It’s a topic the Albanese government has assiduously avoided: the role and regulation of industry super funds. Apart from singing the praises of these funds while concocting various means of further protecting them, the silence has been deafening notwithstanding a range of obvious problems, both for the members and in public policy terms.
The most recent manifestation has been the failure of Cbus, the very large industry fund covering the construction industry, to efficiently and sympathetically deal with members entitled to death or disability benefits. Its chair is Wayne Swan, former Labor treasurer and now party president.
The numbers affected by the recent cases of mistreatment are substantial. It is estimated some 10,000 members were forced to wait, often for inordinate periods, for claims to be settled. The fund, in turn, blames the third party contracted to administer claims.
The Australian Securities and Investments Commission wasn’t buying this buck-passing, and Cbus may be fined up to $50m for its failure to appropriately serve its members. Initially, the CEO of Cbus, Kristian Fok, was too busy to appear before a Senate committee dealing with retirement incomes. But he eventually found the time and offered up an apology of sorts.
There are still several unanswered questions arising from this incident. Who pays the fine? Is it the members of the fund who will have to stump up? Should it be the owners of the fund – the construction unions and the employer associations? What about the trustees themselves?
This episode raises a range of more fundamental issues that have not been adequately dealt with for many years, by both Coalition and Labor governments. The one exception is Senator Andrew Bragg, who has been highlighting the concerns for some time. The problems with the system are legion.
Superannuation funds are not regulated as corporations but by a separate Act. There are two regulators that deal with superannuation: the Australian Prudential Regulation Authority and ASIC. This divided regulation is not ideal.
The equal representation model of governance that applies to industry super funds is highly celebrated by union and employer association officials who benefit from the arrangement. But the reality is that having underqualified trustees – and that is being kind – of a fund with many billions of dollars under management is a problem. The fact that trustees are simply appointed rather than elected by the members is another.
Some funds compensate for this deficiency by co-opting external experts on to their investment committees. This begs the question of what the trustees do.
The recent addition of so-called “independent” trustees – something that has been advocated for years – makes a mockery of the adjective. The appointed independent trustees almost invariably have close links to the Labor Party. Increasingly, industry super funds look like retirement homes for retired Labor politicians.
The industry funds are effectively owned by the sponsoring unions and employer associations, but they have never contributed any capital. This is in contrast with the retail funds that bring capital with them. It is one reason the payment of fines is such a vexed issue.
Take the case of the trustees of an industry super fund overseeing misconduct who then do nothing. A court imposes a fine, but it is the members themselves who must pay the fine even though they have had no say in electing the trustees and have no scope to boot out trustees who are not up to the job. It is complete vacuum of accountability.
The funds have tried to get around this knotty issue by arbitrarily imposing an administration fee on members taken out before the member contributions are added to their accounts. This administration account is then seen by the trustees as essentially free money, to be used for sponsorships, marketing, donations to worthy causes – anything, really.
One example was the “investment” by AustralianSuper – the largest industry fund – and several others to establish a new online newspaper, The New Daily. Given that trustees are governed by the sole purpose test contained in the legislation – to maximise the retirement incomes of members – it was close to inconceivable how this expenditure could be justified.
However, we were told there was nothing to see, that the money was taken from the administration accounts of the funds. As it turned out, the “investment” was a complete dud, and the funds sold out as soon as possible to another entity within the superannuation landscape.
As far as this type of spending is concerned, however, APRA has been asleep at the wheel for many years. In fact, it is close to impossible to find out about sponsorship deals and their justification, for instance. The payments made to sponsoring unions and employer associations are also well concealed.
The Labor government has attempted to maintain this lack of transparency as well as give the industry funds a free pass when it comes to remuneration disclosures. It is ironic that industry super funds try to hold listed companies in which they invest to higher standards of governance than they themselves uphold. There are very uneven gender balances in many industry funds as well as some trustees with inordinately lengthy tenure.
It is impossible to escape the impression that the trustees behave as if the money belongs to the funds rather than the members. It’s one reason the funds make it difficult to withdraw money, as well as their relative lack of interest in dealing with retired members.
The sheer size of the superannuation industry – now almost $4 trillion under management – raises complex issues. There is a widespread craven dependence of listed companies on superannuation funds as their major investors. Relatively inexperienced staff members of superannuation funds, ESG checklist on hand, are regularly calling the shots for companies.
In fact, the size of the superannuation industry raises issues about financial stability as one bloc controls such a large swathe of capital. The fact the funds are not regulated like corporations is another concern.
There is no chance that a Labor government will ever deal with the fundamental problems confronting the superannuation industry. The industry super funds were always a solution to the existential problems confronting the trade union movement. As the number of union members dwindles, both absolutely and relative to the size of the workforce, the influence of the industry super funds expands. Labor is never going to upset this apple cart.
Sadly, the Coalition has shown very little spine either. When confronted by the dilemma of raising the superannuation guarantee rate from 9 to 12 per cent, the Coalition government folded, afraid the funds would launch a hostile political campaign.
The reality is that 9 per cent is high enough, particularly if early withdrawals for home purchases are precluded. And much more attention needs to be given as to how superannuation is taxed – we have a terrible arrangement, particularly the taxing of contributions – as well as the development of sustainable retirement incomes products. I just wouldn’t hold your breath.
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