Retirement rip-off The Your Super, Your Future package is designed by financial sector lobbyists to handcuff industry funds and give for-profit retail funds an easier run.
Despite all the fanfare, the Your Future, Your Super package will not hold the worst underperforming super funds to account, nor will it stop the disgraceful examples of misconduct unearthed during the banking royal commission.
In fact, the Morrison government reforms appear designed in part to disadvantage the best performing funds in the superannuation system, the profit-to-member industry super funds.
When the reform package was released on budget night, it sounded like the long overdue day of reckoning had arrived for retail and bank-owned super funds, which for decades had made billions in profits from their members – no matter how poor the investment returns.
Throughout months of testimony and the damning final report, Justice Kenneth Hayne exposed countless examples of forprofit retail and bank-owned super fund misconduct that systematically gouged fees and commissions from fund members to boost dividends for shareholders and line the pockets of financial advisers.
Even in death, members could not escape the for-profit sector fees for no service.
Hayne’s savaging was followed by a scathing report from the Productivity Commission that concluded retail and bank-owned super funds dominated the ranks of poor performers and fee gougers.
Industry super funds would fully support the Your Future, Your Super package if it heralded a comprehensive clean-up of the system that drove out the dud funds, wherever they were found. But unfortunately, it appears the government has been influenced by politically aligned financial sector interests.
Here’s how the financial sector lobbyists – inside and outside Parliament – designed the package to handcuff industry funds and allow the for-profit retail funds an easier run.
First, almost 70 per cent of retail fund products have been carved out from assessment against the crucial performance benchmarks. Shielding the worst retail products means millions of Australians will probably never be told their fund is a dud. That could cost them as much as $500,000 at retirement – that is the difference between being in a good fund and a bad one.
Investment offerings and products from retail super fund giants BT, IOOF, MLC, ANZ, AMP and Colonial First State will all be excused from the performance benchmarks.Retail products totalling about $420 billion are out of scope.
Secondly, administration fees are excluded from the key performance benchmark. Administration fees are far higher in the for-profit sector. If they were included, the retail funds would have to tell up to 1 million more members about inferior performance.
Any organisation investing worker savings should not fear robust and universally applied performance benchmarks showing the net return to members – i.e. investment returns minus all fees and charges. The carving out of profit-generating administration fees reeks of a benchmark inappropriately influenced by vested interests.
Andfinally,
A new financial best interest test that responds to Hayne’s or the Productivity Commission’s findings should be a death knell for those wanting to extract unreasonable profits from fund members. But trustees of retail funds can rest easy, knowing that corporate-wide profits derived from deals with related party providers are safe, no matter how bad the investment performance. Instead, it is industry fund advocacy and advertising the government is going after. But there’s a problem: Hayne found these things were all in the best financial interest of members.
So,incase theindustryfunds successfullyjumpthrough allthehoops, thegovernmenthas designedaregulatory overridebutton.The governmentwillbe abletoban expensesorinvestmentsit doesn’tlike,evenif theyareinthebest financialinterestof members.Weknow theintentionhere becausesomeformer banklobbyists,nowgovernment backbenchers,can’tstop braggingaboutit.
Bank-
Government giving itself the power to prohibit legitimate expenses and investments where they are in the best financial interest of members is conduct that shouldn’t be tolerated in our democracy. It is wide open to politically motivated abuse.
The industry super funds are a legitimate and significant part of our financial services industry. They are major participants in the super system and large investors in the economy. They came through the banking royal commission scrutiny with a clean bill of health, and have consistently delivered superior returns to members for many years.
And yet they are targeted by the government reforms.
We will seek to ensure through dialogue with the Morrison government that the Your Future, Your Super reforms are better balanced, and achieve the desired improvement in outcomes for current and future super fund members.
But we will vigorously oppose the stacking of the deck against us.
Greg Combet is chairman of Industry Super Australia.
Comments
6 responses to “Deck stacked for dud super funds (AFR Dec 15, 2020)”
Greg …. every second paragraph seems to have concatenated all of the words….
wonder if you can get this fixed in your article?
Also, suggest you respond to the supporters of private funds velocite and Richard Barnes
The main thing seems to be that people dont know that Industry Funds are all run by Employers AND Unions in cooperation !!!! and profits are returned to members super accounts !!!!!!
Greg Is there a better way to provide a decent retirement for workers? Maybe compulsory superannuation isn’t the best way to provide a decent standard of living for retirees. See
https://theconversation.com/superannuation- isnt-a-retirement-income-system-we-should- scrap-it-130191
I have my doubts about compulsory super, at least in terms of looking after people post retirement. A respectable pension seems to me to be the most straightforward option. Abolish the tax regime which effectively supports the super industry, I say! Meanwhile, back in the real world..is it ironic, that as the labour unions have lost membership and power, they have become relevant as players controlling the biggest financial investments?
The position as put by Greg Combet is so outrageous it’s hard to believe, even for our current bad-faith government. It seems to be a concrete demonstration of their lack of concern for anyone but their sponsors. I’m wondering how they justified any of those offensive details? I’m lazy: could do with some links.
I agree with you Velocite. The proposed reforms are clearly designed as an attack on the Industry Super Funds by the government and their rentier mates, who can’t stand having a $500 billion pot out of their hands. Disgraceful, and must be opposed.
But, like you, I have grave doubts about compulsory super as a universal system for provision of retirement income. Surely a far better system would be an adequate level of taxation, to provide an adequate means-tested pension. The current super arrangements reap fees for the managers of approx $30 billion pa, and another approx $50 billion pa are foregone because of super’s ‘favorable tax treatment’. That money would buy a lot of pension!
The LNP and their owners are terrified of the real and growing power of the industry funds – a power that corporations, banks and insurance companies alone have traditionally wielded from their boardrooms via their control of capital and the coalition parties in this country. The power to make, or equally as importantly, not make investment decisions is the basis of all power in a capitalist society. That power is now transferring to workers via their growing proportion of the collective super wealth held in the consistently better performing industry funds. And because they perform better, industry funds will inexorably attract more and more members and hence more capital at the expense of the parasitised retail funds, so the trajectory for LNP financial mates is clear and ultimately, terminal. Hence their hysteria and dirty tricks. The final indignity that really sticks in the craw of the ancient regime is that capital allocation decisions are being made by, among others, workers on industry fund boards – and they are doing better at it.
I am sure the preponderance of Industry Super funds choosing to take the abundant expert advice on climate change seriously and preferentially investing in clean energy rather than fossil fuels has to upset the entrenched opponents of climate action.