Royal commission spotlight about to shift to super

The situation may be about to get a lot worse for banks as spotlight shifts to super.

Royal commission spotlight about to shift to super

Australia’s banks may have suffered severe scrutiny during the first part of the royal commission, but with the focus now shifting to superannuation, their situation could become much worse.

But it’s not just the retail and bank-owned super funds that will go under the microscope. Round five of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry will also focus on industry super funds, which may have cause to be nervous about what’s in store.

It is believed that the Government included super in the royal commission to embarrass industry funds for their connection to unions.

But it may be other factors that bring them undone, including their share of the tens of billions a year in fees extracted from people's retirement savings.

“We estimate that the excess fees and charges and underperformance in super is about $12 billion a year,” RMIT University Associate Professor Michael Rafferty told the ABC.

“In other words, the rip-off in wealth management is about three to four times the rip-off in banking.”

While industry funds can hardly be accused of underperformance, Prof. Rafferty says that offering services such as financial planning, charging for insurance and prominently advertising their products make them look a lot like retail funds and “the net result of all of this is the whole superannuation industry is charging people too much”, he said.

Industry funds may also come under scrutiny for their lack of transparency, says independent financial adviser Louise Lakomy.

“I think retail funds are better at the transparency piece, because you can usually have some kind of research paper or some kind of product detail that goes into who the fund manager is, what the exposure is to a commercial property, retail property,” said Ms Lakomy.

“It goes into a lot more detail than what a typical industry fund would do.’’

Australia’s biggest superannuation provider, AMP, may have already borne the brunt of the brutal royal commission investigation, with billions wiped off the company’s value, half a billion in costs, recommendations for criminal charges and barely a body left sitting in the top offices but, if its banking practices are anything to go by, once the focus shifts to super, it can expect a lot worse.

The Productivity Commission has already indicated that it won’t be pretty for super. Earlier this year, it released a report damning providers for exorbitant fees and what it believes is a sector imbued with corruption, inefficiency and unnecessary costs.

One such cost is insurance, which can wipe out huge portions of retirement incomes. According to the Productivity Commission’s draft report on super, one in four people don’t realise they’re paying for life insurance as part of super. If these people have multiple accounts, they could be losing hundreds of thousands over the life of their funds.

“Income protection policies have terms which say you can only collect under one policy,” said Grattan Institute chief John Daley.

“So, by definition, if you have a number of those policies, people are paying premiums and they could never collect on them.”

Industry regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) are also up for a roasting, with many finance experts saying the both talk the talk when it comes to regulation, but do not walk the walk.

According to the same draft report, APRA has been missing in action when it comes to regulating Australia’s $2.6 trillion super industry.

The report revealed that one in four funds – retail, industry, corporate and government funds – consistently underperform, a fact which is hidden by the lack of quality performance data.

The Productivity Commission has accused the regulators of not holding funds accountable for bad behaviour, to the detriment of millions of Australian fund holders.

“The problem here is the regulators needing more spine,” said Mr Daley.

“Regulators in Australia, financial regulators, by and large have plenty of powers, the issue is whether or not those powers are exercised.”

One thing is certain: the next few weeks will be an eye-opener for fund holders, but will any such action taken as a result of the commission actually benefit retirees who may have been victims of super rorts over the past 25 years? Or will the result be the Government putting the onus back onto the customer, for not having chosen the right fund in the first place?

We’ll see.

What would you expect as a fair result of the royal commission into super? Should you expect compensation for poor practice? Or do you trust that your fund has performed and behaved admirably?

RELATED ARTICLES





    COMMENTS

    To make a comment, please register or login
    pedro the swift
    6th Aug 2018
    11:35am
    So the banks have been "scrutinised" and now the gov wants to look at super.While there is a case for looking at some funds fees and hidden insurance costs, I suspect this is a cover to investigate industry funds and finding an excuse for more gov control of them. Since they aren't controlled by the banks and their mates they would like to see this happen. Since SCOMO now seems to be saying the bank problems are customers faults cos they should have been more knowledgeable it will be interesting what he has to say about this outcome.
    MICK
    6th Aug 2018
    12:41pm
    It should but unlikely to. This lot will again obstruct and refuse to legislate like they are doing for their mates in the bank....the Royal Commission they were forced to have but which was fought against until the last moment.

    6th Aug 2018
    12:48pm
    About time industry funds were scrutinized
    How much is siphoned off to union officials
    These are members funds and so fees charges and any dubious payments should all be made transparent
    MICK
    6th Aug 2018
    1:08pm
    You mean how much is siphoned off to CEOs plundering the money of Australians in Retail Funds.
    Unions take zip and the superannuation funds they oversee are the best performing funds. I wonder why.....
    Well you know all the above.
    Anonymous
    6th Aug 2018
    3:34pm
    olbaid - another Lieberal shill infesting these pages.
    Rae
    7th Aug 2018
    7:16am
    It's time the whole concept of Superannuation was scrutinised. What started as a compulsory tax minimisation scheme for pAYG workers to benefit from compounding has changed into a money making machine for the FIRE industry and a way to tax savings upfront for the government that is no longer fit for purpose unless you are in the top two quartiles of income earners.

    Even then only PAYG are forced to save in these schemes. The rest have free choice about their incomes and saving vehicles.

    As to siphoning of the funds and where the money goes. Yes let's see that out in the open for all superannuation. Dubious payments to unions, employers and banking partners need examining.
    johnp
    6th Aug 2018
    12:50pm
    I t did not appear to me that the RC has looked into Retail funds properly or extensively (apart from say AMP). When is that going to happen ??
    MICK
    6th Aug 2018
    1:09pm
    Expect this government to fight hard to avoid this because its mates at the top end of town are creaming off many many millions of dollars from Retail Funds. That's why Industry Funds are absolutely slaughtering them.
    Anonymous
    6th Aug 2018
    1:38pm
    That’s what the new RC is for
    Looking into both retail and industry funds
    MICK
    6th Aug 2018
    1:56pm
    This government will shield their mates at the helm of the Retail Funds so no RC into superannuation will happen. At least not under this government.
    HarrysOpinion
    6th Aug 2018
    1:44pm
    Bear in mind that “their share of the tens of billions a year in fees, extracted from people's retirement savings”, especially meaningless, valueless superannuation insurance policies, makes money for the government too, in form of, corporate, business, individual income tax and GST if applicable, providing they don’t dodge on their income assessments, but they do, don’t they? Makes the government inadvertently a, ‘silent partner’ in the biggest retirement saving’s heist of the century

    6th Aug 2018
    3:26pm
    Love the comments from the great ill-informed experts. People, please, the Royal Commission is doing its job and will release its findings and recommendations when all parties have been examined. The government will accept the report and make decisions based on the recommendations of the Royal Commissioner. Then you can all give an opinion on how the government has handled the matters. Until then, your bias is hanging out supported by guesswork without substance.
    Anonymous
    6th Aug 2018
    3:37pm
    But will the recommendations be acted upon? Not if this government can help it. After all, those being scrutinized are their mates...
    Anonymous
    6th Aug 2018
    4:18pm
    What are the recommendations Knows-a-lot?
    johnp
    6th Aug 2018
    4:48pm
    I think Old Man must be going senile as he started the term "recommendations". Se where he said "
    "" the Royal Commission will release its recommendations when all parties have been examined""
    Jim
    6th Aug 2018
    5:26pm
    You would expect the usual comments from the government knockers, because any investigation into unions and the money they have siphoned out of superannuation funds is a no go area as far as they are concerned, unions have siphoned funds from their members for years, with the fees that we have paid going into support for the labor party, that’s fine if you are a labor supporter, but it’s theft if you don’t support labor. I agreed wholeheartedly with the investigation into the banking industry, I agree even more so with the investigation into the superannuation industry both retail and industry funds, it was mentioned in the article that in industry superannuation funds there was an insurance component and this is correct, I have mentioned in this forum before that I was forced to pay an insurance premium as part of my contribution to my superannuation fund, originally I was paying 7 units at $3.57 per unit per fortnight, when I enquired about removing this I was told that it was not possible to have this removed, all I could do was lower the insurance units to a minimum of 3 units as this was the minimum compulsory insurance contribution, I am not suggesting that any of this money was going to the union, but why was it compulsory in an industry fund but not in a retail fund? Some on this site are suggesting that the union didn’t receive anything from the industry funds that they sat on the board of, I find this suggestion hard to believe, anyone know different?
    MD
    6th Aug 2018
    8:36pm
    Yeh you raise some interesting points there Jim. Super, at its conception, was a brilliant idea. The inherent problems that have taken some time (like scum) to bubble to the surface certainly aren't confined to the unions. Once it was realized - by financial parasites - that the super system was a veritable 'Pandora's Box', which only they held the key to, thereafter it became a free for all ... all that is being those in the know. And that they turned cartwheels in their rush to get their grubbies on the loot just proves how well they can perform when given the incentive.
    As it turns out, what a sorry state of affairs they've administered on our behalf....and yet - we don't hear too many of them lamenting their losses - handsomely remunerated, extortion excellence, enviable consultancies, bonuses worth dying for, lurks, perks, all day (business) lunches and we, their 'loyal members' are perceived by them as whinging, grovelling ingrates. How dare we question their morals when they've worked their butts off to deliver us a return on investment.
    rter
    6th Aug 2018
    11:26pm
    Wow, my friend has sent me the useful reference , where an outstanding specialist investigated this problem.
    HarrysOpinion
    7th Aug 2018
    1:22pm
    Asic to embed staff in big banks to enforce compliance. Sounds good but at extra cost to the taxpayers and what guarantee is there that the embed staff will not succumb to corruption? Insider knowledge?r Crime? After all,staff, from police to ATO ( and members of families), to politicians have been caught out in deeds of crime and corruption !!!!