Two Top Australian Supers to Merge | Chief Investment Officer

Amid the urging of Parliament, which wants to consolidate Australia’s retirement consortiums for the sake of simplicity, two of the top-performing superannuation funds are merging.

The decision by the A$16 billion ($11.3 billion) Equip and the A$9.7 ($6.8 billion) Catholic Super will see the new super as a A$25.7 billion organization housing more than 150,000 members. Both funds consistently rank in the top 10 of Australia’s superannuation plans.

Equip, which splits its investments into six portfolios (growth plus, growth, balanced growth, MySuper, balanced, and conservative) has returned an aggregate 7%, 9%, 7.7%, and 8.8% over the one-, three-, five, and 10-year period as of March 31. Catholic Super divides its investments across two portfolios (super and pension). Its super has returned 2.65%, 5.30%, 7%, and 15% over the same periods while the pension portion has returned 3%, 5.9%, 7.8%, and 9.4%.

The two funds will stick to their previous governance structure where one-third of the combined board will be independent. The other two-thirds will consist of members and employers.

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The nation is in the midst of a consolidation for the superannuation industry, which caters to the pension plans of an entire sector. Parliament recently decided supers should combine their resources to improve overall performance while simplifying the configuration of the 198-fund industry as there is an abundance of supers involved in the same industries that underperform. While this push is geared toward funds that have showed lackluster performances, Equip and Catholic Super want to cut costs and provide the best of both worlds for their members.

“This joint venture would contain costs and improve efficiency, bringing real benefits to members,” said Andrew Fairley, Equip’s chair. “This structure will drive stronger performance through efficiencies and scale of investments.”

The move is the second merger for Equip in less than a year. In July, the then-A$8.5 billion superfund absorbed the A$5.7 billion Rio Tinto Staff Superannuation Fund, projected to save more than $12 million in fees.

Equip and Catholic Super are the third big Australian superfund merger within three months, following State Super and VicSuper Pty in April, and Sunsuper and AustSafe in March.

Tags: Australia, Catholic Super, Equip, Pension, Superannuation

Adhesives manufacturer Avery Dennison Corp. has signed a deal to transfer approximately $750 million of pension obligations to AIG’s American General Life Insurance Co. The agreement covers approximately 8,500 retirees, beneficiaries, and deferred and active members.

In July 2018, Avery Dennison’s board of directors decided to terminate its US defined benefit plan effective Sept. 28, 2018. In an SEC filing disclosing the decision, the company said the pension plan was underfunded by an estimated $240 million on a plan termination basis. The company said it would borrow commercial paper to contribute $200 million in cash to the plan the following month.

In March, the company contributed approximately $7 million in cash to the pension plan during the first quarter of 2019 to cover costs associated with the settlement of the liabilities.

The company made good on its promise to contribute $200 million to the plan in August 2018, and during the fourth quarter of 2018, Avery Dennison settled approximately $152 million of its US pension plan liability through lump-sum payments from existing plan assets to eligible participants who elected to receive them.

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According to a report from MetLife, a “significant portion” of the more than $3 trillion of defined benefit plan liabilities that have not yet been derisked will be transferred over the next decade. And in its Pension Risk Transfer Poll, MetLife found that 76% of defined benefit plan sponsors with de-risking goals plan to completely divest their company’s plan liabilities at some point.

The report also said that among those likely to enter into a transaction in the next two years, 77% have already taken preparatory steps toward a buyout, including evaluating the financial impact of a pension risk transfer.