Top 500 private companies: superannuation thriving

Money continues to flood in to our retirement funds.

Growth in superannuation savings is speeding up.

Who would have thought that the decline in mining in Australia would be balanced by a major surge in workers’ savings? Who could have imagined that the nation that has been a net importer of capital for more than a century would now be contemplating how life might change thanks to a nice big pile of superannuation?

Fact is, however, we have saved up more than $2 trillion — and every new June 30 balance date, at least until the recent lurch, suggests the growth is speeding up.

The latest set of IBISWorld numbers shows that our 35 biggest industry superannuation funds had annual revenue of $105 billion in the year to June 30, 2014, up marginally from the $104.5bn in the previous year.

Sebastian Chia, senior industry analyst at IBISWorld, sees huge positives. “Assets are growing strongly and the annual investment returns for the 2014-5 year were upwards of 10 per cent in many cases,’’ he says. “Getting around 10 per cent is pretty good, given the low rate of inflation below three per cent. In fact, super funds have had a very good run in the past five years so their bigger problem will be how to maintain that rate.’’

There’s always a lag in the numbers, perhaps, because of the sheer scale of the contributions, and it’s also worth pointing out that industry super funds individually have some bumpy numbers caused by mergers. For instance the biggest super fund in Australia, Melbourne-based Aussie Super, had some massive jumps in revenue in the year to June 30, 2013, because it had swallowed two other super funds, AGEST and the IBM staff super fund, during the year.

The AGEST fund (Australian Government Employees Superannuation Trust) was worth $5bn alone while the IBM fund was smaller at $1.8bn, but the net effect on IbisWorld’s numbers was to deliver a 191 per cent increase in revenue for the year to $24.9bn. That’s because not-for-profit superannuation funds count the arrival of new money as revenue, even though it belongs to members. It’s no easy matter merging, by the way. The AGEST deal in February, 2013, involved transferring assets in 24 different investment options, with more than 570 individual lines of investments held in 22 countries around the world.

The 2013-4 year wasn’t quite so exciting for Aussie Super, declaring a 15.1 per cent drop in revenue to $21.15bn. The main part of that was that Aussie Super did not manage any mega-mergers in the year. The other point is that if members retire and take a lump sum, that money leaves the pool. Also, as is happening regularly now, some members with high balances who are still in the accumulation stage of saving are setting up their own self-managed super funds (SMSFs). The effect is not dramatic but it adds to the exodus of money from a fund that doesn’t actually have a balance sheet of its own.

The Aussie Super management has pointed out something else that wasn’t in the IBISWorld numbers: there was a very welcome 20 per cent lift in investment income between the two years reported. It rose from $7.9bn to $9.5bn over the year. On those numbers, we should not be surprised to have a $10bn annual investment income from one super fund alone coming up on our screens — if not for the year ended June 30 2014, then soon. Given the way our super pile is growing, you can rely on it.

Chia says the trend in super funds is for consolidation at the top and at the bottom of the scale. “It’s driven by costs, particularly in administration technology,’’ he says. “It’s just cheaper”.

Other super funds to report a boom year in revenue terms were Prime Super (previously the Australian Primary Superannuation Fund), which jumped from 31st to 20th place because it merged on May 1, 2014, with Health Industry Plan Super. Melbourne-based Vision Super, which owes its origins to the Australian Services Union which covers local government and water employees, pulled off a similar jump from 25th to 12th place, complete with a 78.5 per cent lift in annual revenue, thanks merely to a rejig of its working relationship with the Local Government Superannuation Trust. In simple terms, two funds have stated reporting as one and the effects on reported revenue have been dramatic.