WITH all the recent controversy about industry super funds, it would be easy to forget that superannuation has been embedded in Australia’s industrial landscape since long before Keating’s introduction of the Superannuation Guarantee in 1992.

Prior to Keating, superannuation was guaranteed for some workers: those workers who had a trade union active in their workplace to negotiate a collective entitlement to superannuation.

In 1992, in response to the ageing population and submissions by the Australian Council of Trade Unions, the Keating government mandated superannuation contributions by employers. This provided an important, and universal, savings mechanism for workers and the economy in the face of the anticipated strain on the aged pension scheme.

At the time it was introduced, there was widespread criticism and fear mongering by big business and their representatives. Trade unions on the other hand, who had been involved in superannuation for some decades, argued it was a win for workers and the economy.

Industry funds are clear outperformers

Superannuation funds generally fall into two categories: industry funds, established and operated by trade unions and employers together, and retail funds established and operated by financial institutions.

A key difference between industry funds and retail funds is the direction of the profits. Industry funds are not-for-profit organisations that exist solely for the benefit of their members as opposed to shareholders. On the contrary, retail funds have shareholders to whom they answer and direct the profits.

More often than not, industry funds perform better than retail funds and represent a more beneficial option to employees. Industry funds have, on average, outperformed retail funds for at least 10 years.

Despite the favourable intention and performance of industry funds, they have been caught in the crosshairs of an ideological war against trade unions.

First, in 2006, WorkChoices outlawed the inclusion of clauses relating to superannuation in industrial awards. Existing award clauses that related to superannuation were taken to have no effect. This allowed for more employers to nominate retail funds as their default fund, which has often resulted in employees being members of retail super funds, regardless of the fact that they may be better served by an industry fund.

When the Fair Work Act was introduced, it removed the prohibition of superannuation clauses in industrial awards.

Subsequently, the 2010 industry award modernisation process represented a big win for industry super funds and workers: now awards specify the super funds that an employer can choose from to nominate as their company’s default fund. None of the default funds are retail funds.

However, industry funds have recently found themselves the focus of the royal commission into trade unions.

The royal commission was established to uncover alleged widespread trade union corruption and governance issues and its terms of reference did not specifically include industry funds. Despite this, counsel assisting the royal commission has attacked industry funds and made claims that industry funds are controlled by trade unions and harbour a “corrupt culture”.

These attacks have gained political momentum.

Employer associations, such as the Australian Industry Group, are campaigning for regulatory changes to limit the ability for companies, their employees and trade unions to negotiate agreements providing for compulsory contributions to superior performing industry funds.

This not only undermines the right for employers and employees to negotiate work-related matters, but directly contradicts AIG’s previous rhetoric about regulations unnecessarily interfering with the flexibility associated with negotiating agreements.

This backflip on their usual calls for less regulation and more freedom to negotiate is a very transparent shot at trade unions, and the organisations with which they associate.

Furthermore, AIG is pushing for significant increases to the governance requirements of industry funds (though there is no push for similar increases to the governance requirements of retail funds).

These measures combined would, according to AIG and its supporters, cure the alleged corrupt culture and ensure employers are not “coerced” into contributing to “union-backed” industry funds.

To add fuel to the fire, Josh Frydenberg, the new Assistant Treasurer, said this week that he feels the current system “leaves retail funds and small industry funds at a disadvantage” and has insisted that default funds be opened up to include all MySuper products, which has no performance requirements, or assessment mechanisms, for member funds.

The banks will be the winners from any changes

Through these attacks, some very important facts are being forgotten: (a) industry funds are non-profit and exist for the benefit of their members as opposed to shareholders; (b) the joint governance of industry funds is a great example of employers and trade unions working together; (c) if it weren’t for the trade union movement, employees and the economy would not have the benefit of compulsory superannuation; (d) for at least the last 10 years, industry funds have , on average, outperformed retail funds.

None of the attacks on industry funds appear to relate to the benefits received by the funds’ members: there have been no findings that members of industry funds are disadvantaged, especially when compared to their retail fund counterparts, and in fact, there couldn’t be.

Nevertheless, the attack on industry super has come at a very convenient time for the large financial institutions. Joe Hockey’s financial system inquiry, headed up by a former Commonwealth Bank CEO, has made several recommendations in relation to the superannuation industry.

Of note, the recommendations include stripping away the representative model of industry funds by requiring their boards to include a majority of “independent” members, as well as an “independent” chairperson, who neither represent trade unions or industry employers.

The finance sector is likely to use this opportunity to continue its push for modern awards to include retail funds in their lists of default funds.

If this occurs, employers will once again be able nominate retail funds as their default superannuation fund. This will mean that banks, who own and operate most retail funds, will again have unfettered access to employees’ superannuation.

If the employer associations and financial institutions get their way, the management of industry funds will be debilitated by onerous and incomparable governance requirements, while banks reap the rewards of again being default super funds. It will not only benefit the big banks, but also those invested in the ideological war against trade unions.

The only people who don’t appear to benefit from these changes are employees, who are supposed to be the benefactors of the superannuation system and to whom only industry funds are answerable.

Giri Sivaraman is a Principal and Alana Heffernan a lawyer in Maurice Blackburn’s employment and industrial law team.

---