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Poisoning super with partisan politics: the success of Australia's industry super funds is globally recognised--but the Abbott government is poised to poison them with partisan politics.

IF THE BANK-OWNED SUPERANNUATION sector had matched the average returns of Australia's not-for-profit sector in the past decade, their members would have around $39 billion more in their accounts, says Industry Super Australia CEO David Whiteley

Since the early 1990s, union and employer representatives have worked constructively on industry superannuation fund boards to deliver some of the best retirement incomes in the world.

Yet despite this stellar performance, the Abbott government has flagged that it will introduce sweeping changes to the governance of industry funds, with profound ramifications for the super sector.

The federal government has released draft legislation that will require all super funds trustee funds to have an "independent" chair and that at least a third of their directors be "independent".

The government's changes are seen by many as an attack on the involvement of unions in not-for-profit super funds, and as the Abbott government pushing the agenda of banks.

Peter Collins, a former NSW Liberal leader and chair of Industry Super Australia, attributed the changes to "the pressure that has been exerted by the financial services sector and by bank-owned funds, on the Abbott government."

Richard di Natale, Greens leader, described the government's proposed changes as a "union-bashing exercise".

He said the biggest change the super system needed was a reduction in tax breaks for high-income earners--a reform that isn't on the table.

ACTU President Ged Kearney says the changes are a covert attack on union involvement in industry super.

"This government can't bear it that the trade union movement, along with employer associations, has overseen an amazing success story in superannuation," she said.

"Industry super funds have lower fees and have consistently delivered better returns over any time period for millions of Australians."

INDUSTRY FUNDS OUTPERFORM BANKS

Peter Collins says the government should heed the advice of their former leader John Howard: 'if it isn't broken, don't fix it". This position is backed by research that underlines the superior performance of industry super funds.

Analysis by the Australian Prudential Regulation Authority (APRA)--the body that oversees financial organisations--has found that industry super funds beat the performance of bank super funds by having both lower costs and higher investment returns. Global comparisons show that bank super funds have performed poorly.

"In fact they have failed to meet the OECD average in the past 10 years, putting them among the most inefficient funds in the world," Industry Super Australia CEO David Whitely said.

APRA figures show the average rates of return for funds between 2004 and 2013. Industry not-for-profit funds achieved returns of 6.7 per cent, compared with 4.9 per cent among retail for-profit funds.

REAL ISSUE GOVERNANCE OF BANK FUNDS

David Whiteley challenges the government's (and the banks') assertion that industry super governance needs an overhaul.

"The banks' lobbyists insist the ASX standard of 'independent chairs' and 'majority independent directors' must be mandated for all super funds, claiming it is the international benchmark for governance," he said. "In fact, this is a standard applied to listed companies, not pension funds, and reflects the banks' commercial view of the world in which super exists as a revenue-creating product.

"The claim that the ASX sets the international benchmark is incorrect. The representative trustee system used by not-for-profit funds is the prevailing model of pension governance across the OECD. The bank-owned funds are the odd ones out."

David Whiteley says APRA holds industry funds to significantly higher governance standards than listed companies.

"APRA can formally investigate a super fund, impose conditions on a fund's licence, disqualify people from their position or from holding other senior industry roles, permanently revoke a trustee's approval and appoint a replacement trustee. Its powers are at least equivalent to those of the ASX and ASIC.

"APRA's annual 'fit and proper' test ensures super boards possess the skills to govern the fund and its focus is on the entire governance framework, including risk management and behavioural norms, rather than just board composition."
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Title Annotation:SUPERANNUATION
Publication:The Lamp
Date:Aug 1, 2015
Words:658
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