APRA has raised fresh questions over the future of smaller super funds after finding that high administration costs remain concentrated among funds with less than $10 billion in assets.
In its 2026 superannuation performance review, the regulator said trustees unable to offer competitive fees should consider whether they should continue operating independently. The warning came as 12 of 547 products failed the annual performance test, up from seven last year, while 17 products were flagged for significantly high administration fees and costs. Thirteen of those were offered by funds managing less than $10 billion.
That warning comes after years of consolidation. The number of APRA-regulated funds with more than six members fell from 158 in June 2020 to 81 in June 2025. APRA’s 2026 corporate plan puts the current number at 79, managed by 53 RSE licensees.
The decline matters to life insurers because superannuation remains one of the industry’s biggest distribution channels. KPMG’s life insurance analysis estimates that group superannuation accounts for 36% of gross annual risk-product premiums in Australia.
That means a single large super fund mandate can have a meaningful effect on an insurer’s growth.
Recent mandate changes show how quickly market positions can shift. Rainmaker data on group risk inflows show Zurich’s inflows rose 29.8% in the year to June 2024 after it took over the Brighter Super mandate from TAL, while MetLife’s rose 19.9% after taking over UniSuper’s mandate from TAL. TAL, meanwhile, picked up the AMP Super mandate from Resolution Life.
The size of individual relationships can also be substantial. Australian Retirement Trust last year selected Zurich for its group insurance mandate covering Super Savings members after a competitive tender. ART reported $1.125 billion in member-paid insurance premiums in 2024, up from $974 million a year earlier, although that figure is broader than the value of the Zurich contract itself.
The stakes around these mandates are rising at the same time as some parts of group insurance are becoming harder to price profitably.
KPMG found that group lump-sum risk recorded a negative insurance service result in FY2025. The claims-to-premium ratio rose from 78% in 2023 to 81% in 2024 and 91% in 2025, with weaker total and permanent disability experience and more mental health-related claims among the pressures on the segment.
Average premiums in the group superannuation channel still fell 6% over the latest 12-month period, mainly due to changes in TPD and group salary continuance benefit design, as well as premium reductions.
The result is a more complicated competitive picture than simple consolidation. Fewer super funds can mean larger and more valuable insurance mandates, but insurers competing for them are also dealing with tougher claims experience, benefit design changes and pressure on pricing.
APRA’s latest findings do not mean that funds with underperforming investment products have poor insurance arrangements, nor do they suggest that any particular insurance mandate will be retendered. Insurance is not part of the annual performance test.
However, trustees are required under APRA’s insurance-in-superannuation standard to carefully select and monitor insurers, assess premiums and cover terms, and regularly review their insurance arrangements. Changes in a fund’s structure or membership can therefore have effects beyond investment management.
The pressure also extends well beyond the 12 products that formally failed.
APRA’s broader product performance assessment identified another 63 MySuper and trustee-directed products as significantly underperforming when measured against additional long-term investment benchmarks. Among platform trustee-directed products, 41.4% underperformed its 10-year measure by at least 50 basis points, compared with 8.7% of MySuper products and 20.3% of non-platform trustee-directed products.
All 12 products that failed the statutory test were below the investment-performance threshold, while five also had relatively high administration costs.
“The annual performance test has been effective at reducing the number of members in underperforming products over the past five years. However, this year’s results show that pockets of underperformance remain and reinforce the need for trustees to take timely and effective action,” APRA chair John Lonsdale said.
“Lower administration fees can make a meaningful difference to members’ retirement balances by supporting higher net returns. APRA expects trustees to maintain a close focus on administration fees and fund performance in the best financial interests of their fund members.”
