Brenton Saunders: The ASX midcaps tipped to benefit from retirement shake-up

Industry super funds are under increasing pressure from the government to provide more products enabling them to service members beyond retirement. Pendal’s BRENTON SAUNDERS discusses the changes and the midcaps set to benefit

• Super funds pushed to improve retirement drawdowns
• Global companies circling Australia’s annuity market
• Find out more about the Pendal MidCap fund

RETIREES could see a wave of new retirement products hit the market from mid-year, as APRA resets capital requirements for decumulation products, like annuities — a change expected to lower barriers for providers and encourage large overseas insurers to compete in Australia.

The shift comes as the government increases pressure on super funds to help members spend down balances in retirement, rather than die with “fully stacked” accounts.

“The problem the government has is that a lot of people, when they pass, their super funds balances are still high, and they haven’t really used that money over time and effectively decumulated,” explains Brenton Saunders, portfolio manager for Pendal MidCap Fund.

“A big part of the reason is that there are very few easy to understand and effective decumulation products out there.”

An annuity is one of these types of products. It is a financial contract with an insurance company that provides a guaranteed income stream, either immediately or in the future, often used for retirement planning.

However, Saunders says up until now annuities haven’t been particularly popular in Australia due to a complicated administrative process and limited availability.

Challenger (ASX:CGF) is one of the only Australian investment management companies that currently offers annuities.

“The Australian framework historically has required a much more capital-intensive approach to annuities because capital adequacy requirements were higher,” says Saunders.  

“So it’s never really attracted a lot of the big global annuity players into the market to facilitate mass development of products.”

What’s changing

APRA finalised its review at the end of March with the amendments set to come into effect from 1 July 2026.

The amendments are designed to make annuities less capital-intensive to write, potentially widening the limited provider pool and attracting new entrants to the market

At the same time, Challenger is investing in technology to make annuities easier to quote, implement and service through advisers and super funds.

“Challenger will also partner with industry super funds to provide them with products that they can then pass on to their members,” adds Saunders.

“It’s a big opportunity for Challenger specifically, but what will happen is – and what we’re seeing happen now – is other participants from Japan and the US are entering the annuity market.

“So, it’ll become quite a vibrant landscape.

“I suspect in time companies like Challenger, given that they’re much smaller than the big global annuity providers, could be acquired by these bigger companies.”

Why it matters for retirees

If more insurers enter and super funds expand retirement offerings, retirees may have more ways to convert part of their balance into a predictable “pay cheque”.

“Companies like financial services business Generation Development Group (ASX:GDG) and AMP (ASX:AMP) have launched products that are more market-linked than annuity based, but are very tax efficient and getting a lot of traction with the retirement market,” says Saunders.

Evolution of SMSFs

Over the past decade, there has also been an evolution of self-managed super funds.

“The superannuation industry is growing incredibly fast. We’ve had super contributions as individuals increase a couple of times over the last five years, and with strong markets we’ve also had super balances grow materially over the last five or six years,” says Saunders.

Saunders says two offerings have been gaining share with “tech ready,” attractively priced and well serviced platforms; Netwealth Group (ASX:NWL) and Hub24 (ASX:HUB).

“That all manifests in these platforms, and notably Hub and Netwealth have been big beneficiaries of that.

“We back them to continue taking market share in the platform market from industry superannuation funds on the one hand, and from the incumbent platforms on the other.”

Pendal MidCap Fund owns a position in CGF, GDG, AMP, NWL and HUB.

Find out about

Pendal MidCap Fund

Learn more

Brenton Saunders,
Portfolio Manager