Australia’s pensions near A$4 trillion as mega funds fuel growth

AustralianSuper and Australian Retirement Trust, the nation’s largest pension fund managers, increased their combined assets by about A$35 billion. (AustralianSuper pic)

SYDNEY: Australia’s pension assets are on the verge of hitting the A$4 trillion (US$2.7 trillion) milestone as hefty inflows and buoyant investment markets swell the country’s retirement funds to a record.

Industry assets surged 11% in the year through March to A$3.85 trillion, according to data from Australian Prudential Regulation Authority released Tuesday. The growth was fuelled by strong contributions from Australian workers and a 10.9% rate of return, the regulator said.

There are now seven pension funds – known locally as superannuation – with more than A$100 billion each under management, according to a separate KPMG report released Tuesday. Inflows are rising as Australian employers must contribute the equivalent of 11% of wages to pension schemes, a level that will soon increase to 11.5% before topping out at 12% next July.

Still, the largest funds are only marginally outperforming the broader industry when it comes to investment returns, according to KPMG, which analysed data as at June 2023.

The industry is facing intense regulatory scrutiny, with an annual performance test designed to force more consolidation among funds, while bringing down fees and improving returns for members.

Pension funds are also facing a challenge as baby boomers prepare to leave the workforce, with more than 700,000 Australians forecast to retire in the next five years, according to recent government data.

AustralianSuper and Australian Retirement Trust have consolidated their positions as the biggest market players in the country’s pensions sector. Both have also significantly increased their assets under management compared with the data in the report, by a combined total of about A$35 billion.

While AustralianSuper’s net cash flow slipped to A$19.5 billion in fiscal 2023 from A$25 billion in the previous year, it’s still equal to the combined totals of the next three largest funds, according to KPMG.

The continued growth in Australia’s pension industry means that funds are increasingly investing beyond their own backyard, with almost half of their assets now located overseas.

“Due to the size of the industry, it is likely that an increasing proportion of superannuation assets will be invested offshore, with funds exploring global operating models and presence to compete in the modern investment landscape,” KPMG National Sector Leader Linda Elkins said in the report.

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