Treasurer’s super war on activists

The Treasurer has sounded the alarm on financial activism, warning unions are “pressuring superannuation funds”.

The Treasurer Josh Frydenberg: “Superannuation is not a plaything for union bosses nor a platform for pushing their industrial relations agenda.” Picture: Lukas Coch

The Morrison government is weighing up new powers to ­prevent industry super fund managers, responsible for $630 billion in retirement savings, from using their financial leverage over ­publicly listed companies to advance the political ­objectives of militant ­unions.

Josh Frydenberg yesterday wrote to the prudential regulator urging it to consider whether it had the “appropriate powers” to ensure union-appointed super trustees did not pursue political objectives at the expense of members’ best interests.

The Treasurer’s move comes after the ACTU backed the Maritime Union of Australia’s high-profile campaign for industry funds to pressure BHP and BlueScope Steel into reversing a contentious decision not to renew a legacy contract for two Australian-crewed vessels — the last servicing the iron-ore industry.

Mr Frydenberg yesterday sounded the alarm on financial activism, warning that unions were “openly pressuring superannuation funds to use their leverage over listed companies and their management”.

“This is a dangerous development and could potentially undermine the integrity of our $2.7 trillion superannuation system,” he told The Australian. “Superannuation is not a plaything for union bosses nor a platform for pushing their industrial relations agenda.”

Industry funds operate an equal-representation board model, meaning they appoint ­directors from unions and ­employer groups. Together, they have $631bn of assets under management — more financial power than the bank-run retail fund sector ($622bn), or public sector funds ($462bn).

With the industry fund sector set to manage more than $1 trillion by 2024, the government is concerned at activist investors using the savings of disengaged workers to dictate how companies operate.

In a letter sent yesterday to Australian Prudential Regulation Authority chairman Wayne Byres, Mr Frydenberg said it was “important that the public have confidence that (superannuation) trustees are discharging their duties in accordance with their legal obligations”.

He said it was important to have “satisfactory arrangements” in place for trustees to “manage any associated conflicts of interests such that members’ interests are preferred”.

Mr Frydenberg said that, given the scale of Australia’s super ­industry, which is bigger than the entire market capitalisation of the local sharemarket, these issues “take on even more significance and present wider risks to the economy”.

“I seek your urgent advice as to APRA’s views regarding these matters, including whether APRA has the appropriate powers to ensure that trustees are meeting their obligations in regards to these legal duties,” he said.

The nation’s biggest superannuation fund, the $140bn AustralianSuper — which draws board directors from the ACTU — recently joined forces with a group of large investors known as Climate Action 100+ to force global commodities powerhouse Glencore to limit coal production.

The activist investor group has 12 other Australian companies in its sights, including BHP, BlueScope, Rio Tinto, Qantas, Woodside and Woolworths.

Meanwhile, BlueScope and BHP are already facing pressure from industry funds over plans to import iron ore from Brazil rather than Western Australia. Bill Shorten, who has been under pressure from the MUA to establish a “strategic fleet” of ships that could be requisitioned by the government in a crisis, faces a looming battle with the industry funds over proposals to dismantle the sector’s stranglehold over the nation’s retirement savings pool.

The proposal from Kenneth Hayne’s banking royal commission to ensure workers are given only one super account for life threatens to dismantle the present system in which industrial awards nominate default super accounts for workers. These overwhelmingly favour industry funds to the tune of $30bn in contributions each year.

Attaching civil penalties to breaches of super laws that require directors to act in the best interests of members — a royal commission recommendation passed by the Senate — will also allow the Australian Securities & Investments Commission to intervene in more cases.

Mr Hayne, a former High Court judge, said all funds “must also recognise and deal with conflicts between the interests of members and the interests of shareholders or nominating ­organisations”.

Mr Frydenberg told The Australian that superannuation was the product of the “hard work of all members and represents their nest egg in retirement”.

“It must be protected,” he said. “It’s time Bill Shorten distanced himself from his union masters and condemned this aggressive union behaviour.

“His continued silence on these issues confirms what we already know — that Labor is on the side of the unions, not the superannuation members.”

The concern over union influence comes as the industry-fund sector braces for significant structural change after the Morrison government secured passage of legislation through the Senate last month consolidating $6bn worth of low-balance inactive super accounts through the Australian Taxation Office.

The rules will force a wide array of smaller funds to seek mergers with larger funds when they are cut off from the fee revenue siphoned from inactive ­accounts. These include the CFMEU-backed $3bn First Super, where 44 per cent of members are inactive, and the $3bn Club Super, which is backed by United Voice and the Australian Workers Union and had 42 per cent of its members considered inactive.

The $1bn Meat Industry Employees Superannuation Fund has 36 per cent of its membership inactive, the same rate as the $3bn United Voice backed Intrust Super Fund.

Several funds in the system, including First Super, are reluctant to leave the industry or merge, even under pressure from APRA. According to KPMG national superannuation leader Paul Howes, the former national secretary of the Australian Workers Union, the options available to sub-scale superannuation funds in terms of mergers with other funds of an equal size are quickly shrinking.