There is also a very strict focus on fund performance and consolidation. At the member's end, if a pension pot has remained inactive and it's less than A$6,000, the Superfund is required by law to send it back to the ATO and it is reinvested into an active fund.
Moreover, if a fund is underperforming, then it will be required by the ATO to merge with a better-performing fund. Kirwan says: "If you're no good, you have to merge – we've seen quite a few mergers recently as a result of that."
Twenty years ago there were 4,000 funds; today there are just 200. Given that the ATO publishes league tables every year, it is potentially something that could continue for the next few years.
But ultimately there should be an endpoint. Sherry says: "I wouldn't want it to consolidate to the point where you've got four big funds – we're still a long way from that. I think we can still run a system with between 10 and 20 large or merged funds."
As a result of the consolidation 80 per cent of members are in the 10 largest funds, each of which is valued at around A$250bn.
A consequence of this is that the Australian pension funds have enormous scope to invest in long term, large scale assets, most of which are beyond the dreams of the average institutional manager in the UK.
How IFM Investors works
Several decades ago, Australian pension funds formed an investment company, IFM Investors, which invests infrastructure assets around the world; it is owned by 17 Australian pension funds.
Gregg McClymont, executive director of public affairs, policy and strategy for IFM Investors, and a former Labour shadow pensions minister, says: "Thirty years ago, the Australian DC funds decided they wanted to invest in infrastructure for long-term return.
"The problem they realised was: how do we invest in these asset classes and not see too much of the return get eaten up in fees? How do we make sure we've got the expertise to ensure we get the best investment?
"The answer was to create their own fund manager and that they do their own investment."
Superfunds involved in IFM invest the pensions of the construction industry (Cbus) and for hospitality workers (Hostplus). IFM invests in a range of infrastructure projects, particularly airports, ferry terminals, and energy transition sites.
For example, in the UK it owns:
- One-third of Manchester Airport Group – local councils own two-thirds.
- A majority stake in the M6 toll booth, along with GLIL, a UK LGPS fund.
- 19 per cent of Anglian Water.
- 14.8 per cent of Arqiva, a data communications business – along with other Australian pension funds.
- It plans to invest in renewable energy in the UK through Nala Renewables.
McClymont says: "IFM has a lot of experience of investing in improving the operational infrastructure, and you develop over time an expertise and you can apply that expertise and that experience of operating airports over the world.
"You're using that pension fund capital to invest in the projects, it's very capital intensive – Manchester airport is just about to complete a £1.2bn improvement programme, and it's been done over half a dozen years."
