Corporate law firms in Australia are bolstering their superannuation capabilities as the continued growth of Australia’s giant retirement savings pool and ongoing regulatory change create more demand for related legal work.
Employers in Australia are required to contribute the equivalent of 10% of staff wages to the staff’s pension funds, pushing the nation’s total retirement savings balance to A$3.4 trillion ($2.4 billion), according to the Association of Superannuation Funds of Australia.
Employees cannot access their superannuation savings until they are near or at the end of their working life, when they can draw on the money to fund their retirement.
Law firms are currently advising funds on mergers, as the financial regulator encourages those with balances under A$30 billion to combine with other funds to drive economies of scale and reduce fees to members. They also need advice on regulation.
Late last year Australian firm Holding Redlich advised on the merger of Hostplus and the smaller Intrust Super, which had only A$3 billion in funds.
And earlier this year local firm Allens advised Sunsuper and King & Wood Mallesons advised QSuper in Australia’s largest-ever super fund merger to create a A$230 billion fund.
Most of the fund mergers are between not-for-profit funds aligned with labor unions, but there are exceptions. This month, King & Wood Mallesons said it was advising Mercer Australia on its merger with BT’s Personal and Corporate superannuation funds, in a combination of two private-sector funds.
“We expect the consolidation of superannuation funds to continue over the next decade—possibly longer. We will see smaller and mid-tier funds merging and occasionally you will get a big blockbuster merger,” said Allens partner Geoff Sanders, who works specializes in superannuation, funds management and financial services law.
“The deals are a long time in the making. Even the simpler ones can take upwards of 18 months, so this work is likely to have a long tail.”
Overall, the demand for legal services in the superannuation sector is increasing. As the pool of funds grows, the sophistication of the sector changes and new regulations are introduced, Sanders said. As firms grow in size, they are employing more complex investment structures which require legal expertise.
“The breadth of services is expanding,” said Sanders’ colleague Marc Kemp.
The previous Australian government introduced a raft of reforms known as Your Future, Your Super, which require the superannuation industry to improve its efficiency, transparency and accountability. Funds face an annual investment return performance test to hold them to account for low returns, and all of their activities have to be in the best financial interests of their members.
Funds that fail the test—13 failed last year—often seek to merge with larger funds to become more efficient.
On its face, fewer funds might mean less work for lawyers—fewer product disclosure statements to prepare, for instance. But mergers give rise to new legal issues, said Luke Hooper, a superannuation partner at Holding Redlich, which has had a specialist superannuation practice for several years.
“The reality is when you have a merger, you are transferring various issues and problems from one fund to a new fund,” he said.
“Sometimes we’re seeing products and issues with a new lens that maybe the previous trustee or the lawyers of the previous trustee hadn’t seen. As a result, you are finding new issues that do arise and new challenges in terms of how we deal with those issues.”
Additionally, rapid growth can cause funds to rethink their governance structures. Australia’s total superannuation assets are projected to almost triple to over A$9 trillion over the next two decades to 2041, according to a report Big Four consultancy Deloitte.
And the sheer weight of regulation increasing demand from the superannuation sector for legal work.
“It’s an industry that’s regulated heavily by a number of regulators. There are a lot of laws and there are a lot of counterparties, such as members, employers, regulators, investment fund managers, group life insurers, administrators, custodians and investment banks,” Hooper said.
There are also negotiations with life insurance companies for policies for members, and large fund custody contracts with financial services companies, along with compliance with general financial services law.
The myriad of regulations requires specialist lawyers who can drill down into the detail, Hooper said.
Ashurst said superannuation specialist lawyers have a strong background in advising on regulatory matters for super funds, as well as experience in significant commercial transactions, which are typically multi-faceted and involve a range of legal areas or disciplines.
Ashurst partners Con Tzerefos and Niki Short told Law.com International there is significant demand, but a limited supply of this specialization. Recently the firm hired partner Scott Charaneka from local firm Thomson Geer, who will start a superannuation offering combining legal, regulatory and risk expertise.
The firm said it has increased its focus on superannuation “to capitalize on significant opportunities.”
The growing size of funds has prompted some of the larger ones to step directly into the M&A market, such as AustralianSuper buying a 70% stake in Australia Tower Network from Singapore’s SingTel and QSuper taking part in the takeover of Sydney Airport.
“We expect this trend to increase as larger funds seek to diversify their investments and directly participate in a broader range of commercial transactions both onshore and offshore,” Tzerefos and Short said.