Is he kidding – super trustee model is a joke

David Whitely, Chief Executive of Industry Superannuation Australia, has a piece in The Australia today defending the absurd arrangement of equal representation of employer and employee – read union – trustees on industry superannuation funds.

Is he is kidding?

Here are a few points to consider:

  • The unions now account for less than 20 per cent of the workforce but manage to snaffle half of the trusteeships (paid for by the members) on industry superannuation funds;
  • Some trustees sit on the boards of a number of funds – this is just incredible and such an obvious breach of normal corporate governance standards (Bernie was on a whole lot at one stage);
  • Many of the trustees have no qualifications at all.  If we take the First fund, one (union) trustee has no qualification at all and the other admits to a partially completed Arts degree (no I am not making this up);
  • As a result of this complete ignorance and lack of experience, these funds will often co-opt financial experts (and pay for them) to sit on investment committees, which begs the question: what are the trustees doing?;
  • I heard of one instance where one of the union trustees would simply read out what his union boss had written in respect of each agenda item – he should have been sacked immediately because his sole role is to represent the best interests of the members (not toe the union line) but there is no scope under the legislation to get rid of trustees unless they are a criminal, insane or bankrupt.

And another point – a number of industry superannuation funds own the asset allocation advisory firm, IFM (Greg Combet recently appointed to the board).  Talk about a conflict of interest – unbelievable.

Here’s the laughable piece:

AUSTRALIA’S compulsory superannuation system is the envy of the world. It is an economic and public policy success story, one that has bipartisan and community-wide support.

Arguably it is its compulsory nature that has made super what it is today. This reflects the recognition by policymakers and the community that many Australians, if not most, would not adequately save for their retirement unless compelled to do so.

With compulsion comes a higher duty of care for trustees of super funds and for policymakers designing regulatory frameworks. In particular, policymakers need to ensure the system is competitive and does not protect poor performers. In the case of default-fund superannuation, competition must come in the form of long-term net investment returns.

The same pursuit of excellence extends to the governance of the super system.

Industry super funds have the representative trustee model. This is a feature of superannuation (or pensions) systems across all OECD countries. Implicit is the assumption that superannuation is not just a discretionary financial product, like a credit card or personal loan, and managing retirement income systems is too economically important for the traditional finance sector to be handed sole responsibility.

The evidence is that funds with the representative trustee system, including in Australia, outperform other types of super funds, typically run by banks and insurance companies.

In Australia this outperformance has been significant: more than 2 per cent a year across the past 16 years to June 30 last year (the latest data), according to the Australian Prudential Regulation Authority.

Recently the government has launched a discussion paper relating to super default funds and fund governance. The Financial Services Council, representing retail funds, typically owned by banks, has suggested that the representative trustee model should be dropped and “all profit to member” funds should adopt the governance model of banks and insurers.

Industry Super Australia believes this would be a mistake.

Moving to a homogenous governance structure, based on the banks, would diminish competition and lead to lower member returns and national savings. Industry super funds have been constant in forcing banks, through competition, to improve their offerings to the public. Banks may not welcome the competition but it has demonstrably improved retirement incomes policy and member outcomes.

Homogenous governance structures also would reduce necessary debate about the future of our retirement incomes system. Industry super funds have always been at the forefront of advocacy for their members.

What is most important for members is that trustee directors have the expertise and loyalty to effectively act as their agents. This certainly does not preclude independent trustees on boards. Many industry super funds have independent chairmen and trustees. Independent trustee directors can add, and have added, diversity of thinking, a fresh approach and new ideas. They also have become some of the strongest advocates of the representative trustee system.

The representative trustee system is an example of enduring consensus between employers and unions, delivering for Australians.

It is time for recognition of how the trustee system has in fact been the competitive advantage of industry super funds. Industry super funds have delivered better returns to members, campaigned to improve the super system and invested strongly in nation-building infrastructure.

 

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24 Responses to Is he kidding – super trustee model is a joke

  1. Armadillo

    but there is no scope under the legislation to get rid of trustees unless they are a criminal, insane or bankrupt.

    I reckon you could build a pretty strong case on that alone. Exhibit A – Union Membership Card.

  2. Cold-Hands

    not tow the union line

    err… Toe the line.

  3. johanna

    I pulled my money out of First State Super (NSW public sector fund) when I discovered that Michael Williamson, former ALP president and fraudster (he pleaded guilty) was on the Board, a couple of years ago.

    It’s not just that these leeches are incompetent, it is that the jobs, which bring in $$ for no effort, are handed out on the basis of factional deals in the unions and the ALP.

    A couple of typos, Judith – “co-op” should be co-opt, and “tow the line” should be toe the line.

    Great article.

  4. hzhousewife

    Keep writing Judith, this and your piece “Another Labor scam: promoting unionisation in childcare”
    have been very useful to me to encourage people who normally don’t discuss politics or economics
    to have a think about the issues that are constraining their lives. Good, useful work, much
    appreciated.

  5. I am the Walrus, koo koo k'choo

    Keating designed the superannuation system to be a financial lifeline for the dying union movement.

    With the AMWU garrotting itself at Ford, Holden and Toyota, the imminent return of the building industry inspector, and a Royal Commission into union corruption on the way, the union movement is on its last legs.

    Removing union participation in superannuation would deal it a heavy blow.

    And would help liberate the country from these despicable parasites.

  6. Rabz

    Always edifying to see the piggies desperately demanding the maintenence of their place at the trough.

  7. H B Bear

    The whole ticket clipping industry is failing at its single purpose – getting people off the aged pension.

  8. David Brewer

    which begs the question: what are the trustees doing?

    I can tell you what they were doing at the Commonwealth Super Fund a few years ago.

    First, they were promoting themselves. Especially the chief executive would have his face plastered all over the website and would commandeer all tidbits of information for his “personal newsletter to members”.

    Second, they were trying to use “corporate social responsibility” as an excuse to make political votes at company annual general meetings.

    Third, they were trying to distort the share portfolio to push their pet ideas about smoking, third world agriculture, global warming yadda yadda.

    Des Moore, if you are reading this, you were there, spill the beans!

    A simple remedy would be to limit the number of employee trustee seats filled by unionists to the share of unionists in the fund membership.

  9. Broken record time…
    If marginal tax rates are below 15%, superannuation would be obsolete.

    It’s none of the Government’s business how much people save, and especially none of Paul Keating’s and his crook comrades.

    I call them ‘Trade Union Funds’, to lots of questioning looks.

    And thanks to Johanna for the tip off about First State Super.

  10. Billy the Kidder

    My Christmas break task is to find the best non-union super and change. I’ve been wanting to for a while but never have enough uninterrupted time.

    The latest left wing web site (forget the name) fiasco that Australian Super have engaged in is more than enough. This sucking on my tit (figuratively) has brought it to a head. The only thing I lose is possible insurance cover, which is decreasing rapidly since passing 40 anyway …

  11. gnome

    Your confected outrage would be a whole lot more impressive if the industry funds didn’t outperform the “for profit” funds by a very significant margin.

    In good times and in bad!

  12. blogstrop

    Judith, you’ve heard of the mafia? Some organisations operate in a similar fashion but have more “industrial sounding names”.

  13. blogstrop

    So, gnome, one won’t find any investment by any super fund with any union involvement in any “green” scheme which loses money?

  14. Judith Sloan

    Actually, gnome these figures are out of date and are averages. The very worst performers are industry super funds, particularly those which have taken very exotic investment strategies.
    As as for the lower fees claim, that is also out of date. Australian Super now charges a percentage of funds under management, just like the retail funds.

    Ing has a very low fee superannuation product that is making major inroads and some of the banks have some very competitive products now.

    The industry superannuation funds are losing funds every day, particularly to SMSFs. There is a message there.

    There are also some woeful tales of the administrative incompetence of the industry superannuation funds – try getting your money out in a respectable time period.

  15. Andrew of Randwick

    1) The out performance of Industry Super is a furphy. I think it has been written about previously (MTAA fund comes to mind) where the funds’ investments have been in non-tradeable assets, so long as you can get a valuation that does not reflect a decrease in value (e.g. yes we know the wind farm is only worth half of what you paid, but if we assume, x,y & z, then its value has increased) and thus the returns are ok.
    .
    2) Does anyone not believe that forcing an employee to put 9% of their salary into a fund (with a 2% MER) in their mid life when they could be reducing their mortgage is not just a huge windfall for the banks? They get the MER and the extra interest from the extended length mortgage.

  16. stackja

    union – trustees on industry superannuation funds.

    Gives unions more play money.

  17. gnome

    Yes there are industry funds which do crazy things like ethical and green investment, but if the very worst are industry funds and on average the industry funds still do better than those run by the professional thieves the good ones must still be very good.

    Idealogical investment is just stupid, left or right, and investment in funds which are run for the benefit of their “expert ” investors is equally stupid. Everyone knows what the markets are going to do, but anyone who takes your money for pretending to know when they are going to do it is just a crook.

    When you pay a fund manger, all you are getting for your money is administration. If they don’t offer refunds for underperformance (and they don’t) to match the bonuses they want if times are good, then they aren’t offering you anything you can’t get for free.

  18. wreckage

    So, when a particular category contains all of the worst performers, that doesn’t raise any flags for you?

  19. Noddy

    Another financial scam coming up!
    Management fees should be only paid out of profits for the year ie. no profits no bloody pay!
    Trustees should be held personally responsible for any losses or diminution of capital invested.
    Ponzie operators should be cast… , no that is not good enough… shot!

  20. Armadillo

    Everyone knows what the markets are going to do, but anyone who takes your money for pretending to know when they are going to do it is just a crook.

    FMD. I take it you have a SMS Fund then? I really don’t know where to start with the rest of the dribble in that post. Honestly, I don’t. Absolutely dumb founded you could even hit the “post” button.

  21. Gnome, that bet on the New Fairfax will be a Sure Thing™ so pile in…

  22. Petros

    Thanks for taking this up once again, Judith. Just a simple question, why can’t public servants put their compulsory super money into whichever fund they like, including their SMSF, whilst they are still working in that job? It seems an easy thing for a government to legislate and it would be quite easy to answer any challenges as one could simply say that we are giving people the choice.

  23. Andrew

    I know IFM very well and assure you that line is misguided. They are genuinely aligned, and people use them for good reason (whether or not a part owner). This is NOT something to complain about, nor is mutual ownership of Frontier.

    The gross abuse that was seen in the green-left newsletter is well known to APRA and the antenna is up. These abuses in general consume less $ than fees of the major banks etc (a lesser of 2 evils).

    I have no prob with equal rep if it was 20/20 not 50/50.

    There’s more indepts now- a good thing. Governance IS being improved.

    I have an SMSF, but in it include a mixture of ETFs and conventional funds. My alpha is around 4% pa net for 4 yrs with lower beta than benchmark – I wouldn’t use a fund with a lower target. I also have an industry fund for cheap insurance.

  24. mareeS

    Wouldn’t you just love Michael Williamson and Craig Thompson to be trustees of your union super fund? (They probably were at some point.)

    The spouse & I have had a SMSF since back when they first came into play in the early 90s or whenever (Keating?), and our adult offspring are now part of it and are fellow trustees. We have a good personal relationship with our administrator, and because of the total of funds under administration our fees are 0.05%, a wholesale rate.

    One of our offspring works in a highly unionised sector, and cannot have his employer super diverted to our SMSF, (so much for choice) so his contributions go into the union fund every pay period, and at the end of each financial year he switches over the annual balance to the family SMSF.

    Tracking the past 5 years, his returns in our fund have outdone his union fund every year, including last FY with growth of nearly 15% in our SMSF on top of similar growth the previous FY. No fees apart from 0.05%.

    Union funds are the last great scam for union deadbeats, but how do they get away with it?? Surely the law will catch up with them?

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