Following the announcement of Scott Morrison’s new ministry, Victorian Senator Jane Hume has been promoted to the role of Assistant Minister for Superannuation, Financial Services and Financial Technology.
Unfortunately, Senator Hume’s comments regarding Industry Super Funds, coupled with the proposal of a government review into superannuation are a cause to worry for anyone considering not spending their retirement as a Dickensian beggar. Here’s why.
Industry Super Funds (ISF) were created to exempt workers from the high fees that are commonly charged by Retail Super Funds (RSF). Industry funds never pay commission incentives to staff or financial planners and aim to keep management fees as low as possible. Critically, industry superannuation boards, under the Equal Representation model, are composed of a 50/50 split of employer and employee representatives- including trade unions.
Retail funds, however, are owned and managed by banks or major insurance companies, which we know to be incredibly trusted institutions. Unlike industry funds, retail funds are used to generate corporate profit, which is then returned to shareholders as dividends, not workers’ superannuation.
An average retail fund has been found to deliver around $47,000 less overall to their members than the average industry fund. In 2018 the ranking of the top ten super funds did not include one retail fund, furthermore retail funds were outperformed by industry funds in every time period measured. This asymmetry in the quality of service is best illustrated by one simple fact, that on average ISFs have outperformed their retail competitors for the better part of two decades!
Given that ISFs have consistently delivered high returns for their customers and that Senator Hume has previously worked for an industry fund, Australian Super, as a senior policy advisor, could this possibly mean that the Coalition’s long-running campaign against industry super is over?
Not really.
Speaking in the Senate this year regarding superannuation, Hume argued that ‘reform is absolutely imperative’ however it will be difficult to achieve because there is too much ‘vested interest’ in the superannuation industry by the ‘unholy trinity’ comprising of unions, Labor and Industry Superannuation. It should be noted that less than one-third of people serving on industry fund boards are current or previous union officials.
In 2017 the government introduced legislation that was said to increase safeguards for customers of superannuation funds. The legislation was later shelved but remains government policy. This legislation would abolish the requirement for equal representation on boards, establishing that the majority of boards be comprised of entirely ‘independent’ directors, the types of directors found governing retail funds. At the time Hume stated that ‘the Equal Representation model [is] less relevant’ and seen by some as ‘entirely irrelevant’ and a ‘legacy of the past’.
And then, the Banking Royal Commission. Since the government set the parameters on what is included in the scope of the commission, the inclusion of superannuation was seen as a way to ‘get at’ industry funds. Ironically, industry funds came out unscathed. Documents filed by the Construction and Buildings Unions Superannuation were examined and not pursued further. Similarly, examination of Australian Super’s chief executive led to nothing consequential either.
Retail funds run by the Big Four banks and AMP were found to have all charged fees to customers without ever providing a service in return. The scale of this so large that the five banks have so far set over $1 billion aside for compensation. The findings and recommendations from the report carried down from the commission found that in almost every case ‘misconduct was driven by business pursuing profit and individual greed where service to customers came second’.
Cut to six days after the election, Josh Frydenberg came out saying that he intends for there to be a government review into superannuation, pensions and taxation regarding retirement incomes. This is a good idea- superannuation tax concessions are potentially offsetting the gain to the budget that superannuation was designed to give. These tax concessions are also primarily used by top income earners. When excluding other government payments, the top 10% of income earners receive 38% of superannuation tax concessions. Over a lifetime, the top 10% of income earners receive more government retirement support than any other income group through tax concessions via superannuation and investment earnings concessions.
What is concerning about the possibility of a government review, given the history of this government trying to undermine industry super and given the views of the newly appointed Assistant Minister is that journalists and industry are already predicting that the report will be used to restrict union and employee board presence, even though these bodies are a key component of the Equal Representation model.
I do not share the urgency for reform of industry super considering industry funds consistently demonstrate they perform better than retail funds, provide higher returns to their membership and have withstood the scrutiny of the Royal Commission without association to the illegal and/or unethical practices of retail funds. I would need to be convinced that the push for the restructuring of Industry Superannuation is anything other than an ideological campaign. A campaign unable to see the value of the Equal Representation model due to a fundamental failure to recognise the validity of unions and employee representation.
Words by Lily Andrew