Is your fund ready for the superannuation gold rush?

With approximately 35 million super accounts spread among 10 million working Australians, Peter Philip reveals the mother lode of small and duplicate accounts expected to trigger a ‘super gold rush’, and asks: how prepared is your fund?

Those super funds that are not careful and vigilant in the coming years, are in danger of being consolidated out of existence from an imminent ‘super gold rush’ as funds try to stake their claim on members in a veritable ‘land grab’.

With about 35 million super accounts in Australia for only about 10 million working Australians, there are a lot of wasted, duplicate accounts collecting fees and charges. Make no mistake – there will be winners and losers as funds strive to persuade members to consolidate into their fund.

In the wake of the Cooper Review’s 177 recommendations, and the government’s acceptance of 139 of those, account consolidation is set to become a primary focus for the industry and the government in the next few years. 

While it is generally recognised that super consolidation is necessary, there is considerable fear in the super industry of government-driven fund consolidation, and this, I believe, is what will drive the superannuation gold rush as funds try to get to members first.

If you were administering a super fund, what would you rather do: actively influence your members to consolidate their super with your fund, or leave it to a government process?

If we assume that the government will implement some form of automatic consolidation within the next two to three years, then there remains only a limited timeline for funds to defend their membership. And it’s set to become competitive with funds competing aggressively to convince members to consolidate to them.

The process of members consolidating increases the average account balance, and we know that members with higher account balances are more involved with their super and take ownership of it.

It will lead to ‘stickier’ members; once they have decided to consolidate with a fund, they are more likely to remain in that fund. Lower member churn and higher account balances lead to more profitable fund operations. 

It’s a virtuous position if you are on the right side of the equation. Unfortunately it could be a death spiral for those funds that are net losers in member consolidation.

One of the continuing obstacles for funds is that the majority of the Australian public remain unengaged with their superannuation. 

There seems a huge amount of inertia surrounding super – for some, it’s not a real enough issue.

But if the average Australian took all of the small amounts of super they have tucked away in forgotten funds, the sum becomes larger and, so too, does the impact on their future financial well being.

My advice to funds is to commence aggressively marketing for members to consolidate – if you are not actively campaigning, then your competitors probably are. 

What does your fund efficiency look like with 50 per cent of your members gone? What are your plans to ensure that your fund is a net winner in the consolidation race?

Once a member has been consolidated away from a fund, the fund has lost the opportunity to communicate with that member and the opportunity to convince the member to consolidate to them is lost forever. 

Obviously, those funds that are already taking action (and there are many) are more likely to emerge the winners. 

Even with aggressive marketing strategies, consolidating super accounts is still a convoluted, confusing and frustrating task for the customer. We need to continue to simplify the process to ensure that account consolidation is an easy process for the member. 

There exists a consensus that there are funds with policies that purposely put roadblocks in the way to try to frustrate or slow down the process of member account consolidation.

These actually work against the industry as it will eventually provide the government with justification to move in and take away control from funds – after all, it is the member’s money.

The government has signalled a timeframe for implementation of the Stronger Super policies by 2015. Auto consolidation will no doubt play a part in these plans and many funds are already well advanced in their consolidation strategies to ensure they present as winners from this process. 

How prepared is your fund?

Peter Philip is the CEO of SuperChoice.