Australians are getting a rude shock as they open their superannuation statements. For most, it was a rare year of losses. Only three funds ended in the black. Callum Foote and Michael West investigate super returns and the best performing fund of them all, Hostplus.
Is Australia’s top performing fund smoke and mirrors? Hostplus, Canva and the year of super losses – Michael West
There is little that annoys the Australian business community, its media spruikers and the Liberal party more than being shown how badly they perform. The best example of this is the superannuation industry where once again it has been revealed that industry funds have comprehensively outperformed those run by banks. Little wonder then that instead of attempting to improve, the business community is instead crying foul and trying to destroy the entire system.
This week, superannuation research house Chant West released the results of fund performances over the 2017-18 financial year. And yet again the news was not good for bank-run retail funds.
Why is the super system broken? – Australian politics liveNot one of them made the top 10, and industry funds once again dominated. The best performing fund was Hostplus, which is mainly for employees in hospitality and tourism.
This is the Productivity Commission’s point. We don’t have time to be chasing down old superannuation accounts, so it’s proposing our account follows to a new job. While some may be able to complete the herculean feat of figuring out the best among the 40,000 options, why not have a committee of independent experts narrow it down to the top ten so everyone can have a chance at choosing a good place to grow their retirement savings?
These two changes alone will drive $3.9bn in savings every year away from the fund managers and back into the pockets of people.
via How do you know if you’re in the right super fund? | Xavier O’Halloran | Opinion | The Guardian
WHEN you have a world-leading model for retirement savings that consistently delivers higher returns to its members than banks can, why would you mess around with it?
The answer seems to be politics and ideology.
Today the Abbott Government has unveiled proposed changes to the governance of the funds that manage Australia’s $2 trillion superannuation system in what is a thinly-veiled attack on the strong relationship between the not-for-profit industry super funds and the union movement.
Under the changes, the unions and employer bodies who established the not-for-profit sector would be forced to give up much of their oversight of how industry funds are run, and be replaced by independent trustees or directors.
Under the current system, unions and employer bodies usually have an equal number of seats on the boards of industry superannuation funds.
While the changes would apply to all super funds regulated by the Australian Prudential Regulation Authority, including corporate, industry, public sector and the bank-owned retail funds, there is no doubt it is the role of unions as custodians of workers’ retirement savings that is the true target.
According to the latest SuperRatings monthly data, industry super funds easily outperformed the bank-owned super funds, returning an average of 12.14% over the past 12 months, compared to the banks’ 10.57%. Over five and 10 years, the outperformance increases to 1.96%.
The proposed changes have exposed major faultlines between the not-for-profit industry super sector and the profit-based retail sector that is owned by the big banks and financial services companies.
Announcing the changes this morning, Assistant Treasurer Josh Frydenberg was careful to frame them as strengthening the system of fund governance.
“Given the size of the superannuation system, and its importance in funding the retirement of Australians, good governance is absolutely critical,” he said.
But unions said the changes were ideologically driven.
The ACTU said not-for-profit industry super funds have lower fees and have outperformed the retail sector by delivering two decades of strong returns almost 2% higher than the retail funds.
ACTU President Ged Kearney said there was no evidence to show equal representative governance was failing workers, or that reform was needed.
She said the Abbott Government would be better focusing its attention on the financial advice scandals that have engulfed the big banks.
“It’s simply ideology,” she said.
“This government can’t bear it that the trade union movement, along with employer associations, has overseen an amazing success story in superannuation.
“This is a political attack on unions and on the idea that working people should have a voice in how their savings are managed and invested.”
Industry Super Australia said it was “astounding” that anyone would be seeking to interfere with the governance model of the “all profits to members” super funds, and cautioned against a one-size-fits-all approach.
“The watchful eye and questioning minds of industry super fund directors have not only delivered the best performing funds, they have avoided the widespread consumer loses and scandals which have engulfed the major banks and wealth managers over recent years,” said ISA deputy chief executive Robbie Campo.
The Australian Institute of Superannuation Trustees said while it was not opposed to independent directors, there was no evidence to suggest they should be mandatory.
But other industry bodies were more sanguine.
The Financial Services Council, which represents the retail funds, has been pushing to break down the industry super model of union and employer trustees since 2013, and welcomed the changes, as did the Association of Superannuation Funds of Australia.
Consumer advocacy group CHOICE also endorsed the changes as giving consumers greater security in superannuation, but did not provide any evidence that the current system was not working.
The draft exposure legislation has been put out for public comment, with submissions closing on 23 July.
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.
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.
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.
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