- by Anna Pha
- The Guardian
- Issue #1967
On 17th June, the government rushed through both Houses legislation on superannuation. As can be expected from a Coalition government, the bills are designed to hurt workers and further line the pockets of the rich and coffers of the banks.
Since its introduction in 1992 by the Hawke Labor government, the Coalition has consistently opposed and white-anted the compulsory superannuation guarantee (CSG). Successive Coalition governments have targeted the not-for-profit industry funds, which have equal representation of trade union and employer representatives on their boards. The industry funds have consistently outperformed the retail (for-profit, bank-run) superannuation funds.
The industry funds do not pay commissions to financial advisers or pay dividends to shareholders. Industry funds have lower fees than retail funds.
The government is doing the bidding of the big banks and insurance companies. Prior to the banking royal commission, the Commonwealth Bank’s rate of return on its equity for its fund investment division was an incredible sixty-six per cent! That says it all.
The centrepiece of this latest offensive against industry funds is the Your Future, Your Super bill.
When the government was forced into a royal commission into banking, it added superannuation to the terms of reference hoping the industry superannuation funds would take a hit. Its hopes were dashed, as criticism of hefty fees and other rorting was sheeted home to the retail funds.
In future, workers entering the labour market will be “stapled” to the fund they join in their first job! At present, when workers gain employment in different industries, they are usually signed up in different super funds. This, as the government correctly points out, results in duplication of insurance and costs more in fees.
“This is a bill designed to funnel more working people into bank-owned, for-profit funds which deliver smaller returns and ultimately a less secure retirement for working people,” the ACTU warned. It will leave “roughly three million people who are currently in under-performing funds up to $500,000 worse off by retirement,” the ACTU said.
For many workers, their first job is in retail or hospitality. They might pick up part-time work as a shop assistant or in a café while still at school or as a TAFE or university student.
This default position of being “stapled” to the same fund means a lot of workers will not change funds unless a particular employer or trade union steps in to facilitate a change. It could hurt industry superannuation funds covering occupations that workers take up later, where unions have negotiated an agreement for a particular industry fund.
“Stapling” creates problems that the bill fails to address. For example, a worker who starts working in the hospitality industry where the insurance policy that accompanies their superannuation fund is based on it being a low-risk job. Say they move into building and construction where insurance companies assess risk as higher. Then the insurance cover they are “stapled” to may not provide adequate cover. This is a serious issue which the bill fails to address. An industry fund such as CBUS provides the appropriate insurance for workers in building and construction.
The Your Future, Your Super bill contained a provision that would have given the Treasurer of the day a “directions power” to cancel any investments they did not like! The government was forced to withdraw this section of the bill. Otherwise, the bill would have been blocked by the House of Representatives.
But the bill does permit the government to make regulations that prohibit certain types of payments and investments being made by trustees. This is outright interference in superannuation funds.
The government will also have the regulatory power to provide for additional obligations on trustees. Just what it has in mind is not stated.
“BEST FINANCIAL INTERESTS”
The Howard government attempted to undermine industry funds by introducing the concept of “choice,” in the hope that workers would move to retail funds. They didn’t. The industry funds ran an advertising campaign pointing to their superior results, resulting in a flow of workers in the opposite direction! The industry super sector still runs its “We’re all in this together” ads.
The bill stipulates that spending by super funds must be in the “best financial interests” of members. At present, it should be in the best interests of members, which could include investments in renewable energy, that improve quality of life, etc. This provision has several aims.
First the government is attempting to eradicate advertising campaigns that draw attention to the superiority of industry funds. Bank-run and other for-profit funds pay financial advisers hefty fees and in addition pocket large profits, at the expense of members’ returns. Will the government consider such fees and profits as not being in the “best financial interests” of members? Hardly!
The government is also seeking to protect the interests of its largest political donors – such as the fossil fuel sector, arms manufacturers, and the uranium mining industry. This is an outright attack on ethical investments. It comes at a time when major investors are moving their capital out of fossil fuels. Workers should have the right to choose whether they want their savings invested ethically or not.
The bill goes a step further by making trustees of super funds personally liable for decisions not deemed to be in the “best financial interests” of members. It seeks to intimidate boards, as it provides for the possibility of civil liability with the suing of trustees.
For example, some funds, such as CBUS invest in their own industry. CBUS invests in construction projects. Last year its default product made a return of 17.5 per cent on workers’ savings and 24 per cent on its high-risk product. The default product is a relatively low risk one that members are allocated to if they do not specify a preferred product.
The onus of proof is reversed. Trustees will be obliged to prove any investment that is challenged is in the best financial interests of members. It applies to every individual investment, no matter how small or large. The amount of additional paperwork could be a nightmare for fund managers and costly to members! So would any challenges.
Employers, especially those with union agreements specifying an industry fund, instead of making contributions to one fund, will have the administrative hassle of making payments to multiple funds.
“This bill also offers up a more sinister possibility. Don’t put it past the banks to contrive a way to sign up children, potentially twelve-year-olds, to their first superannuation account just so they can be stapled to a bank owned fund for life. This bill could usher in Dollarmites for super,” Greens Senator Nick McKim said in his Second Reading speech.
This provision contradicts the Royal Commission’s recommendation, which found the existing provisions should not be changed.
RANKING OF FUNDS
The Australian Prudential Regulation Authority (APRA) will conduct an annual performance assessment of default products based on the previous eight years. (APRA is a statutory body responsible for supervising banks, insurance companies, and superannuation funds.) The government will be able to add by regulation other types of products.
The index used for ranking will be determined by private, global investment firms. Any fund that fails the test will be required to notify the relevant members in writing. If a product fails two consecutive years in a row, then it will be closed to new members.
Funds are managed with the long-term in mind, over the working life of a member, not eight years.
After being frozen since 2014 by the Abbott government, the CSG is set to rise from 9.5 to 10 per cent on the 1st of July. All employers are required to pay the increase by law. But some have plans to use a legal loophole to cut workers’ wages by 0.5 per cent to fund the increase.
They are doing this where workers have income packages that include superannuation. The ANZ is one such employer. The Finance Sector Union (FSU) is running a “Don’t Steal our Super” campaign with one in four employees affected. The ANZ is fighting back with threats of legal action against the union.
STILL TO COME
During the pandemic last year, the government set a precedent, allowing working people to draw two tranches of their retirement savings of up to $10,000 each from their super accounts if they were experiencing financial difficulties. Almost three million withdrew retirement savings to the tune of $36.4 billion, with many young workers completely draining their savings at great cost to their retirement income.
This set a precedent. For some time now, there have been suggestions that younger people should be able to draw on their retirements to pay a deposit on a house. The idea of making the whole superannuation system voluntary has also been floated. At present, superannuation contributions are compulsory.
Many workers are not even aware of what fund or funds they belong to. The issues raised do expose the complexity of the present system and the need for change.
Initially the compulsory superannuation guarantee had three main aims:
- Provide workers with a retirement income so that the age pension could be wound back
- Provide a large pool of investment capital for the private sector
- Provide private investment managers with a large pool of workers’ savings to manage and profit from.
Today, $3.1 trillion is invested in super savings, a sum which continues to grow. $30 billion a year is wasted on fees.
A NATIONAL SCHEME
The government could solve many of the issues referred to above by setting up a national superannuation fund that workers could opt into on a voluntary basis and transfer their savings. This fund would be administered democratically by representatives of trade unions and other community organisations.
The fund would be invested in projects such as renewable energy research and development, public services including housing, schools, TAFE colleges, transport, and other projects of benefit to working people and retirees.
One of the areas where the current super scheme fails is that it perpetuates working life inequalities in retirement with women, other low paid and vulnerable workers bearing the brunt.
The rich rort the super system to the tune of $40 billion per annum through generous tax concessions on investment income and employer contributions. If these rorts were halted, then the $40bil could be directed to top up the age pension, which costs around $52 billion. That additional income would be more than enough to enable pensioners to live in comfort and with dignity.
It could also provide for a universal age pension, which used to be government policy, and would overcome so many bureaucratic inefficiencies and administrative expenses. There would not be all the problems associated with multiple funds, means and assets testing. CentreLink staff could be redirected to services such as JobSeeker.
As Australian Council of Trade Unions Assistant Secretary Scott Connolly said, “workers’ capital should be used to improve the lives of those working while generating returns for those who are retired.”