Scale and Competition in Australian Superannuation

Wilson Sy

Abstract


Using official data and new econometric models based on how the industry actually works, we show the benefits of scale for members are limited, and confined to the non-profit sector which is structured to incur relatively low fixed costs compared with much higher variable costs.  In Australian institutional superannuation, most efficiency gains, such as those from economies of scale, are captured as profits for financial intermediaries, with little benefit for members. Recent regulatory reforms on fee disclosure and scale requirements have the unintended consequences of further reducing competition and benefiting the large financial conglomerates.

Full Text:

PDF

References


APRA. (2012a), “Annual Superannuation Bulletin: June 2011”, APRA Statistics, published 29 February 10 2012.

APRA (2012b), “Superannuation Fund-level Profiles and Financial Performance: June 2011”, APRA Statistics, published 29 February 2012.

APRA (2012c), “Superannuation Fund-level Rates of Return: June 2011”, APRA Statistics, published 29 February 2012.

ATO (2012), “Self-Managed Superannuation Funds: A Statistical Overview 2009-10”, Australian Taxation Office Publication, April 2012.

Bateman, H. and Mitchell, O. S. (2004), “New Evidence on Pension Plan Design and Administrative Expenses: the Australian Experience”, Pension Economics and Finance, Vol. 3, Issue 1, pp. 63-76.

Bauer, R., Cremers M. and Frehen R. (2010), “Pension Fund Performance and Costs: Small is Beautiful”, Rotman ICPM Research Papers.

Bikker, J.A. and de Dreu, J. (2009), “Operating Costs of Pension Funds: the Impact of Scale, Governance, and Plan Design”, Pension Economics and Finance, Vol. 8, Issue 1, pp. 63-89.

Brown, C. and Davis, K. (2009), “Is Pension Funds Collaboration Possible and Sustainable? Insights from Australian Experience”, Melbourne University Research Paper.

Chen, J., Hong, H., Huang, M. and Kubik, J.D. (2004), “Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization”, American Economic Review, Vol. 94, Issue 5, pp. 1276-1302.

Coleman, A., Esho, N. and Wong, M. (2006), “The Impact of Agency Costs on the Investment Performance of Australian Pension Funds”, Journal of Pension Economics and Finance, Vol. 5, Issue 3, pp. 299-324.

Cummings, J.R. (2012), “Effect of Fund Size on the Performance of Australian Superannuation Funds”, APRA Working Paper, March 2012.

Dyck, A. and Pomorski, L. (2011), “Is Bigger Better? Size and Performance in Pension Plan Management”, Research Papers of the Rotman School of Pension Management, University of Toronto.

Fama, E.F. and French, K. R. (2004), “The Capital Asset Pricing Model: Theory and Evidence”, Journal of Economic Perspectives, Vol. 13, Issue 3, pp. 25-46.

French, K.R. (2008), Presidential address: the cost of active investing, The Journal of

Finance, Vol. LXIII No. 4, pp. 1537-1573.

Future Fund (2011), Annual Report 2010-2011, Publication of the Future Fund Board of Guardians.

Higgs, H. and Worthington, A. (2010), “Economies of Scale and Scope in Australian Superannuation”, Griffith University Discussion Papers Finance, No. 2010-15.

IMF (2011), “The Challenge of Public Pension Reform in Advanced and Emerging Economies”, Fiscal Affairs Department Paper, International Monetary Fund.

Leamer, E.E. (1983), “Let’s Take the Con out of Econometrics”, The American Economic Review, Vol. 73, Issue 1, pp. 31-43.

Liu, K. and Arnold, B.R. (2010), “Australian superannuation outsourcing – fees, related parties and concentrated markets”, APRA Working Paper, July 2010.

MacIntosh, J. and Scheibelhut, T. (2012), “How Large Pension Funds Organize Themselves: Findings from a Unique 19-Fund Survey”, Rotman International Journal of Pension Management, Vol. 5, Issue 1, pp. 34-40.

Malhotra, D.K., Marisetty, V. and Ariff, M. (2005), "Cost Efficiencies in the Management of Australian Superannuation Funds." International Journal of Finance, Volume 17, Issue 3, pp. 3603-3621.

Mama, A., Pillay, N. and Fedderke J. (2011), “Economies of Scale and Pension Fund Plans: Evidence from South Africa”, Working Paper, No.201.

Mankiw, N.G. (2008), Principles of Economics, Fifth Edition, South-Western Cengage learning, USA.

OECD (2011), “Pension at a Glance 2011: Retirement-Income Systems in OECD and G20 Countries”, OECD Publishing.

Productivity Commission (2012),”Default superannuation funds in modern awards”, Inquiry Report, 5 October 2012, Commonwealth of Australia.

Rice Warner (2005, 2007, 2008). “Superannuation Fee Report: Market Segment Analysis”, IFSA Reports, published March 2005, May 2007, December 2008.

Shaikh, A. (2005), “Nonlinear Dynamics and Pseudo-Production Functions”, Eastern Economic Journal, Vol. 31, Issue 3, pp.447-466.

Super Amendment (2012), Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012, Revised Explanatory Memorandum, The Parliament of the Commonwealth of Australia.

Super System Review (2010), Super System Review Final Report, Publication of the Commonwealth of Australia.

Swann, G.M.P. (2012), “Doubtful Significance”, Discussion Paper; available at: https://sites.google.com/site/gmpswann/doubtful-significance

Sy, W. (2009), “Towards a National Default Option for Low-cost Superannuation”, Accounting Research Journal, Vol. 22, No. 1, pp. 46-67.

Sy, W. (2010), “Cost, Performance and Portfolio Composition of Small Pension Funds in Australia”, Journal of Pension Economics and Finance, 2010, Vol.9, pp. 345-368.

Sy, W. (2011), “Redesigning Choice and Competition in Australian Superannuation”, Rotman International Journal of Pension Management, Vol. 4, Issue 1, pp. 52-61.

Sy, W., Inman, C. Esho, N. and Sane, R. (2008) “Superannuation Fund Governance: Trustee Policies and Practices”, APRA Insight, Vol. 1, pp. 2-17.

Sy, W. and Liu, K. (2010), “Improving the Cost Efficiency of Australia Pension Management”, Rotman International Journal of Pension Management, Vol. 3, Issue 1, pp. 38-47.

Walker, W. and Monaghan, M. (2010), “Default Fund Costs under the MySuper Proposals”, Deloitte Report to the Super System Review, 19 April 2010.

Wallis Report (1997), “Financial System Inquiry Final Report”, Publications of the Commonwealth of Australia, March 1997.


Refbacks

  • There are currently no refbacks.


Copyright (c) 2022 Wilson Sy

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.