeing consolidation in some of the bigger funds – as many of them are already performing well.

But for her, “the pressure will be felt even more acutely by the smaller funds; funds in the sub $1 billion category (and climbing); or funds otherwise feeling the burn of APRA’s heatmap”.

“For the members of these funds – whose retirement incomes depend on superior performance delivered at lower costs – trustees will be faced with a moment of truth,” the senator forebode.

“We’re calling on those trustees to consider dispassionately what is the right thing to do.”