Deferred super changes ‘exactly the wrong model’, says expert.
On Monday, superannuation expert Wilson Sy described the Federal Government’s proposed superannuation legislation as “bizarre”. On Tuesday, the reforms were shelved due to a lack of support from Senate crossbenchers.
The hotly debated changes were aimed at delivering greater transparency across the industry, retail and corporate super funds. They were particularly focused on the industry sector, which allegedly directs funds estimated at about $8 million a year to associated trade unions. These payments currently do not have to be disclosed.
However, the bills were unexpectedly deferred until next year when the Government realised that crossbench support in the Senate had collapsed following strong industry super lobbying.
The Government was seeking three key changes:
- To ensure all workers can choose their own funds, regardless of enterprise agreements
- To further disclose how the money of members is spent through new reporting standards
- To ensure at least one third of directors in industry super boardrooms are “independent”.
It is the third point that has drawn strong criticism. Wilson Sy, the principal advisor to Australia’s super system review in 2010 and former head of research at the Australian Prudential Regulation Authority (APRA) which oversees super funds, said industry superannuation funds risked “being looted” under the changes.
This means that employees with funds in industry super would be the big losers given the higher returns from industry funds over the past 20 years. Mr Sy said the bills sought to implement exactly the wrong model.
“The Government is trying to move what has been working, which is the industry fund model according to world’s best practice, to a model that is failing,” he told ABC Radio’s AM Report. “The industry funds have averaged two to three per cent better [than retail funds] over a period of 20 years. Retail funds have delivered about four and a half per cent – about the same as cash. I think it’s looting.
“Retail funds are there to make profits for shareholders. Basically, they treat their members as consumers to [whom] they sell some sort of financial product.”
Over the past five years, a comparison of the average annual returns from the not-for-profit industry funds and for-profit retails funds are more stark – 10.3 per cent compared to 8.2 per cent.
“That’s around $200,000 extra by the time [workers] retire,” according to Matthew Linden from Industry Super Australia.
Currently, industry funds operate under an “equal representation” rule – equal numbers of employer and employee representatives with the latter usually nominated by unions. Under the new legislation, the number of employee or union-nominated trustees would have to be cut.
The Government says: “The reform is important because independent directors bring different skills and expertise, and they can hold other directors accountable for their conduct, particularly in relation to conflicts of interest.”
However, Mr Sy said the bills were ridiculous, and that the independent director requirement, which was already in place at most bank-run funds, had not only failed spectacularly to prevent retirement savings being eroded by excessive fees but had also failed to overcome blatant conflicts of interest.
“If you were a director with most of your super in the funds you were a director of, you’re less likely to allow higher fees to be paid to service providers,” he said.
The Government insists the changes will improve the performance of all funds.“I'm only interested in members and their money and protecting it,” says Financial Services Minister Kelly O'Dwyer.
“As a result of this [lobbying] campaign, funded by the retirement savings of millions of Australians, those Australians have missed out on greater protection of their money.”
Which side of the fence do you sit on?
Should all workers be able to choose which superannuation fund they wish to invest in? Of course they should.
Should super funds be forced to disclose how the money of members is spent? Of course they should.
Should one third of directors in industry super boardrooms be ‘independent’? Sounds reasonable.
But when the key figure in a review of Australia’s superannuation system says something is very wrong with the Federal Government’s proposed changes, he’s worth listening to. And super expert Wilson Sy – principal advisor to Australia’s super system review in 2010 and former head of research at the Australian Prudential Regulation Authority (APRA) – is vehemently opposed to these changes.
My super is in an industry fund. I’m no expert, but it seems to have been doing well over the decades. If there are to be changes – next year when the legislation is belatedly presented after being shelved this week due to industry super lobbying – I’d prefer they didn’t affect the bottom line. For me, and lots of people like me, every dollar counts. A comfortable retirement may be a dream and it is definitely some way off.
The not-for-profit industry funds have been out-performing the for-profit retail funds for decades. Yet it is the retail model we are being dragged towards.
Having half of an industry super board representing my interests seems a better bet than having only one third of the board on-side.
Will the ‘independent’ financial professionals who make up the other two thirds be as concerned about keeping operational costs down to maximise my returns?
Money aside, is there a bigger picture?
Wise heads would no doubt direct me to how industry super funds channel directors’ and other fees back to trade unions, with a proportion – estimated by government sources at $8 million a year – flowing into the Labor Party’s re-election war chest.
The Liberal Government wants greater transparency on this front. Yet Prime Minister Malcolm Turnbull contributed $1.75 million of his own money into last year’s federal campaign.
Will this legislation pass next year?
Similar governance changes to super funds hit a brick wall in the Senate in 2015. And the Labor Party and trade unions are fierce opponents. Watch this space.
Are you in an industry or retail fund? What do you think?
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