THE NSW government is believed to be days away from unveiling a decision on the future of its FuturePlus Financial Services and the $3.5 billion Energy Industries Super Scheme (EISS) - a decision that has been a year in the making.
It is part of a wider push in the $1.4 trillion super industry by federal and state governments to force consolidation of smaller super funds to cut administration costs and lift member returns.
The NSW government has spent the past year looking closely at what to do with EISS and FuturePlus and is believed to be looking at the merits of breaking up EISS and transferring its defined benefit scheme, which has almost 5000 members, to State Super (NSW), and its accumulation fund, which has 18,500 members, to First State Super.
If the NSW government decides to consolidate EISS, its administration arm FuturePlus would be either sold off or merged with rival administrator Pillar Administration, which is also owned by the NSW government and services its $32 billion First State Super scheme and its $31.3 billion State Super.
The board of EISS agreed to put a sale sign up for FuturePlus a few months ago and it is believed to be close to finalising a buyer. An imminent deal is believed to have brought the issue to a head and forced the government to make a decision on EISS.
The reason is simple: if FuturePlus was sold and then the government decided to roll EISS into First State and State Super, the two funds would have two administrators instead of one.
The NSW government's review of EISS and FuturePlus follows a controversial report by the Audit Office of NSW late last year which raised concerns over structural changes and executive departures at FuturePlus, which is EISS's administration arm. The NSW Minister for Finance, Greg Pearce, declined to comment.
The report said EISS was ''exposed to significant risk resulting from major changes to its administrator FuturePlus'' and recommended that the state government review the ''complex structure'' of EISS, which may include a merger.
Since then EISS has appointed a new CEO and restructured its board and its funds returned a better investment return than the median manager. FuturePlus has also had a major turnaround, turning a loss of $1.6 million last year into a profit of $5.1 million in the year to June 30, 2012.
Against this backdrop, there has been a review of the entire sector by Jeremy Cooper in 2010, along with the federal government's response, which includes the introduction of My Super, a no-frills default super fund which is expected to trigger more mergers in the industry.
Part of the reason is the additional reporting required by APRA as a result of My Super, which some believe has increased by a factor of between 4.5 and 5 times.
However, not all proposed mergers have been a success - or will be a success. The most recent was the surprise collapse of a $10 billion merger of two of the country's oldest super funds, Equipsuper and Vision Super, a month before they were due to vote to complete the deal. The Victorian-based Equipsuper pulled the plug in late May after three years of intensive negotiations.
Equipsuper chairman Andrew Fairley cited in a press release a series of factors for the decision, including the Vision Super board's failure to provide essential information, a failure to meet key dates and its breaching and continuously seeking to change several key parts of the memorandum of understanding and the shareholders deed.
Vision Super chairman Rob Spence likened the decision to ''getting a text message from your fiancee to say that it's over''. He said the Vision Super board got told of the decision the same day Equipsuper issued the statement to the press. He said he had expected to have had a discussion about it instead of learning about the reasons in a media statement issued by Equipsuper late in the day.
The collapse of the merger epitomises some of the problems funds face when they try to consolidate. The first is getting trustees to agree on which trustees from each board would form the board of the merged entity. In most cases industry fund boards and government super fund boards are made up of an equal number of union-backed trustees and employer-backed trustees, so each representative organisation wants to keep its ratio of spots.
However, this is unlikely to be an issue for EISS if it is wrapped into First Super and State Super, given the funds would be transferred and the existing trustees would be replaced by the trustees on the respective funds that the funds of EISS are rolled into.
The federal government has made some inroads into cleaning up governance issues in the super industry, including making remuneration more transparent.
However, it has steered away from the thorny issue of board composition, arguably to keep the unions on side.
But it is a fundamental issue that needs to be resolved as most industry and government fund trustees are appointed to the boards in equal numbers by unions and employer groups and are difficult to remove, no matter how incompetent.
The country's compulsory super industry was born in the 20th century. It has a lot to be proud of in terms of helping Australians amass so much personal wealth. It's time for more transparency.