Aussie Super Set to Hit $5 Trillion

Can Australia’s superannuation funds hit the $5 trillion mark before the financial year is over?

It is a really interesting question with a lot of moving parts but on current trends you would have to think that they will do it easily – although it wouldn’t take too much of a disturbance on world markets to turn the quest into Mission Impossible.

Incredibly, total superannuation assets hit just short of $4.8 trillion in the last financial year according to recently released Australian Prudential Regulation Authority figures, meaning they achieved a 9% rise for the year.

If the funds can repeat that result then they will make it with plenty of room to spare—getting to $5.23 trillion, which would be a combination of returns on investments plus further employee and employer contributions.

Don’t Count Returns Early

Assumptions can be very dangerous things in financial markets though and counting on a 9% total return before it has been earned would be foolish in the extreme.

Should the overall return be closer to 4% then the $5 trillion target will probably still be achieved while anything much lower and even negative will put a lot of reliance on continuing contributions to make up the numbers.

Obviously, there are a lot of moving parts, particularly in a year in which pending capital gains tax changes have put more focus on superannuation as one of the most tax effective investment structures remaining.

Big Funds Keep Getting Bigger

The APRA figures also highlighted how the big funds continued to get bigger over the past year, with industry funds' assets jumping 16% year on year to $1.8 trillion so that they made up 38% of total super assets.

Self-managed super funds rose by 4% for the year and reached $1.1 trillion in assets, making up 23% of super assets.

Retail super funds grew by an impressive 10% over the previous year but didn’t quite crack the $1 trillion mark with $933.2 billion.

Public sector funds also grew by 10% over the period to $653.8 billion.

Interestingly, the retail sector is less concentrated with 48 entities while the industry funds are down to 19 and the public sector to 10.

There are also two corporate funds left in Australia—the Mercer Super Trust and Russell Investments Master Trust.

Mercer Super Trust has more than $71 billion in assets under management while the Russell Investments Master Trust has about $11.3 billion.

Next Stop $12 Trillion

While $5 trillion might be the short-term aim for the super sector, accounting giant Deloitte in examining the figures predicted that the total asset pool will exceed $12 trillion by 2045.

It also said consolidation and mergers would continue to reshape the super sector with the remaining two corporate funds likely to eventually move into public offer industry funds or retail master trusts that have become aligned with their industry or provide the flexibility to maintain current insurance arrangements.

As for the biggest players, Deloitte sees twelve "mega-funds" with assets of more than $100 billion dominating within the next few years.

Deloitte believes public sector superannuation funds will "continue to grow over the coming years, albeit at a slower pace and increasingly concentrated in accumulation rather than retirement assets.”

"While public sector funds will continue to benefit from ongoing contributions for active members, their overall asset growth is expected to moderate as mature membership profiles, benefit payments and scheme specific funding arrangements increasingly offset inflows."

Some of the larger government funds include the Public Sector Superannuation Scheme, Military Superannuation & Benefits Fund No 1, and CSS Fund.