Corporate law firms in Australia are building their pensions capabilities as the continued growth of Australia’s giant pension savings pool and ongoing regulatory changes create increased demand for related legal work.
Australian employers are required to contribute the equivalent of 10% of staff salaries to staff pension funds, bringing the country’s total pension savings balance to A$3.4 trillion (2.4 billion), according to the Association of Superannuation Funds of Australia.
Employees can only access their retirement savings near or at the end of their working life, when they can tap into that money to fund their retirement.
Law firms are currently advising funds on mergers as the financial regulator encourages those with balances below A$30 billion to combine with other funds to generate economies of scale and lower fees for members. They also need guidance on regulations.
Late last year, Australia’s Holding Redlich advised the merger of Hostplus and the smaller Intrust Super, which had just A$3 billion in funds.
And earlier this year, local firm Allens advised Sunsuper and King & Wood Mallesons advised QSuper in Australia’s biggest-ever super fund merger to create a AU$230 billion fund.
Most fund mergers involve union-aligned nonprofit funds, but there are exceptions. This month, King & Wood Mallesons said it was advising Mercer Australia on its merger with BT’s personal and corporate pension funds, in a combination of two private sector funds.
“We expect pension fund consolidation to continue over the next decade, possibly longer. We will see small and mid-size funds merge and sometimes you will get a big successful merger,” said Allens partner Geoff Sanders, who specializes in pensions, fund management and financial services law. .
“The agreements have been in the works for a long time. Even the simplest ones can take upwards of 18 months, so this job 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 industry changes and new regulations are introduced, Sanders said. As companies grow, they employ more complex investment structures that require legal expertise.
“The scope of services is expanding,” said Sanders colleague Marc Kemp.
The previous Australian government introduced a series of reforms known as Your Future, Your Super, which require the pensions industry to improve its efficiency, transparency and accountability. Funds are subject to an annual investment return performance test to hold them accountable for poor returns, and all of their activities must 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 the face of it, fewer funds could mean less work for lawyers – fewer product disclosure statements to prepare, for example. But the mergers are giving rise to new legal issues, said Luke Hooper, a retirement partner at Holding Redlich, who has had a specialized retirement practice for several years.
“The reality is that when you have a merger, you transfer various issues and problems from one fund to a new fund,” he said.
“Sometimes we see products and issues from a new perspective that the previous administrator or the lawyers for the previous administrator may not have seen. As a result, you discover new issues arising and new challenges to how we deal with these issues. »
Additionally, rapid growth may cause funds to rethink their governance structures. Australia’s total pension assets are expected to nearly triple to more than A$9 trillion over the next two decades to 2041, according to a report by Big Four consultancy Deloitte.
And the regulatory burden is increasing the pension industry’s demand for legal work.
“It’s a heavily regulated industry by a number of regulatory bodies. There are many laws and many counterparties, such as members, employers, regulators, investment fund managers, group life insurers, trustees, custodians and investment banks,” said Hopper.
There are also negotiations with life insurance companies for policies for members, and large custodial contracts with financial services companies, as well as compliance with general financial services law.
The myriad of regulations require specialized attorneys who can drill into the details, Hooper said.
Ashurst said superannuation lawyers have a strong background in advising on regulatory issues for super funds, as well as experience in large commercial transactions, which are typically multi-faceted and involve a range of areas. or legal disciplines.
Ashurst’s partners, Con Tzerefos and Niki Short, told Law.com International that there is significant demand, but limited supply of this specialization. The company recently hired partner Scott Charaneka from local firm Thomson Geer, who will launch a pension offering that combines legal, regulatory and risk expertise.
The company said it had focused more on superannuation “to capitalize on significant opportunities”.
The growing size of funds has prompted some of the biggest to jump straight into the M&A market, such as AustralianSuper which bought a 70% stake in Australia Tower Network from Singapore’s SingTel and QSuper which took control of Australia Tower Network. Sydney Airport.
“We expect this trend to intensify as larger funds seek to diversify their investments and participate directly in a wider range of business transactions both onshore and offshore,” Tzerefos and Short said.