Should my fund continue to exist? The answer to this question three months from today may produce different answers to the same question if asked earlier in 2020.

Smaller funds with members concentrated in vulnerable industries are taking most of the heat around viability during the coronavirus crisis, but cracks are showing up across many funds.

In the past weeks, both Australian Prudential Regulation Authority (APRA) and government representatives have indicated zero tolerance for inabilities of any super funds to successfully accommodate early access hardship withdrawals to meet the needs of their members.

As at Thursday 16 April, the ATO had received 881,600 registrations of interest for early access super (source ABC). The Federal Government have forecasted around $27 billion will be drawn down by about 1.5 million people, but other projections indicate that figure could be double. The early drawdown scheme commences from today April 20.

The current crisis is shaping up to be the final straw for APRA to abandon previous grace periods for lower performing or ‘at risk’ funds and to exercise aggressive directives to force mergers. Helen Rowell deputy chairman of APRA warned:

"If the coming period reveals a super fund has been managed in a way that would prevent members accessing their money promptly, APRA's directions powers - especially sections 131D and 133 of the SIS Act, updated last year by the Parliament - gives APRA new teeth that may well be tested," (source AFR).

Rethinking the future

In addition to managing the significant spike in financial hardship obligations, a quagmire of newly exposed weak points may cause a number of funds to re-think their future.

The strain of the last several weeks is being felt in many ways across technology, contact centres, digital offerings, compliance, advice, insurance, investment governance (e.g. levels of liquidity), investment performance and so on.

Six reasons super funds may look to merge in the wake of COVID-19

1. Funds with homogeneous member bases may look to diversify to a broader cross-section of the economy.

2. Small to medium funds may look laterally to regain strength and reduce overheads by forming a collective ‘co-op' investment and administrative vehicle while keeping separate trustee offices and identity. This 'collective’ concept has been implemented in Canada for instance.

3. Funds with sub-par or antiquated technology, operations, administration, etc, may elect to leapfrog upgrades with a merger.

4. Larger funds may respond quickly to new opportunities during this period and approach smaller funds with efficient and nuanced capabilities, market-leading member journeys and experiences, high Net Promotor Value scores, attractive membership bases, new geographies, new relationships and so on.

5. Higher engagement means members will be taking more interest in their fund’s performance, service level and fees. Funds that haven’t met member expectations during this period may find members voting with their feet.

6. APRA may force the merger issue for some funds.

Merger outcomes can be extremely positive

While contemplating a merger may not be the most pressing priority right now, post-pandemic it will be higher on the agenda than ever before for many funds. If a merger is to be considered, it can be advantageous (not essential) if at least one of the parties has prior experience.

Naturally, there are a series of tough questions that start the merger conversation. The distraction for funds engaged in merger talks is very real, very resource intensive and occurs all while running the fund in parallel.

Ultimately, merger outcomes can be extremely positive for all parties involved; most importantly for members and employers. Mutual respect and value are the basis for achieving wins all-round.

QMV has supported clients across countless super fund mergers, successor fund transfers, transitions and transformation programs. We can assist funds considering this as a strategic option with market compatibility analysis and ongoing advisory, right through to successful delivery.

Best regards

Anthony

Anthony Forbes - Practice Lead

HOW CAN QMV HELP?

QMV offers flexible and timely advice and consulting support to the superannuation sector. We are ready to provide standalone advisory, mobilisation of a consulting team or an individual resource.

QMV is here to help with the extenuating challenges and additional workload faced by your organisation via:

• Advice and strategy for immediate priorities and subsequent strategic vision for 2020/21.

• Project strategy, direction and oversight.

• Preparation of policy and procedure documentation.

• Delivery of online specialist support to your remote workforce.

• Technology uplift and data management.

• Risk, regulation and compliance.

• Communications strategy for internal staff and members.

Mark Vaughan - Managing Director
mvaughan@qmvsolutions.com and +61 413 082 011.

Michael Wilcox - National Manager, Strategic Partnerships
mwilcox@qmvsolutons.com and +61 472 817 237.

QMV provides trusted advisory, consulting and technology to Australia’s leading superannuation, insurance, banking and wealth management organisations. For further information please telephone our office p +61 3 9620 0707 or submit an online form.

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