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%.

Faultlines exposed

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.”

One-size-fits-all approach

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.