Australia's regulator has vowed to weed out underperforming pension funds after publishing its first ranking of firms, including those it fears don't have a sustainable business model.
The inaugural heat map assessment of default investment plans found 15 had issues with net cash flow or growth that jeopardized their future survival, the Australian Prudential Regulation Authority said Tuesday.
Some 28 funds were found to be charging excessive fees, and nine had net returns significantly below a reference portfolio of passive, low-cost and liquid investments, the data show.
APRA Deputy Chairman Helen Rowell said the regulator had contacted the worst-performing funds and asked them to provide plans on how they will address their weaknesses.
"If they are unable to make substantial improvements in good time, we will consider other options, including pressuring them to consider a merger or exit the industry," she said in the statement. "APRA is determined to weed out the industry's underperforming tail."
The A$2.9 trillion ($2 trillion) pension industry is under pressure to lift its performance, after a series of reviews found it was beset by poorly performing funds, high fees and zombie accounts that cost workers A$2.6 billion a year in unnecessary fees and insurance.
While policy makers and regulators are encouraging smaller, poor-performing funds to merge, so far industry consolidation is occurring at the other end of the spectrum, with the nations largest firms and top performers tying up to get even bigger.
First State Super and VicSuper are on track to create a A$120 billion fund by June, which would make them the second largest in the country. QSuper and Sunsuper are exploring a partnership that would create the nation's largest retirement fund, with more than A$180 billion of assets.
