While super fund merger activity was already taking place prior to the introduction of the Performance Test, its introduction accelerated this trend, but has the period of fund consolidation slowed?
Super fund merger activity has slowed recently, largely due to the absence of Your Future, Your Super (YFYS) Performance Test failures in 2024 and 2025, and only one failure in 2023 in the case of MySuper products. This contrasts to the first two years of the test (2021 and 2022). In August 2024, Treasurer Jim Chalmers announced that government will be reviewing the Performance Test to address some of its unintended consequences, recognising that the test has achieved much of what was intended (i.e. removal of underperformers albeit with some collateral damage).
While super fund merger activity was already taking place prior to the introduction of the performance test, its introduction accelerated this trend and as a result, over the past five years, the number of MySuper products has declined from 76 to 43, excluding large employer plans. Similarly, the number of investment options in Chant West’s Super Fund Performance Survey’s Growth category (defined as 61 to 80% growth assets) has reduced from 68 to 39. The following chart highlights some of the more notable mergers over this five year-period.
Why merge?
Challenges with the Performance Test is just one motive for a merger. Indeed, there have been several mergers involving super funds that are unrelated to the test. So, what are the other motivating factors?
Performance Benefits - At a strategic level, super fund mergers are primarily about achieving greater scale to enhance long-term financial outcomes for members. This added scale enables super funds to:
Scale also allows funds to negotiate better fee arrangements with external managers and to internalise certain asset management activities. While internalisation reduces costs, its primary objective is to enhance net investment returns. Greater scale can also enable funds to lower administration fees.
Operational Benefits - Scale supports greater investment in technology, both within and beyond the investment function. This includes data management systems and campaign management platforms that help funds better engage members to help them get the most out of their super and improve service delivery. Additionally, a merger partner with internal administration capabilities can be appealing as it enables greater control over service levels to members. Another motive for funds may be the desire to improve their liquidity position. For funds with ageing member demographics and/or those experiencing net outflows, partnering with a fund that has strong net cashflows can be critical. Additionally, larger funds are better positioned to manage the growing complexity of regulatory requirements, and APRA continues to encourage smaller funds to consider mergers.
Retirement Solutions - Scale also enables funds to invest more meaningfully in retirement solutions, an area that is increasingly front of mind for Treasury. Additionally, ASIC and APRA recently conducted a pulse check on the industry’s progress.
Investment team integration and the right governance structure are key
From a super fund’s investment team perspective, mergers require careful consideration across several key areas. One of the most critical is the development of a unified investment philosophy and broad strategy for the merged entity. This involves identifying the competitive edge at the new scale and determining where the fund can deliver the most value to members. Decisions around the MySuper default offering -whether to adopt a lifestage strategy or maintain a traditional growth option (61 to 80% growth assets) - are also central to this process.
The structure of the investment team and leadership roles must be re-evaluated, along with the asset consultant model, which evolves as internal capabilities expand. The investment governance frameworks also need to be updated to reflect the increased sophistication of the merged fund. This includes the decision-making framework, governance around internal management, and oversight of unlisted asset valuations. As expertise grows, more decisions may be delegated to the investment team without requiring formal Investment Committee approval.
What about investment portfolio structure?
Portfolio integration is a critical area of focus. Merging two sets of assets can result in asset allocations or underlying asset class exposures drifting away from the go-forward strategy, necessitating reshaping of portfolios including manager rationalisation.
Another important matter is determining the go-forward investment processes and systems. Mergers often bring together different portfolio management platforms, risk systems, and operational workflows. Establishing a consistent and scalable investment process is essential to ensure effective portfolio oversight, risk management, and execution. Finally, the merged fund must establish a coherent ESG approach that encompasses integration into external manager selection and monitoring, direct asset management, company engagement and voting, advocacy, and ESG-themed investment options.
Are more mergers on the cards?
While we expect mergers to continue to take place, the rate of merger activity has slowed. There has already been significant consolidation with an increased number of funds now operating at meaningful scale and fewer sub-scale potential merger partners remaining. The other reason merger activity has slowed, which was mentioned earlier, is that we’ve only had one MySuper product failing the YFYS Performance Test in the past three years. Indeed, currently based on what has been announced publicly, the only notable live merger discussion is between Aware Super ($200 billion in assets) and Telstra Super ($26 billion) while CareSuper ($57 billion) and Meat Industry Employee’s Superannuation Fund ($1 billion) are expected to complete their merger in late 2025 after signing a merger agreement in March 2025.
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