Activists on a slow march through the institutions

When compulsory superannuation was introduced by Labor in the early 1990s, at a modest 6 per cent, the aim was to provide security and flexibility for ordinary workers in retirement, higher living standards for older Australians and, over time, to take the weight off the welfare budget. System architects Paul Keating and Bill Kelty also wanted to raise national savings, in aggregate, over the long term, so that Australia would rely less on the equity and debt financing of foreigners. The other, hardly sly, imperative for these big-picture policy shapers was to entrench and raise the power of organised labour; trade union membership had been falling for decades. Some conservatives warned industry and public sector funds would become vehicles through which unions would flex their muscle more subtly and potently than in the era of wildcat strikes and pattern bargaining. That has come to pass. If Labor wins office, superannuation laws are likely to favour industry funds.

It was a slow march through the financial institutions to be sure, but the might of union-linked funds in the $2.7 trillion retirement savings system is now undeniable and, increasingly, irresistible. Industry funds have $630 billion under management. Their growth is due to superior performance for members and lower fees than the retail competition. A tilt in the playing field delivers members through default provisions, as does the disgraceful behaviour of the bank-owned funds, exposed by the royal commission into misconduct in the banking, superannuation and financial services industry. At present industrial awards nominate default accounts, favouring the industry funds to the tune of $30bn in contributions each year. The legislated increase in the compulsory rate to 12 per cent is another gift. Rice Warner consultants estimate industry fund assets will top $1 trillion within five years and be worth $1.7 trillion by 2033.

That raw power changes the rules of Australian politics, financial services and the economy, the logical end of the Keating-Kelty long game. Despite abysmal rates of union membership — now 15 per cent of the workforce, down from 51 per cent in 1976 — organised labour has morphed into a different beast for a new era. As economics editor Adam Creighton wrote yesterday, if the ALP was once the political wing of the union movement, “it’s more apt today to describe it as the political wing of industry superannuation funds”. Our top companies are increasingly owned by industry funds. Last September, industry funds held $143bn of equity in Australian-listed companies. Translated to the market capitalisation of the top 50 Australian companies, perhaps as much as 10 per cent of their shares are owned by industry funds.

Little wonder activists and militant unions are trying to use their links to industry funds to exert pressure on big companies on climate action, industrial relations and other issues that do not necessarily relate to member returns. ACTU president Michele O’Neil has written to 30 industry super funds demanding they use their leverage as shareholders to intervene in an industrial matter: she wants BHP to employ 80 maritime workers who are losing their jobs because steelmaker BlueScope, a former BHP subsidiary, is sourcing its iron ore from the global market and not exclusively from the Pilbara. Transport Workers Union national secretary Michael Kaine has pledged to maintain the pressure on superannuation funds to pursue companies over workplace standards. On Sunday, Treasurer Josh Frydenberg wrote to the Australian Prudential Regulation Authority asking whether it had sufficient powers to ensure union-appointed trustees were acting in the best interests of their members, rather than pursuing political agendas.

The nation’s biggest superannuation fund, AustralianSuper, which draws directors from unions and employers and has assets of $140bn, recently joined forces with a group of big investors known as Climate Action 100+ to force global commodities behemoth Glencore to limit coal production. AustralianSuper chair Heather Ridout told a directors’ conference on Monday that the fund would not be dragged into industrial relations matters and called on the Morrison government to stop playing politics. Coalition MPs are sounding the klaxons on activism, but it’s too little, too late to simply grandstand.

The Coalition needs to be smarter and bolder on superannuation, play a long game. To counter the industry funds’ predominance it should develop a low-fee, default fund proposal. The Coalition must also tidy up the default system in line with Kenneth Hayne’s recommendation of one super account for life. Trustees are required to always put members’ interests first; that can be a contested field, with the added push for investors to focus on so-called ESG or environmental, social and governance matters to ensure long-term value for members. Attaching civil penalties to breaches of the law, as the royal commission suggested and the Senate passed, stiffens the compliance regime. A broader pool of experts and independent trustees would also help limit the scope for political activists and hacks to endanger members’ nest eggs.