Fears reform would allow dud super funds to proliferate

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Not-for-profit industry superannuation funds are attacking proposed laws that could stop them from advertising, arguing the move potentially reduces consumers’ ability to escape under-performing funds.

Federal Treasurer Josh Frydenberg unveiled the Your Super, Your Future package last Thursday after the release of the Retirement Income Review.

If passed, the reforms would require super funds to provide documentary evidence proving that all decisions about advertising serve members financially. If these standards are not met in two consecutive years, the fund would be prohibited from accepting new members.

The AFR reports that funds in the not-for-profit industry superannuation sector spent $40 million on advertising in the 12 months to June 2020.

Matthew Linden, the deputy chief executive of not-for-profit sector peak body Industry Super Australia (ISA), says the package could reduce the ability of consumers to escape under-performing funds.

ISA’s successful advertising campaigns (think ‘compare the pair’) were examined but untouched by the banking royal commission. Mr Linden told Guardian Australia the government and his competitors, the for-profit super funds, ‘hate’ that marketing.

“One, it’s very effective. And they know that it does prompt consumers who are in their bad and crap products to walk out the door to a decent fund.

“And two, they’re unable to, because of the way commercially they operate, they don’t use collective scale to negotiate highly cost-effective campaigns that can establish recognition and be effective in the market.”

Mr Linden says the government is attempting to frame superannuation advertising as a problematic issue.

“They’re asserting that without any evidence, and in fact the evidence suggests that those funds which do have effective advertising and marketing campaigns, backed out better performing funds.

“They have been the fastest growing, so they’ve been able to gain the scale benefits from that growth and leverage it, for example, insourcing investment functions, slashing investment costs, and that supports strong returns.”

He is concerned that super funds would not be able to publicise their concerns if a government proposed laws that could have a detrimental effect on members’ retirement savings.

He said the financial effect of advertising on funds’ returns to members was negligible.

“And the long-term effects could be detrimental because consumers remain in dud funds and the good funds lose momentum with scale.”

ISA chief executive Bernie Dean said the reforms showed some government figures were “intent to pursue ideological objectives at the expense of member outcomes”.

“We’d be concerned if the government was returning to the old battle lines, because we know that will lead to poor financial outcomes for members.”

Guardian Australia commentator Amy Remeikis says industry super funds are the overwhelming target of the rule changes. These funds, initially run for members in specific industries, are still linked to the union movement, and control $163 billion more than retail funds. Ms Remeikis believes the Your Super, Your Future changes are intended to wrap super funds and their trustees in red tape.

Ms Remeikis believes key Liberals, including Senator Andrew Bragg, are ‘taking on’ industry super funds, citing the campaign to allow members to use their super for a home deposit, setting up a ‘false binary’ between home ownership and retirement.

Mr Frydenberg has indicated that the scheduled rise in the superannuation guarantee – how much is automatically taken from worker’s pay, intended to fund a comfortable retirement – will be scrapped.

Labor financial services spokesman Stephen Jones said the policy was a “pretty heavy-handed attempt to silence critics on whatever they want to do on the super guarantee rate”.

“It does distort the market when you’ve got one group of funds that can advertise and one group that can’t.”

Questioned at the financial services royal commission in 2018, Ian Silk, chief executive of the nation’s largest fund AustralianSuper, said switching to a better-performing fund could be life-changing for some people. Hence, the importance of advertising.

Do you believe advertising by super funds allows consumers to be more knowledgeable about the performance of their fund? Do you support this proposed legislation?

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Superannuation essentials

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What the latest super changes mean for you

The government said there would be few super changes in the Budget, but there were a few.

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Opposition says it will block government's poorly designed legislation.

Written by Will Brodie


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