Trustee board licensing will boost super outsourcing: Heron

Proposals by the Australian Prudential Regulation Authority (APRA) to license trustee boards are expected to drive employers to outsource around $10 billion in superannuation funds during 2004.

Industry analysts Heron Partnership said the increasing burden of compliance and the cost of self-managed funds would put pressure on companies to outsource their superannuation provision.

"Many employers are deciding that there is limited value in operating their own company fund with the impending APRA trustee board licensing, which will mean increased compliance, reporting and disclosure requirements," said Heron managing director Chris Butler.

"On top of this they can't compete with the features of outsourcing solutions unless they spend considerably more time and effort on their fund at the expense of improving shareholder value."

Employers who managed their own superannuation funds generally incurred administration and investment charges, consulting fees, APRA levies, audit costs and insurance costs. Outsourcing typically reduced the cost to employers by around 25%, he said.

Only 10% of the $550 billion held in Australian superannuation funds is housed in company funds, compared with almost 20% in 1999, Butler noted.

This trend is expected to continue, with the number of company superannuation funds tipped to fall to just 200 within five years, from the current level of around 2,000.