Banking royal commission: super members missed $20m in derailed merger

A fund merger derailed by disputes over union representation cost super holders dearly, the royal commission heard.

A potential merger between industry fund Energy Super and the employer-backed fund Equip, which was derailed after a dispute over union representation on the merged board, would have saved members and employers $20 million a year, the financial services royal commission heard yesterday.

Scott Wilson, chairman of the $7 billion Queensland-based Energy Super, told the royal commission that Equip chairman Andrew Fairley said allowing union-nominated representatives to sit on the board of the merged fund would sink the deal.

“We’ve worked for years to get rid of them and we’re not going to reopen the practice,” Mr Fairley told Energy Super director Mark Williamson, according to Mr Wilson.

The royal commission has been probing the failed merger between the two funds in late 2016 and early 2017 as part of its examination of misconduct by managers of Australia’s retirement savings.

Mr Wilson strenuously defended the decision to abandon the merger once it was clear Equip would not accept the requirement to take two union directors, saying super was “a workplace right” won by the labour movement in the 1980s.

“The interests of unions and the interests of members of the funds are so aligned as to be indistinguishable,” he said.

“If we can’t be guaranteed that an anti-union employer-based fund is going to allow to have union representation on their board going forward, what’s going to happen to our members in far North Queensland, what’s going to happen to our members in Cairns and Townsville?”

The $14bn Equip is unusual in the not-for-profit super sector as it doesn’t appoint union-backed directors. The boards of equal representation funds, including Energy Super, are made up of an equal number of employer group directors and union-nominated directors. Energy Super also has an independent director.

The Productivity Commission has also taken aim at the Australian Prudential Regulation Authority and Australian Secur­ities and Investments Commission over their lax approach to imposing better standards on underperforming funds and for failing to police failed mergers that would be in the best interests of members.

Mr Wilson said the Energy Super board agreed the merger would be in the best interests of members. A KPMG report shown at the royal commission said the merger would have saved members $20m a year, or 15 basis points off costs.

The commission heard membership of Energy Super, which is heavily reliant on the Queensland electrical industry, had been stagnant for years amid administration costs that have soared along with the amount of assets under management.

Mr Wilson said Energy Super was outperforming Equip on a net returns basis.

Equip super “decided they would not merge” with Energy Super if it had to accept the smaller fund’s “board skills policy” which ensured union directors had the capacity to engage with members and workers, he said.

He conceded his fund currently lacked a board director who had investment expertise, which led to it hiring expertise through its investment committee. The prudential regulator APRA has raised concerns about several industry funds that do this.

Mr Wilson said Energy Super wanted the merged entity to have equal representation from both funds at a board level. “You need someone with a passion for members of the fund. I don’t know how you capture that in a skills matrix. It is a gut feeling,” he said.

Counsel assisting Albert Dinelli asked: “You accept, though, there might be circumstances where something is in the best interests of members but might not be in the best interests of the unions?”

Mr Wilson fired back that superannuation was “a right, it’s a workplace right”.

“It’s workers’ wages that are foregone for retirement,” he told the royal commission. “What the unions do around superannuation? We won it. We won it in the 80s through awards. So superannuation is very, very important to unions.”