Super changes keep on coming as Hostplus swallows Maritime Super

Australia’s $3.4 trillion superannuation system is going through a period of intense change, as shown by the just announced “merger” between Hostplus and Maritime Super.

While this is called a merger, it is really a forced takeover, with Maritime’s poor record as the worst default fund ensuring it needed to be subsumed by a big player.

The Australian Prudential Regulation Authority (APRA) last year ranked Maritime as the worst performing default fund, with the $6 billion fund returning an average of just 6.98% a year over the past seven years.

The fact that Maritime’s entire board will be discarded shows that this chronic underperformance has resulted in essentially a wholesale takeover by Hostplus, which will still market a separately branded Maritime fund with specialist insurance.

However, by the time the merger is finished in early 2023, Hostplus will be an $80 billion fund that is effectively handling all of the investment and administration functions, greatly reducing administration costs.

The merger follows an unsuccessful attempt to merge the funds last year which would have left super members still paying for a board that had no control over investing the funds.

After that a competitive tender process for a merger partner was entered into, with Hostplus the winner.

Super funds now must help members transition to retirement

The latest merger – which is sure to be followed by many more as underperforming funds are swallowed by larger funds with greater scale – comes as legislative changes will see super funds charged with helping retirees navigate the transition to retirement.

Superannuation funds will now be required to offer financial advice and new products to members approaching retirement under laws recently passed by Parliament.

The legislation included a retirement income covenant that demands trustees of super funds “formulate, review regularly and give effect to a retirement income strategy for beneficiaries who are retired or approaching retirement.”

Shrinking financial planning ranks reduce advice options

That change has been made more essential as the financial planning industry has been shrinking dramatically, making it very difficult for many to get retirement advice.

Left to their own devices, many retirees simply withdraw their super and spend or invest it, which can be a very expensive mistake given the possibilities of combining even small superannuation balances with the age pension to achieve a better standard of living.

Even the common tactic of using super to pay off remaining housing debt is seen as a mistake or at least a lost opportunity for many people.

Under the new rules, funds will have to contact people in the run up to retirement and offer them advice, which could help them avoid some major mistakes.

Leaving funds in accumulation can be taxing

One of those mistakes commonly made is to leave superannuation in accumulation mode after a person retires instead of moving it into pension mode.

That ensures the individual must pay tax at 15% on the earnings inside the fund compared with being totally tax free in an account-based pension.

The only disadvantage of moving into pension mode is that there will be minimum drawdown rules, which require you to withdraw a minimum percentage of your super each year.

However, if these funds are not needed, they can still be invested outside super.

That minimum withdrawal percentage changes from 4% for those under 65 all the way up to 14% for those who live to 95 or more.

Those minimum drawdown level were halved during two years of the pandemic but will go back to normal in the 2022-23 financial year.

Drawdowns were halved to prevent people having to sell shares at a time when share markets had fallen due to the pandemic, although that was hardly applicable in the second year which saw a rapid market recovery.