[00:00:00] Neil Benson

Welcome to That Super Show. I'm your host, Neil Benson from ChandlerCX.

Looking at the news in the Australian superannuation sector this week, one thing that stood out to me is how many articles all circle the same underlying question: what are members really paying for now?

Not just in the narrow sense of fees and premiums, although that's certainly part of it. I mean, more broadly, what's the value proposition of funds are offering? How is that changing, and how confidently can trustees explain those trade-offs to their members and to the regulators?

Because this week we've got a potential merger between Prime Super and Aware Super changes to insurance pricing and cover at BUSSQ Super, higher administration fees at AustralianSuper, and higher investment fees at Spaceship Super. Taken together, these stories all point to an industry that's still consolidating, still re-pricing risk, still testing how much complexity members will accept if the rationale is sound.

Let's start with the merger story. Prime Super and Aware Super have signed a non-binding memorandum of understanding to explore a potential successor fund transfer.

If it proceeds, the combined fund would manage around $254 billion for more than 1.4 million members. Prime Super's 140,000 members would make up roughly 1% of that combined membership, which gives you a sense of the difference in scale between those two funds.

At this stage, it's exploratory. An MOU is not a transaction. There's still due diligence and design work and governance consideration, and of course the member best financial interests test.

My co-host Sarah, has made the point that for Aware Super members, there isn't an obvious benefit in being combined with Prime Super. These tests are only gonna get harder and harder to meet.

Prime Super has long had a distinct position, particularly through its links to regional Australia and employer groups in the agricultural sector. Aware meanwhile has the scale, broad capability, and a well established record of integrating successor fund transfers, although they haven't been in the game for a few years.

So the obvious question is whether this is simply another scale play or whether there's something more nuanced going on. Lachlan Maddock made a useful point in the Investment Magazine article this week when he framed this story as evidence that the problems facing smaller super funds haven't gone away.

I think that's right, but my own view is that scale is still the headline and it's no longer the whole argument. We're past the point where bigger is better, and that's enough on its own. Most trustees, executives, and regulators now want to know what scale actually unlocks for members. Is it better retirement solutions, lower unit costs, more resilient operations, stronger investment capability, better insurance terms, greater technology investment, or simply the capacity to keep up with regulatory and service expectations?

And that's where I think this story gets interesting. For members, the promise of a merger is usually framed around better services, stronger long-term outcomes, and access to broader capability. Sometimes that happens, sometimes it takes longer than expected, and sometimes the disruption is underappreciated.

Particularly when administration platforms, insurance design, contact centre models, and employer servicing arrangements all need to be aligned. For trustees, this is real where the real work sits in a merger. The strategic logic of consolidation may be straightforward, but the execution rarely is. Successor fund transfers not always sit in a very different environment, even from five years ago.

APRA's heat maps the 'Your Future, Your Super' performance framework, the higher member expectations, and the more visible service failures and tighter media scrutiny all mean that integration risk is far more exposed. You don't get much credit these days for announcing a merger. You get judged on what members experience afterwards.

This also connects with a conversation Sarah and I had back in episode 21 with David Bell from the Connexus Institute. His work, uh, predicted super fund mergers was really about the structural forces pushing the industry towards consolidation. What feels different now is that the logic for consolidation is better understood while the evidentiary standard for member benefit is getting higher, and that leads to a bigger point.

As more of the industry consolidates into fewer larger funds, the burden of proof changes. A large fund can no longer simply argue that scale should produce efficiency. It needs to demonstrate where those efficiencies are actually appearing. Is it a net returns, in service standards in retirement outcomes, in digital capability, in advice access, and in claims handling?

I suspect Aware Super will be trying to demonstrate all of those points to their members, their regulator, and members of Prime Super as well.

That's the real significance of this story, not that two funds might merge. We've seen plenty of that before. It's that each additional merger raises the standard for what member benefits need to look like in practise.

And that takes us neatly into the next story because one of the most tangible ways members experience value in super is through insurance. BUSSQ Super is raising the cost of death benefit and TPD cover, while also lifting the level of default cover available to members.

So members are gonna be paying more, but they're also receiving more default cover. Now that may sound like a straightforward pricing adjustment, and in one sense it is. Insurance inside super has been repricing for years under the pressure of claims experience, changing member demographics, uh, design constraints, regulatory expectations certainly, and insurer appetite.

But default insurance changes are never just technical. They go directly to the balanced trustees of trying to strike between adequacy and affordability. If a fund increases the default cover, that can be a very good outcome for members who actually need it. Particularly in the sectors where members may be underinsured outside of super or less likely to seek personal advice, the construction and building related workforce that BUSSQ serves has that particular risk characteristic.

So it makes sense that trustees might conclude that the previous default settings were no longer the right fit. But the trade off there is obvious too. Higher premiums mean more erosion of retirement balances for those who don't need or don't value the additional cover, or who would've made a different choice if they were more engaged. This is one of those areas where trustee judgement really matters. 'cause there is no perfect default insurance offer. There's only a defensible one.

What stood out to me here is that the industry still talks a lot about insurance sustainability, but often less about insurance intelligibility. In other words, do your members understand what they have, why it changed, and whether it still suits them?

That's a product design problem as much as it is a communication problem. If members only discover the premium increases after the fact, or can easily work out whether the extra cover is actually useful for them, the fund may be doing the right thing from an actuarial point of view while still creating a member experience that leaves a sour taste.

For trustees and executives, that's the practical implication: changes to insurance design now need to be operationally explainable, not just technically justifiable. Contact centres need to be ready. Digital journeys need to be clear. Disclosure communications need to be plain without becoming too simplistic, and ideally, the fund has thought through which of their member cohorts are most likely to need reassurance or to opt down.

There's another connection here too. Larger funds often argue that scale can improve insurance outcomes through stronger bargaining power and more sophisticated data. And if that's true, members and regulators will increasingly expect to see it. Not necessarily in lower premiums every year, because claims reality doesn't always allow that. But in better design, clearer communications, and more defensible default settings.

From insurance premiums, it's a short step to administration fees because again, we're back to the question of what members are paying for.

AustralianSuper is increasing its administration fees for the first time since 2022. Given the fund's size around $430 billion these days, any fee change at AustralianSuper is gonna get our attention, and rightly so.

This is a fund that is held up, fairly or unfairly, as a benchmark for scale economics. So when a fund of that size raises admin fees, the interesting question isn't whether it's allowed to. Of course it is, if trustees judge that that structure remains fair and sustainable. The interesting question is, what this tells us about the cost base of modern superannuation.

There's been an assumption in some parts of the public debate that scale should produce a near one way path to lower fees. Over long periods that's probably been broadly true, but that assumption is becoming less reliable in the current environment. Why? Because the operating model of a large super fund is much more demanding than it used to be.

Funds are spending more on cybersecurity, data management, regulatory compliance, financial crime controls, administration resilience, member communications, complaints handling, digital servicing, and in many cases, retirement income capability. They're also carrying the cost of legacy systems, transformation programmes, and higher expectations around personalization and responsiveness.

In AustralianSuper's case, they're also carrying the cost of international expansion as they try to deploy those hundreds of billions of dollars overseas.

That doesn't mean every fee increase is justified. It does mean we should be careful about treating fee movements as a simple morality tale, were lower is always virtuous and higher is always suspicious.

At the same time, I think the industry has to be honest with itself about where the transformation spend has not translated into obvious member value.

I've worked with funds for over a decade now. If the three biggest super funds AustralianSuper, ART and Aware were public companies, they'd sit in the ASX top 10 by size. Yet their level of technology investment and productivity still lags, uh, behind comparable public companies by several years, maybe a decade.

That's the part I keep coming back to for members, what matters is net value. If a fund raises administration fees, but materially improves service reliability, the digital experience, or the quality of help members receive at retirement, that fee increase may well be defensible

If fees rise and members still face a long call wait times, confusing processes, paper heavy forms, or poor operational outcomes, the argument becomes much harder to make.

And for me, that's the proof point. If AustralianSuper had digitised all of its PDF forms and enabled a genuinely end-to-end digital member experience from joining to retiring, and if it were winning recognition for world-class customer service, I'd find the case for higher fees, much easier to accept.

I can really hope this increase is helping fund that kind of investment, alongside international expansion, rather than disappearing into spend that members can't see or appreciate.

For trustees, the challenge is partly economic and partly narrative. You need to manage cost discipline, certainly, but you also need to articulate what members are actually funding.

In an era where funds are expected to behave more like sophisticated financial institutions while still being judged like low cost utilities, that explanation becomes really difficult and crucial.

Boards should be asking not just whether costs are rising, but which costs are structural and which are transitional, and which should already have been absorbed through scale.

This story also reminds me that the industry may need a more mature public conversation about fees, not a defensive or combative one, but an honest one. Because if the sector wants better technology, stronger controls, more retirement support, and more tailored member experiences, somebody's gotta pay for that. And the question is whether that spending is disciplined and whether the benefit is visible.

Which brings us to our last story. And in some ways it's the clearest example this week of a fund saying it to its members, their portfolio is changing and the fee structure is changing with it, and here's why.

Spaceship Super is increasing its investment fees across its Growth x, Balanced and Moderate options after adding exposure to unlisted ASIC classes, including private credit. It's a small story in one sense, but I think it raises a larger strategic issue for the industry. For years, many funds built their market position around low fees, simplicity, and listed market exposure.

And that was especially true for newer entrants trying to differentiate from incumbent funds. But as the asset mix evolves particularly into unlisted assets, private markets, and less liquid exposures, the fee conversation becomes more complicated.

Private credit is a good example. Supporters will say it offers diversification, income characteristics, and access to return sources not available in public markets. Critics will point out to valuation opacity, liquidity risk manager, dispersion, and the danger of paying up for complexity at exactly the time. Too much capital has already entered that asset class.

Australian private credit in particular seems inextricably linked to property development, which can be a precarious sector at the best of times, and for property construction, these are not the best of times.

Now, I'm not gonna pretend that the debate is settled because it isn't. But from a trustee perspective, the core issue is simpler than asset class debate itself. If you're asking members to pay more for access to more complex investments, can you explain the rationale in a way that's credible, transparent, and proportionate?

That matters particularly for a brand like Spaceship where many members have been drawn in by a digitally simple proposition. Once you move towards more institutional style portfolio construction with higher fees and governance demands that often come with it, your operating model and your member communication models need to catch up.

And there's a broader pattern here across all four stories this week.

Prime and Aware suggest that scale is still being pursued, but scale now needs to prove itself in lived member outcomes. BUSSQ's insurance changes remind us that member value is often about design trade-offs, not just lower pricing.

AustralianSuper's fee increase highlights the rising cost of running large, resilient, regulated institutions in a global environment where expectations keep expanding, while also raising a fair question about whether those higher costs are producing the sort of digital and service uplift members should reasonably expect from funds of that size.

And Spaceship's fee changes show that as funds chase broader investment capabilities, they also inherit the obligation to explain why the extra cost is worthwhile.

So maybe the real story this week is that super is becoming harder to keep simple, if it ever was simple.

Larger funds are more complex. Insurance settings are more contested. Operating costs are rising in some areas, even as scale improves efficiency in others. Investment menus are stretching into asset classes that are harder to price and harder to explain to members.

None of that is necessarily bad per se. In some cases, it may be exactly what a more mature superannuation system requires. But it does place a heavier burden on trustees and executives to be precise about the value proposition they offer. Not abstract value, not marketing value, but the real evidenced member outcome value.

I've become increasingly convinced that this is where the next phase of superannuation competition will sit. Not just who is biggest, cheapest, or fastest growing, but who can make a complex proposition understandable and defensible without insulting the intelligence of members or the regulators.

That seems to me to be the thread connecting this week's news. How is your organization thinking about that balance between cost and complexity and member value? And where do you think the industry still struggles to explain itself well?

That's it for this episode. Thanks for joining me on That Super Show. Visit ThatSuper.Show to subscribe to our newsletter, suggest a guest, and leave us a voicemail or a review.

This has been an experimental solo video episode. I'll be back soon with Sarah with our regular audio episodes. But let me know what you think of this one if you're watching on YouTube, Spotify, or LinkedIn, where you can leave a comment. Thanks so much. Bye for now.