Australian Mega Funds Seen Controlling $9 Trillion of Pensions

(Bloomberg) -- A group of massive pension funds will dominate Australia’s retirement system in the coming decades as increasing mergers and rivalry leave just a handful of powerhouse investors.

That’s according to a new report from Mercer, which predicts industry assets topping A$13.6 trillion ($9 trillion) by 2048, up from A$3.6 trillion currently. It sees a dozen funds controlling more than A$100 billion each by 2028, driven by mergers, organic growth and investment performance. There are currently just five funds overseeing at least that amount.

At the same time, the number of funds will shrink as regulators pressure smaller and under-performing players to merge. Mercer forecasts the total falling from 107 funds to 77 over the next five years, and halving in the next decade.

Australia’s pensions system is the fourth largest in the world, with its rapid growth being fueled by the compulsory contributions of 11% of workers’ wages, rising to 12% in 2025. AustralianSuper and Australian Retirement Trust are currently the only funds with more than A$200 billion. 

The pace of growth, however, is expected to slow over the next 25 years as baby boomers move into retirement and draw down on their savings. Demographics such as immigration and declining birth rates are shaping forecasts of the amount of money flowing in and out of the system.

Mercer said a gap in Australia’s system was that some workers didn’t have pension accounts - particularly the self-employed - meaning the system only covered 78.5% of the working age population. That compared with other developed nations which had 90% coverage. 

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