Despite sailing through Parliament last month, the government’s super reforms are still being hotly debated, with specialist consulting firm Right Lane the latest to point to the possible creation of further flaws in the super system, including uncompetitive outcomes.

According to associate principal of Right Lane, Abhishek Chhikara, the reforms carry a real risk of creating a less competitive system that is dominated by a handful of mega funds.

“The recent reforms are aimed at addressing structural flaws in the system such as multiple member accounts and fund underperformance.

“However, the changes will disproportionately affect small and medium-sized funds, challenging their viability and potentially forcing them out of the system. This could lead to a system dominated by mega funds, with no room for quality specialist funds,” said Mr Chhikara said.

He explained that the dismantling of the default distribution system will have a significant impact on specialist funds, which will ultimately be forced into “retailisation”.  

“Historically, many funds have efficiently grown members through default distribution channels. However, the Your Future, Your Super reforms will ‘staple’ a member to their first or existing fund, considerably shrinking the default system.

“To maintain growth, many funds will be forced to compete for new members through direct-to-consumer channels. This ‘retailisation’ of funds will drive up costs and diminish the competitiveness of many quality specialist funds,” said Mr Chhikara.

This could in turn force some funds out of the system, creating a relatively undifferentiated super system with three to five mega funds.

“The changes are likely to solidify the position of a few large, fast growing funds, with the capability to invest in direct acquisition, the capacity to keep pace with increasing compliance requirements, and the courage to persevere in the face of ever-growing scrutiny.

“For the rest, the pressures of slowing growth, falling revenues and rising costs may force them into decline,” said Mr Chhikara.

According to him, an ideal system would comprise between three and five generalist mega funds plus between seven and 10 specialist funds.

“Such a system, not too fragmented and not too consolidated, will deliver an optimal mix of competitiveness and efficiency,” said Mr Chhikara.