‘How do we beat these bloody SMSFs?’

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While DIY funds should continue to be the most popular super choice post-retirement, the total retail fund sector is expected to take over from SMSFs as the largest market segment for pre-retirees in 2019.

That’s according to Deloitte’s latest report on the dynamics of the Australian super system.

Deloitte Actuaries and Consultants partner Wayne Walker says that “the main issue in the post-retirement market for institutional funds is ‘how do we beat these bloody SMSFs?’.”

To date, industry funds have struggled to retain and attract post-retirees via the retail institutions, says Walker.

“Both have failed to stem the growth of SMSFs. Post-retirement is all about SMSFs as a vehicle of choice for all sorts of reasons – there are tax reasons, there are estate reasons, there are psychological reasons about people wanting to control their investments. The big issue for institutional funds…is how can they better compete with the value that SMSFs are seen by people to deliver.”

He says that they are already seeing a number of funds introduce capabilities for members to maintain their own portfolio…but, “there’s a lot more that can and will be done”.

However, it’s a different story for pre-retirees. Deloitte is anticipating that most of the growth in Australian superannuation will come from the millions of Australians with balances too low to contemplate an SMSF. And for these people the competition will be between the industry funds and the products offered by retail institutions.

Industry funds currently have an advantage of getting default fund status, and this is expected to continue as they become larger than the SMSF market in about 10 years.

“The other thing likely to happen here is that – and we’re already seeing some of it – the introduction of MySuper and FoFA has meant that the new products issued by some of the retail organisations have effectively stripped out the cost of advice, or distribution as it was. That means that the prices of these products are starting to bunch closer together than they have in the past, and in a rather strange way, have reduced the price advantage the industry funds have had in the past. So we expect competition to become more multi-dimension in the future.”

Finally, Walker says that the battle between retail and industry funds is well and truly over – or should be – and that FoFA, the changes to modern awards, and stronger super, will level the playing field.