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Issue # 1420      22 July 2009

Super funds used to bail out corporate crisis

In the coming weeks superannuation funds will be reporting record losses for the 2008-09 financial year, far greater than those of the previous year. Around $200 billion of workers’ retirement savings have been wiped, and many workers forced to put off retirement, while retirees return to work. The forecast average loss is around 13 percent for “balanced funds”. This statistical average masks the far larger losses of 20, 30, 50 percent or more that many workers have suffered, depending on how their savings were invested. While workers’ savings were haemorrhaging, the financial institutions were using the super funds to help bail themselves and the corporate sector out of the crisis.

The introduction of the compulsory superannuation guarantee around 20 years ago had a number of aims. These include winding back the publicly funded aged pension; shifting responsibility onto the individual for self-provision during retirement; privatising the provision of retirement income; and providing the private sector with a large source of investment capital.

From the finance sector’s perspective the growth of superannuation funds has been very successful in providing investment capital, presently at around $1.1 trillion and with a guaranteed continuous income stream of close to nine percent of all wages paid.

The banks, insurance companies and their various subsidiaries have the use of the super funds that they control to buy shares in themselves and thus prop up and manipulate their own share prices. A conflict of interest if ever there was one! This demonstrates clearly that there is no guarantee that any fund can or does always make investments with the best interests of the workers’ and their savings in mind.

Superannuation funds have literally saved the bacon of many corporations and possibly some of the banks and insurance companies.

In the past year, a number of the largest corporations listed on the Australian stock market have raised a record $70 billion through share issues and other means. They have used this money to wind back debt and purchase bargain-basement priced takeovers that can be found during an economic crisis. Much of this money came from superannuation funds.

Without this injection of super savings and faced with banks refusing to roll over debt, many private companies would have been in dire straights. Their collapse would have resulted in further losses to super funds. This highlights the contradictions facing workers, the fate of their savings so integrally tied to that of the big corporations which exploit them in the workplace and then profit from their superannuation savings.

Transfer of risk

When a person deposits money into a savings account or fixed term deposit the bank guarantees payment of a certain rate of interest and repayment of the sum in full. The bank takes the risk, lending, investing and speculating with that money. The bank carries any losses.

Superannuation transfers all of the risk onto the backs of workers. They are not guaranteed one cent of income and they are not guaranteed that the money they deposit will be there when they come to withdraw it. The financial institutions invest and speculate with the money for their own interests. For the privilege of risking superannuation savings, they have the hide to charge crippling fees.

The financial system is making a killing making huge profits from control of workers’ savings, with workers carrying all the risk.

Industry funds, which are not-for-profit and have trade union as well as employer representation on their boards, consistently outperform the other funds. Industry funds generally do not charge the hefty fees and commissions that the private funds impose. While they do to some extent determine the types of investment, they do not have control over day-to-day investments which is done through custodians.

Super savings are used in such unethical practices as lending shares for a fee to big business figures to manipulate voting at AGMs and get their nominees elected to directorships on company boards. They are subjected to highly speculative practices on stock and futures markets, and in currency trading, etc.

The private funds managers help themselves to outrageous entry fees on deposits, exit fees on withdrawals, a range of commissions, fees for financial planners and other “services”. Some charge entry fees of four or six percent on money paid into a fund, then they help themselves to another one or two percent for financial planning, a bit more for management and so on.

The government has become concerned about hefty fees eating into savings, fearing that super funds will fall short of their objective of replacing the aged pension. Other concerns have been raised about the rising cost of the special tax concessions relating to superannuation savings. These concessions were designed to encourage people to put more money into their funds by such means as salary sacrifice. The rich are rorting them to the hilt, using them to extract tax-free income from their investments in their own personal super funds.

Industry experts estimate that a 60-year-old retiree with $300,000 in a private pension fund drawing an income of $37,000 would run out of payments within 11 years and then be fully dependent on the aged pension. How many workers will have that sort of money in their fund by retirement!

Tax experts estimate that it would be cheaper for the government to make the aged pension universally available than funding the superannuation tax rorts for the rich.

There are other problems with the superannuation system. The ACTU has called for the Fair Work Ombudsman to be given the powers to investigate superannuation underpayments – as many as one third of employees may be affected by employers who do not meet their obligations.

The government has a number of reviews underway, investigating the huge fees and commissions charged by the finance industry, examining the system of tax concessions and looking at how to reduce the number of people receiving the aged pension. None of them have the objective of protecting workers’ savings.

The privatisation of the provision of retirement income is a big boon for the corporate and finance sectors, but for workers it is not working. It does not and cannot provide security in retirement for all workers. The only way to do that is through the centralised public provision of a basic pension by government. The aged pension should be universally available and sustained at a level that retirees can live with dignity and enjoy a good standard of living, which they have every right to having paid taxes throughout their working lives.

This was government policy during the 1970s when the process of phasing out means testing had begun. Many of today’s retirees made their plans in the belief they would be entitled to the pension.

Superannuation should be over and above a universal aged pension. Workers should have the option of making contributions to a national superannuation fund, run by and guaranteed by the state. This would be a defined benefit scheme, providing retirees with a guaranteed fortnightly income for the rest of their life. Similar schemes were the norm before the process of privatisation of retirement incomes began.

A national superannuation fund would be of additional benefit to the community, with its funds invested in socially desirable projects such as the building and provision of public housing, public infrastructure, health, education, aged care and other services. Industry and private superannuation funds should be subject to greater regulatory direction governing their investments, including a requirement to invest a certain percentage in government guaranteed public sector projects.

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