Australia's private pension funds First State Super and Health Super today announced an in-principle intention to merge, in a deal that could spark more consolidation as funds in world's fourth-largest wealth management market aim to cut costs.

Australia has proposed pension reforms that aims for lower management fees and holding of more capital in the $1.2 trillion sector.

Dr Thomas Parry, AM, Chair of First State Super, and Mr Garry Richardson, Chair of Health Super, confirmed a Heads of Agreement has been signed detailing the planned merger. Both funds have agreed to work towards a target merger date of 30 June 2011, subject to a due diligence process.

The merged fund would have over $28 billion in funds under management and some 750,000 members. It would be one of the five largest superannuation funds in Australia based on funds under management.

First State Super is a multi-sector fund that covers most employees working in the public sector in NSW, including teachers, police and workers in public hospitals, ambulance services and prisons.

Health Super's core membership is drawn from the health and community services sector, primarily in Victoria.

Dr Parry and Mr Richardson agree the merger will be in the best interests of members.