Escalating superannuation costs to drive more outsourcing

Company superannuation funds will continue to outsource over the next few years, with independent research showing that employers reduce their superannuation costs by an average 25% by outsourcing.

Increased compliance will also put pressure on companies to have their superannuation managed externally, according to independent superannuation consultancy, The Heron Partnership.

Outsourcing is a trend that will continue unabated for the next few years, according to Chris Butler, Managing Director, The Heron Partnership. "Of the A$550b or so of assets in Australian superannuation funds today, only about 10% of this amount is 'housed' in company funds, compared with close to 20% only 5 years ago", he said.

Mr Butler expects that within 5 years there will only be around 200 company superannuation funds, compared with the 2000 or so that exist today. "We estimate that there will be around A$10b moving across to master trusts or industry funds this year alone.

"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 being placed on Trustee Boards.

"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", Mr Butler said.

If cost is the key issue then outsourcing can provide large savings, to the benefit of employers and fund members. "From our experience in managing outsourcing tenders, average total cost savings of around 25% or more should be achieved", Mr Butler said.

The following table shows recent examples of cost savings The Heron Partnership can achieve. The figures take into account total costs being incurred by company funds, including administration charges, consulting fees, APRA levies, audit costs, insurance costs and investment charges, and is compared with what would be charged by a master trust or industry fund:

Outsourcing can also benefit employees by providing leading edge investment choice and internet access to fund information, as well as a professional and well structured education and financial advisory service. "Indirect costs will be reduced dramatically allowing executives to devote more time to building shareholder wealth", Mr Butler said.