‘Make unions stump up for super fund fines’

Unions would be forced to pay millions of dollars for risk reserves in industry super funds under a proposed shake-up of governance standards.

Liberal senator Andrew Bragg has put forward a series of recommendations to improve governance standards for superannuation funds. Picture: Martin Ollman/NewsWire

Unions would be forced to stump up millions of dollars for risk reserves in industry super funds under a proposed shake-up of governance standards in the under-fire sector.

In a report tabled on Thursday, Liberal senator Andrew Bragg called for a series of reforms to overhaul and improve governance standards in the nation’s retirement funds, including putting the onus on shareholders – or unions in the case of industry funds – to pay fines and fund reserves to be used in cases of trustee misconduct and compensation payments.

“The unions want to take dividends (from funds) but they don’t want to pay fines. And that is unreasonable. So, gradually, over a few years, they can use some of those dividends to build up the capital reserves,” Senator Bragg told The Australian.

While retail funds are owned by the likes of banks and investment companies, industry funds such as Cbus are backed by unions. The CFMEU is a shareholder in Cbus’s trustee, United Super.

Super funds spent more than $400m of members’ retirement savings on marketing and sponsorships in the 2023 financial year and handed $14m to unions, including $3.8m to the CFMEU, according to data from the prudential regulator.

While funds have been splashing the cash on marketing and partnerships with unions, members have been funding risk reserves that have been dialled up in recent years.

From 2020, funds began amending their trust deeds to allow for levies on fund members to build “trustee risk reserves” that were earmarked for any fines imposed on trustees and directors. Funds also have operational risk reserves that can be used for paying compensation to members.

“The committee recommends that the government introduce legislation which would require all superannuation funds to maintain adequate funding, raised by the shareholders separate from members’ assets, to meet the various costs to which they may be liable, including fines for trustee misconduct and compensation payments resulting from misadministration,” the report states.

“This funding should not be provided for, directly or indirectly, by members’ funds and must come from the shareholders.”

One of seven recommendations in the report, the push for shareholders or unions, rather than members, to pay for super fund misconduct comes after months of damning scandals have ripped through the sector.

The $100bn construction industry fund Cbus has been at the centre of the wrongdoing. In November, the corporate regulator sued the fund alleging systemic claims handling failures, with more than 10,000 members experiencing delays in payment of death and disability claims.

Other funds, including the nation’s biggest, the $350bn AustralianSuper, have also failed to pay death claims quickly enough. AustralianSuper said it would compensate deceased members’ loved ones $4.2m, with the money to come from its risk reserves.

The prudential regulator has separately launched an investigation into Cbus’s spending habits, including the millions of dollars it hands to unions such as the CFMEU each year.

The Australian Prudential Regulation Authority this week blasted the fund for its governance and risk practices, which it said were “not fit for purpose”.

The fund’s links with the CFMEU have been heavily probed amid the governance failures. Three CFMEU directors were forced off Cbus’s board in August but union heavyweights Paddy Crumlin, Jason O’Mara and Lucy Weber all joined the board months later, despite APRA warning it was “not yet satisfied” the fund had gone through the required licensing conditions.

The committee recommended the government introduce a requirement for super trustee boards to have a majority of independent directors, and an independent chair, and that director competency rules be introduced to mandate relevant experience requirements that would apply to the chair of a super trustee board.

Senator Bragg took aim at Cbus chair Wayne Swan, who is also the current national president of the Labor Party.

“Clearly he’s not independent, he’s wearing two hats. He’s the president of the Labor Party and he’s the head of the fund. The Labor Party receives monies from the unions, paid for by the funds,” he said.

Mr Bragg last month accused the former federal Treasurer of providing “false or misleading evidence” during his testimony to the Senate concerning the death and disability payout allegations.

“The Australian people have been let down badly by these funds. The parliament rightly expects that they will work hard for their members, not their owners,” Senator Bragg said.

“The standards we have today really don’t pass muster. The system is riven with howling conflicts of interest, and that is hurting workers. This package would ensure that super would work for workers.”

A third recommendation in the Bragg-led report homes in on the insurance scandals, with the committee calling on the government to develop mandatory insurance service standards for super funds.

“The committee finds that there is clear evidence that there are failings within the superannuation industry around the payment of insurance claims to members. This is highly concerning as fund members making these claims are often suffering from poor health, significant stress and vulnerability, with the added stress of delayed claims processing only adding to this distress,” the report states.

The interim report forms part of the Senate economics committee’s inquiry into improving consumer experiences, choice and outcomes in the retirement system. It is the third interim report tabled as part of the inquiry, with a focus on the sector’s governance standards.

Originally published as ‘Make unions stump up for super fund fines’