Super money flows into big industry funds: KPMG

Industry super funds are continuing to increase their market share, with major funds seeing continued cash inflows, according to KPMG.

Industry super funds are continuing to increase their market share.

Industry super funds are continuing to increase their market share, with major funds such as AustralianSuper, Australian Retirement Trust, Hostplus, UniSuper, Cbus and REST seeing continued cash inflows, while retail groups such as AMP, Insignia, Mercer and CFS are still suffering net outflows, ­according to a report by KPMG.

The annual KPMG Super Insights report shows that industry giant AustralianSuper continues to increase its market share, taking in a net $19.5bn in the financial year to June 2023 – a figure that was equal to the net cash flows of the three largest super funds during the year.

This was followed by the country’s second-largest fund, Australian Retirement Trust, which recorded net inflows of $7.9bn over the year, followed by hospitality industry fund Hostplus with $6.2bn, and HUB24 at $5.4bn.

The report shows there has been a significant net outflow of funds from the self-managed superannuation sector – down about $10bn over the year.

ASX-listed wealth group Insignia suffered the largest net fund outflow over the year of about $3bn, with retail groups Mercer, CFS and AMP showing smaller net outflows. But the report notes that the net outflows from these retail groups has fallen in the 2023 financial year compared with the 2022 financial year.

The report shows that stapling is now beginning to have an impact on fund flows as more members carry the same super fund through their working career, benefiting funds that are used by younger workers such as Hostplus (which had a net cash flow ratio of 7.5 per cent), AustralianSuper (net cash flow ratio of 7.2 per cent), and retail sector fund, REST (net cash flow ratio of 5.4 per cent).

Hostplus had the highest net cash ratio of the top 13 super funds, benefiting from the fact that many workers have hospitality as their first experience in the workforce. “Both stapling and increases in the superannuation guarantee contributions continue to support net inflows of these funds, with many members now carrying these funds throughout their working career and seeing a 0.5 per cent increase in SG contributions from the previous year,” the report says.

The report says HESTA, UniSuper and Australian Retirement Trust “continue to demonstrate relatively healthy net cash flow ­ratios”, while Insignia, AMP, CFS and Mercer have experienced negative net cash flow ratios.

But it notes that the retail funds have “gained traction” from the previous financial year.

“This appears to have been achieved by stemming the flow of rollovers out and focusing on the core aspects of their offerings such as fees and performance,” it says.

KPMG’s national sector lead for asset and wealth management, Linda Elkins, said the main force behind the outflows for the retail wealth groups now was that they had a much greater proportion of members in retirement mode, who were taking their money out of their funds.

She said the fallout from the royal commission into misconduct in the financial sector on the big retail funds had stabilised, with the major retail players having made significant changes to their business model and operations.

Two smaller retail fund groups, HUB24 and Netwealth, have continued to show strong growth, with the HUB24 having a net cash flow ratio of 27 per cent over the year and Netwealth experiencing 15 per cent.

Ms Elkins warned that there were longer-term issues of sustainability for a large number of smaller funds.

A significant number of smaller super funds – those below the top 13 funds – are now operating at or close to zero net fund flows, showing a combination of loss of members to larger funds and the structural shift in the sector as more people retire and start taking their money out of super.

The report shows that there are now seven $100bn megafunds or groups that dominate the superannuation industry: AustralianSuper ($300bn as of June 30, 2023), Australian Retirement Trust ($255bn), Insignia ($181bn), Aware ($161bn), UniSuper ($125bn), AMP ($111bn) and CFS ($109bn). They were followed by a second group of six that continued to see strong growth.

The year saw an average investment return of 8.62 per cent for the superannuation sector – a sharp turnaround from the fall of 3.09 per cent the previous year when global sharemarkets fell in the wake of the pandemic.

The report shows that the retail sector continues to dominate the retirement side of superannuation with its strong connection to financial advisers.

But industry funds are edging up their market share in the retirement side of super as they retain more members into the pension phase.

“This reiterates the importance of funds developing retirement product (and) services to meet their retired members’ needs,” the report says.

The report shows the seven largest super funds outperformed the rest of the industry over one, five and 10 years when it came to investments.

Total assets of the sector grew by 7.6 per cent to more than $3.5 trillion over the year due to a combination of strong inflows and investment performance.