The superannuation industry is like a drug addict. It needs more and more of its preferred substance — contributions — otherwise it gets a bit twitchy. The government has said it will restart the stepwise increase in the superannuation guarantee charge (presently 9.5 per cent of a worker’s earnings) from July 2021, but who can be sure?
On this timetable, the full rate of 12 per cent won’t be reached until July 2025. For the addicted superannuation industry, this is a very long time to wait. And what happens if the government of the day changes its mind, as it should, and leave the SGC at 9.5 per cent indefinitely?
The only option for the industry is to ramp up the case for increasing the SGC now. Take the latest outpouring of concern for women and the inadequacy of their superannuation balances. Rent-seeking lobbyist for the industry super funds — read union super funds — Industry Super Australia has issued a heart-wrenching, albeit misleading, report on women’s superannuation.
Here is the background to the pleading. “Several generations of working women now remain significantly behind in their retirement savings because the pay gap has persisted so long. Unless we tackle the issue head-on, by 2030 the retirement income gap is still expected to be 39 per cent, with average balances projected to be $262,000 for women and $432,000 for men. The sooner we can rebalance our super system to make it fairer for all, the better the long-term retirement outcomes for all Australians.”
So what does ISA have in mind? Not surprisingly, raising “the compulsory super guarantee to at least 12 per cent” is part of the deal. But here’s the bit I really love.
“Under Australia’s superannuation law, your employer must pay the equivalent of 9.5 per cent of your salary into a super fund.” Actually, the employer might technically pay the contribution, but it is part of your salary. What ISA is actually saying is that female workers — actually all workers because the higher SGC will also apply to men — should be prepared to forgo more current income to pay higher superannuation contributions. Addicts are very good at twisting the truth.
The ISA also wants the taxpayer to chip in more to low-balance superannuation accounts; no surprises there. In addition to continuing the low-income super contribution (about $500 a year), ISA thinks an additional $5000 — let’s call it Super Seed — should be contributed by taxpayers to these low-balance accounts. From the taxpayer’s point of view, this is a terrible deal, but what the heck if it feeds the addiction of the industry.
So what else has the superannuation industry been up to lately? The industry super funds have been engaged in an outrageous and dishonest campaign to defend the indefensible — the absurd equal representation model for trustees and the absence of independent directors.
Take this hysterical and fraudulent bit of hyperbole from the president of the ACTU, Ged Kearney. (I guess this tactic is being repeated by the ACTU because it worked so well in the Canning by-election with the hysterical rant about the China-Australia free-trade agreement.) “Australian unions built the most successful financial story in Australia — industry superannuation. Now Malcolm Turnbull wants to dismantle it. The Turnbull government is proposing changes that will hand over our super to the big banks. I’m writing to ask you to contact the crossbench senators and tell them to vote to stop this.
“Industry superannuation has low fees and high returns because they are run in the interests of their members, not to make profits for banks. All profits are returned to members, there are no sales people and it is secure. All of this is at risk if Turnbull succeeds in letting the big banks get their hands on our super.
“If you’re young these changes will cost you the most. You could end up paying up to a quarter of your retirement savings in fees. We can’t let this happen. After a lifetime of work and saving, you deserve better than that.”
Where do you begin? The Australian unions built the most successful financial story in Australia. Is she kidding? Compulsory superannuation exists because of legislation. It came about because of a dirty deal between the then treasurer, Paul Keating, and ACTU secretary Bill Kelty to provide a pay rise in another form.
The idea of improving the governance of industry super funds has nothing to do with giving a leg-up to the banks. It is about ensuring the highest possible standards of oversight of the investment of members’ funds. The aim has nothing to do with dismantling industry super funds, and Kearney knows it.
Before the industry super funds get too complacent about their low fees and charges, note that by international standards their fees and charges are highway robbery. Members are also unwittingly put into insurance products (and charged for the “privilege”) without their consent.
Increasingly, industry super funds have moved to a charging model based on a percentage of funds under management, which simply mimics the model used by the banks and other finance companies.
As for not paying for sales people, the industry super funds don’t have to bother too much because so many workers are given no choice of funds under enterprise agreements and by virtue of default funds in awards.
In any case, in-house staff members in industry super funds regularly tout for new customers (mainly by luring employers) and spend large sums of money advertising their funds in the media.
As for their other costs — paying staff, funds managers, custodial services and the like — the industry super funds are in exactly the same boat as all the other funds. And note some very expensive mistakes have been made by the industry super funds when it comes to purchasing services — the Super Partners fiasco, for instance.
The bottom line is that the industry super funds simply want to retain their cosy racket in which underqualified trustees, particularly from the unions, enjoy pay and perks for years and years even though this is not in the best interest of members. The government is right to insist on best-practice governance standards for all super funds.