Bernie Fraser’s rosy view of industry super funds can’t hide failures

Getting Bernie Fraser to review the governance arrangements of industry super funds was a bit like asking a mother to comment on her children.

Irrespective of the kids’ faults, you couldn’t expect a mother to say bad things about her offspring.

No doubt someone will point out that Bernie Fraser was secretary to the Treasury and governor of the Reserve Bank.

But he is also Mr Industry Super Funds, having been a trustee of several funds for very many years, as well as a director of associated entities.

And who could forget those advertisements in which he spruiked the benefits of industry super funds?

Why then didn’t the lobby group, Industry Super Australia, get someone else with credibility to undertake the review — a review with the sole purpose of stalling the legislation that would change the governance of industry super funds? I guess we all know the answer.

The aim of the industry super funds all along has been to ensure that the equal-representation model — union officials and employer association nominees — remains undisturbed and the government’s plan of insisting that one-third of trustees, including the chairperson, are independent is thwarted.

Unsurprisingly, Fraser has delivered on cue, even if the report is nearly 12 months late, which is more than a tad embarrassing. Gosh, I could have written the report in a day. You know the line. Nothing to see; the equal-representation model works very well; the industry super funds outperform retail funds; there is no case for change. Throw in a few flowery phrases and Bob’s your uncle.

The trouble for Bernie is that there are many troubling aspects of industry super funds that don’t fit with his story.

On a like-for-like basis, the returns of industry super funds are not superior to retail funds, a point made by the Australian Prudential Regulation Authority. Take away the default fund status of the industry super funds and their returns would be the same as retail funds. There are some poorly performing industry super funds. Many trustees have no relevant experience or qualifications, most particularly the union nominees.

There has been a failure of industry super funds to merge to generate economies of scale and trustees have blocked moves to combine funds. A rising proportion of industry super funds have net outflow ratios. The female proportion of trustees of industry super funds is lower than of other funds.

A small number of trustees of industry super funds have inordinate length of tenure on boards. Until recently, some individuals were trustees of more than one industry super fund. The Fraser report does vaguely acknowledge some of these issues but firmly supports the continuation of the equal-representation model.

The one substantial change outlined is the target of 50 per cent female trustees by 2022.

The bottom line is that senators Nick Xenophon and Jacqui Lambie were gypped last year when the industry super funds convinced them to wait for the Fraser review.

APRA is now taking the task of regulating superannuation funds very seriously. The industry super funds should get with the program.