Finance Retirement Super reforms could cost savers billions

Super reforms could cost savers billions

super fund reforms O'Dwyer
The government wants to make it easier for super savers to switch into underperforming funds. Photo: Getty
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Financial Services Minister Kelly O’Dwyer last week introduced two key changes into Parliament that, if passed, will make Australia’s best-performing group of super funds more like the worst-performing group of funds.

Now why would any government want to do that?

While the government says it’s bringing improved “transparency and accountability” to the entire system, it’s no secret that the moves have been lobbied for by one sector – the predominantly bank-owned ‘retail super funds’.

There are two provisions in the current system they think are unfair.

Firstly, employers are required to provide new employees with details of a ‘default’ super fund, often specified as an industry super fund in awards and enterprise bargaining agreements.

The retails funds think that link should be broken to give workers greater ‘choice’.

Secondly, the government wants the composition of the boards of the not-for-profit industry funds to be changed.

The boards are currently staffed half by employer representatives and half by union representatives, but the Turnbull government wants those boards to be one-third independent directors – as would be found elsewhere in corporate Australia.

That’s fair, isn’t it? Well it might be if there was evidence such a shift would improve member returns, but there is not.

The last full year of data recorded by the Australian Prudential Regulatory Authority (for 2015-16) shows the average return across all industry super funds, weighted for the value of assets under management, of 4.1 per cent.

Across all retail funds in the same period, that return was 1.5 per cent.

That’s just one year, of course. The long-term returns across the different type of super fund in the chart below give a fairer picture.

The consistent underperformance of the retail funds affects not only the savers who will retire with a much smaller pot of money, but also future taxpayers who will be on the hook to help cover the shortfall in their living costs in retirement.

So, once again, why would the government want to change the formula for super saving that is doing the best job for savers, and give it a governance structure closer to the funds that are underperforming?

The political answer comes from Liberal Party acting director Andrew Bragg, who claims that industry super funds are directing members’ funds to support the union movement, and thereby assisting the Labor Party.

But look at the numbers. Mr Bragg claims up to $50 million has been siphoned off to unions – over a 10-year timeframe.

Industry Super Australia chief executive David Whitely takes issue with that figure, but even within Mr Bragg’s own analysis he says “at least half” is in the form of directors’ fees. And don’t the retail funds pay their directors?

So roughly $25 million over 10 years – $2.5 million a year – may or may not be slipping through left-leaning hands.

In the interests of disclosure, the The New Daily gets a significant portion of its funding from the industry super funds, so I would not expect readers to look to this columnist as the authority on those claims.

However, I can offer perspective on the sums of money involved.

Even if the $25 million figure were accurate – a big assumption – it would be a drop in the bucket of the redirection of funds that would occur if Ms Dwyer’s reforms become law.

The funds would flow not from super fund to unionist to ALP candidate – or whatever is alleged – but from super fund members to bank shareholders.

For it is the bank shareholders who stand to gain if industry fund members jump ship for the lower returns on offer in the retail space.

Data published in APRA’s most recent Quarterly Superannuation Performance report, shows that if retail fund returns had kept pace with industry super returns over the past 20 years, the retail fund members would be collectively about $140 billion richer.

And since most of that divergence in performance between the two types of funds occurred in the past decade, the government really needs to answer a simple question.

Is $25 million over 10 years somehow in the same ball park as $140 billion in lost earnings? The latter figure, being about 5000 times larger, would surely drive any responsible government’s legislative agenda.

Unless, that is, its prime concern is not the interests of super savers at all – but the interests of bank shareholders.

The New Daily is owned by a group of industry superannuation funds

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