Super is running out of investments, foreshadowing poorer returns, says funds chief.
An outgoing superannuation boss has warned that future funds will not be able to produce good returns for members as investment assets dry up.
In other news, at next month’s ALP national conference, a number of unions will call for banks to be locked out of the $2.7 trillion super sector, and some industry super funds are preparing to vote against bank executive bonuses following a shredding of shareholder value in the wake of the banking royal commission.
Industry Super Australia chairman Peter Collins, who will be replaced by former Labor minister Greg Combet next week, said yesterday that so much money is gushing into super funds “that the investible products going onto the Australian market just can’t keep up”.
“Ultimately, we will run out of projects to invest in. How close we are to that point depends on the will and timetable that state governments give themselves (for launching infrastructure projects),” he was reported as saying in the Australian Financial Review.
Claiming that the search for new assets was “urgent”, Mr Collins threw down the gauntlet to Opposition Leader Bill Shorten to support ‘asset recycling’ within super funds if he wins the next election.
This would allow the non-profit, $632 billion industry fund sector, which is run by unions and employers, to invest in government-led infrastructure projects.
“Instead of the old prejudices – Labor wary of asset recycling, Liberals distrustful of any union link – the exceptional offer staring all Australian governments in the face must be taken up to overcome our infrastructure deficit,” Mr Collins said.
“Ideology and old beliefs – not founded in fact – are holding us back. The time is long overdue for governments and super funds to sit down regularly and to talk pragmatically about infrastructure investment.”
Asset recycling allows governments to lease existing infrastructure to private investors, thereby creating cash flows for new projects to be built. Mr Collins wants all governments to consider allowing non-profit super funds to join these schemes.
In another development, industry super funds are getting ready to challenge the hefty bonuses earned by senior banking executives in the wake of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry revelations.
Today is the last day of the royal commission public hearings, which began on 13 March. Commissioner Kenneth Hayne has presided over seven rounds of hearings. He and his assistants have grilled executives from the largest financial institutions in the nation, to uncover evidence of activity that has preferenced the interests of the companies above their clients. A final report is due on 1 February 2019.
As a result of the misconduct that has come to light, industry super funds are said to be concerned at the decline in shareholder value and returns for their members.
Australian Super, which has $8 billion invested in the big four banks and Macquarie, is considering voting against the remuneration reports of Westpac, NAB and ANZ at their upcoming annual general meetings (AGM), according to the Australian Financial Review.
Other big industry funds, including UniSuper, Cbus and Hostplus, are also understood to be unhappy, believing the Commonwealth Bank's example of paying no bonuses over the past year should have been followed by the other banks, the AFR reported.
Many of the industry funds are guided by the Australian Council for Superannuation Investors, which is understood to favour voting against all three remuneration reports.
In his evidence to the royal commission on Tuesday, NAB chairman Ken Henry conceded the bank was facing a possible ‘first strike’ against its remuneration report at the 19 December AGM.
A first strike is when 25 per cent of shareholders reject a remuneration report. If a second strike follows at the next AGM, the bank’s board could be forced to spill under Australian Securities Exchange listing rules.
NAB chief executive Andrew Thorburn’s most recent bonuses amounted to $2.1 million, in addition to a base salary of $2.3 million and $500,000 in dividends. The payment was made after the royal commission exposed the bank’s strategy of charging fees for no service and other misconduct.
Westpac chief executive Brian Hartzer received $2.2 million in bonuses last financial year, pushing his total remuneration to $4.9 million.
ANZ chief executive Shayne Elliott received a bonus of $1.7 million plus base pay of $2.1 million.
The Commonwealth Bank paid no bonuses in the most recent financial year after receiving a strike against its remuneration report in 2016, when nearly half of all the votes cast were against it.
Meanwhile, the Construction, Forestry, Mining and Energy Union (CFMEU) and the Transport Workers Union (TWU) joined forces this month to call for regulations barring banks from running super funds.
“Our unions are forging an alliance at the coming ALP national conference to remove shareholder interests from superannuation entirely,” the unions’ national secretaries, Michael O’Connor (CFMEU) and Michael Kaine (TWU) said.
“Our cross factional alliance will push for ALP national policy to amend superannuation law. This would bring legal effect to a basic principle: in superannuation, you must have only one over-riding interest, the member.”
Do you believe that bank executives should forfeit their bonuses relative to the slide in value of bank shares? Should banks and other companies with shareholders be allowed to operate superannuation funds for the public? Do you agree that super should invest its members' savings in infrastructure projects?