The traditional employer-based superannuation market in NZ could be entering an accelerated period of decline as scheme sponsors succumb to ongoing regulatory burdens.
Gavin Quigan, Financial Markets Authority (FMA) KiwiSaver and superannuation schemes manager, said the pace of change in the traditional employer sector appeared to be rising.
Quigan told the Financial Services Council (FSC) conference last week that the FMA approved three employer scheme transfers to master trusts over the last year or so.
“And there’s a few more on the horizon,” he said. “We’ve got four in the pipeline now.”
According to Quigan, many employer schemes were probably reviewing their prospects after operating for almost three years under the Financial Markets Conduct Act (FMC) environment.
Traditional superannuation funds were brought under the FMC umbrella late in 2016, piling tougher reporting and disclosure obligations on those remaining in operation.
Since 2017 the number of restricted schemes (including five KiwiSaver providers) has dropped from 110 to the current 103, Quigan said.
The restricted group includes 89 workplace savings schemes (mainly stand-alone employer funds), of which just 20 are open to new members.
He said 13 workplace savings schemes manage less than $3 million for member numbers ranging from 12 to 161.
“There are 23 workplace savings schemes with over $100 million and they represent 81 per cent of all beneficiaries,” Quigan said.
Over the two years to March 31, 2019, total restricted scheme membership has declined from almost 167,000 to sit just above 162,300 now.
The sinking super lid is putting pressure mostly on defined contribution and hybrid schemes, Quigan said.
Generally, defined benefit (DB) schemes (there are 40, including two open ones) have to remain operating unless all members agree on a wind-up – a notoriously difficult negotiation task. The lack of annuity products in NZ also makes it difficult to transfer DB pension liabilities into another vehicle.
But in spite of the structural decline, funds under management (FUM) in the restricted super scheme market jumped from $14.6 billion in 2017 to almost $15.2 billion as at March 31 this year.
The total superannuation market – which includes master trusts, non-KiwiSaver retail schemes and restricted offers – saw FUM rise from $23.6 billion to $25.2 billion over the same period. Although, overall super scheme membership fell by almost 40,000 during the two-year stretch.
The current 278,289 super scheme membership equates to about 10 per cent of the KiwiSaver population (now verging on 3 million) but a much larger proportion (about 45 per cent) by FUM.