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Growth, rationalisation, and a frenetic pace of change

The dynamics of superannuation in Australia

Superannuation assets projected to almost triple to over $9 trillion in 2041

15 December 2021: Australia’s superannuation landscape will experience continuing growth, consolidation and rationalisation alongside ongoing economic and regulatory change over the next 20 years.

The tenth edition of Deloitte’s Dynamics of the Australian Superannuation System models the components of Australia’s all-important superannuation industry over the next 20 years to 2041. It projects growth across the market, and examines market dynamics, demographic shifts, longevity and retirement incomes, as well as possible asset allocation impacts on the Australian share market.

Key points include:

  • Total superannuation assets projected to almost triple, to over $9 trillion in 2041, from $3.4 trillion today
  • Changes in market share of different sectors, affected by account and fund consolidation and the impacts of stapling (accounts that follow individuals as they change jobs)
  • Transformation of the post-retirement segment as funds implement their Retirement Income Covenant strategy from mid-2022
  • Total fund investment in Australian equities projected to increase from 34% of total ASX market capitalisation today to 42% by 2041.

Projected superannuation assets (2021 to 2041)

By market segment:

  • Industry: Industry funds are expected to grow at a rate above competitors due to strong current positioning and lower fees on average. Fund mergers are shifting the market structure and increasing the market share of the Industry fund segment, with the industry sector also likely to benefit most from recent stapling legislation
  • Retail: Following the Hayne Royal Commission, retail funds have responded with product closures, remediation exercises, product simplification and investment in member services. Growth in the segment is still expected by virtue of existing scale, wealthier demographic base and ability to spend capital to develop new products and retain members up to and through retirement
  • SMSF: Despite the tax and other benefits for wealthier Australians, SMSFs will decline in market share in the next two decades due to their older demographic transitioning to retirement and commencing material drawdowns of assets
  • Other: The remaining public sector funds will continue to grow, albeit at a diminished pace over coming years, while corporate funds will continue to slowly decline, due to many not being public offer funds and therefore only available to a restricted group of people.

“While COVID-19 has caused volatility in investment markets over the last two years, and with inflation and cash rates at all-time lows, the Australian superannuation industry has continued to grow, driven by both contribution inflows exceeding benefit outflows and robust investment returns,” Deloitte Consulting partner, Andrew Boal said.

“It’s no secret that industry funds are now the largest pre-retirement sector, and this position will gradually strengthen into the future. We expect the Your Future, Your Super package will favour industry funds, as most young people joining the workforce for the first time are likely to join an employer whose default super arrangement is an industry fund.

“Retail funds will also continue to grow, but not as strongly, reflecting the gradual remediation of issues raised by the Royal Commission, progressively winning back the trust of consumers, and addressing underperformance issues.”

Consolidation and industry rationalisation

“There has been significant merger activity between funds in recent years, and we predict continued consolidation, particularly over the next five to ten years,” Deloitte National Superannuation Lead, Russell Mason said.

“Funds that fail to reach scale or underperform relative to their peers will struggle to survive unless they can transform their businesses, and quickly, and we expect to end up with a modest number of very large funds that will increase their foreign investments due to their size and the relative size of global opportunities compared to the small Australian market. They will also increase investment in privately-held assets.”

Funds as investors – growing share in ASX stocks

“Total fund investment in Australian equities currently comprises about 34% of the total market capitalisation of the ASX and, assuming funds seek to retain the same percentage allocation into the future, we have estimated the proportion of ASX market capitalisation represented by superannuation funds will steadily increase to more than 42% by 2041,” Deloitte Consulting Principal, Diane Somerville said.

“There are some interesting questions to consider here. Will there be enough capacity in the ASX to support this level of demand from superannuation funds, and any consequential impacts on assessment against APRA’s super product heatmaps? Will superannuation funds seek to increase their exposure to overseas investment markets over time to further diversify their exposures? Will they utilise passive or active investments to fulfill their allocations to equity markets? How might future ASX growth affect super funds’ strategic asset allocations? And will funds seek representation on the boards of public companies in which they will hold significant investments?"

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