Finance Your Super Industry Super calls for bank public confidence circuit breaker

Industry Super calls for bank public confidence circuit breaker

Circuit breaker.
A circuit breaker is needed says ISA. Photo:Getty
Twitter Facebook Reddit Pinterest Email

The banks should stop paying commissions and incentives on all products, including superannuation, to restore public confidence in the wake of the appearances before the Parliamentary bank inquiry by the CEO’s of the four major banks this week, said Industry Super Australia.

“A decision by the banks to cease paying all incentives by 1 Jan 2020, including all grandfathered commissions, is the circuit breaker needed to send a clear signal to the Australian community, Parliament and regulators that the banks will stop cross-selling and up-selling superannuation and other products to consumers when it is not in their best interests,” said David Whiteley, ISA CEO.

Bank chiefs
CEO’s at the bank inquiry.-clockwise from top- CBA’s Ian Narev, ANZ’s Shayne Elliott, NAB’s Andrew Thorburn, Westpac’s Brian Hartzer. Photo: AAP

“In particular banks should not be paying anyone a sales incentive to sell compulsory superannuation. The banks are simply not going to be able to re-build trust with the public and parliament through their own devices.”

In a submission to the Australian Bankers Association Sedgwick Review, ISA called for consideration to be given to recommending civil penalties for breaches of the bank bundling legislative bans which it said are unenforceable currently.

Bank bundling is the practice of banks offering employers incentives to switch their default super provider to one that is run by the bank.

ISA said research undertaken by research house UMR in 2015 provided evidence that banks actively promote their “house brand” super funds to their Small to Medium Enterprise (SME) employer customers.

Given most employees still tend to go with default funds offered by employers rather than actively choosing their own funds, bank bundling can affect superannuation outcomes for many Australians, ISA believes.

Bank influence is powerful on employers

The UMR research found that:

  • 26 per cent of employers surveyed said that a major bank had approached them about transferring their employees’ default superannuation to the bank’s own retail super fund in the last year
  • Just under half those approached say their bank offered them benefits to change funds
  • The most common offers made by the banks involved a direct benefit to the business rather than employees, such as discounts on business banking and insurance products
  • Some employers report being offered tickets to sporting events
  • 33 per cent of employers offered benefits say they were persuaded to switch to a super fund promoted by their bank, and many more (57 per cent) reported that they are still considering switching

ISA’s submission said that “as with cross-selling super to consumers, the concern with bank bundling is that it may result in an employer choosing a fund that is not in the best interest of their employees.”

“In its 2012 the Productivity Commission recognised that SME employers especially would be unlikely to possess the interest and expertise to choose a fund that best meets the interests of their employees given the administrative appeal of consolidating their business with one bank,” ISA’s submission said.

Minister O’Dwyer is paying attention

Kelly O'Dwyer is listening. Photo: AAP
Kelly O’Dwyer is listening. Photo: AAP

The Minister for Revenue and Financial Services, Kelly O’Dwyer, told ABC Radio this week the Government would have a look at the evidence which was being put forward by ISA, but cautioned that it was likely that no legislative breaches had occurred.

“We’ll obviously have a look at the evidence that they [ISA] are bringing forward in relation to this particular issue but my understanding is we’re not talking about commissions here and it’s entirely in keeping with the financial advice legislation which Labor in fact brought in during their time in government.”

Tell it to the Productivity Commission

Ms O’Dwyer suggested that the ISA should raise its concerns in the context of the current Productivity Commission (PC) inquiry into the Competitiveness and Efficiency of the superannuation regime.

“It does concern me to think that we need to have a superannuation system, more broadly, that people can have confidence in and we do need to have a superannuation system that has competition that is efficient, but also that people can have confidence in,” she said.

“So we are conducting a Productivity Commission Review at the moment that is looking at these elements and I’m sure they’ll (ISA) present information to that particular review and we will very seriously consider it.”

View Comments