Industry super funds get desperate

The industry super funds are getting really desperate.  The sharing of the booty of the equal representation model, underpinned by legislation, is under attack – well actually, some very modest changes to the governance of APRA-regulated super funds are being proposed. 

Who will guaranteed those well-paid trustee positions (and assorted perks such as luxury travel and expenses to attend ‘important’ conferences) for completely unqualified union hacks and only slightly better qualified employer representatives?

The intrepid – intrepid in the sense of putting out consistently misleading material – lobby group, Industry Super Australia, which represents the industry super funds is at again in the form of its submission to the Senate Economic References Committee inquiry, in the hope this rent-seeking group can persuade the cross-bench senators to vote against legislation that will ensure that a third of trustees of all APRA regulated superannuation funds are independent.

And this is notwithstanding that it was the Labor-commissioned Cooper report that recommended this change.

Here are some of the myths/downright lies that are being peddled in the submission:

  • It is only trustees who represent the members and the employers of these members that act only in the interests of the members.
  • Actually, most of the industry super funds are open schemes and the occupational/industry based trade unions that are represented on the trustee boards do not represent all of the members.  And bear in mind that only 17 per cent of workers are union members and the figure is even lower in the private sector at 13 per cent.  Industry super funds also have retired persons as members.  Note also that most of the industry representatives are not real employers but nominees of the employer associations which are just part of the rent-seeking racket.
  • The government is not mandating an equal representation model for the two-thirds of trustees who are not independent.
  • Nor should it; it is up to the boards of trustees to work out how best to meet the interests of the members.  But if a board wants to divvy up the two-thirds on an equal representation basis that is up to the board itself and is allowed under the amended legislation.
  • The superior returns of the industry super funds are the result of the equal representation model of governance.
  • In fact, the evidence produced in the Murray report on the financial sector showed a clear advantage in having more independent directors in terms of superior returns and bear in mind, Murray recommended a majority of independent directors as the preferred model.
  • The returns of the industry super funds are superior to the returns of retail funds.
  • The reality is that there is a distribution of returns and some industry super funds have got into real trouble in the past – eg. MTAA Super and the meatworkers fund.  But the real story here is that industry super funds don’t have to worry about managing liquidity because of their monopoly position in respect of default funds (this has to be changed) and the scope to invest in alternative investment products, including direct unlisted investments.  (Note that there are real issues about the reliability of the valuations attached to these investments which may alter the real differences in the returns between the funds.)  The notion that industry super funds are forever changing their asset allocation is probably damning (transactions costs of this strategy are high) rather than something about which ISA should be boasting.
  • The new law will require new directors to be approved by APRA.
  • This is an excellent change.  After all, BA (incomplete) and a complete absence of knowledge of matters related to financial affairs and retirement policy should disqualify anyone taking up a role as trustee of a superannuation funds, let alone chair it!
  • The third of the board who are independent directors plus an absence of mandated equal representation for the remaining trustees means that industry super funds will be demutualised and turned into for-profit funds.
  • This is really scrapping the bottom of the barrel on the part of the ISA.  The only way that a board of trustees would recommend this course of action – highly unlikely – is if the change were in the interest of the members.  

With the Royal Commission on Trade Union Governance and Corruption revealing multiple instances of conflicts of interests, including in respect of the workings of industry super funds, you might think that the ISA would decide to accept this perfectly obvious and modest change in the governance of the APRA-regulated super funds.  But I guess if you are desperate this is what happens, as the ISA attempts to get into the ear of any sympathetic journalists who will listen.

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17 Responses to Industry super funds get desperate

  1. motherhubbard'sdog

    Judith, I suspect you have addressed this issue in the past, but what are the real reasons why industry funds have somewhat better performance than retail funds? I am pretty sure they have nothing to do with the skill of the board members, or their allegiances.

  2. Michelle

    The ALP plan of 50% target for renewable energy in 15yrs and their plan to introduce carbon dioxide taxation in the form of a trading scam frightens the bejesus out of me. I see union governed Super Fund managers and lobby groups rubbing their hands with glee at the next round of investment opportunities while they shout SHOW ME THE MONEY! and our budget goes unchecked into the red.

  3. 2dogs

    Unless they have enough to start a SMSF, how does the lowly superannuant obtain any say in how their money is managed?

  4. Lem

    Judith, Judith, Judith!

    Back off on the funds, maaaaate. It’s their last trough.

    (Although I do believe that the plug is about to be pulled by global economic forces bigger than you can bring onto a work site).

  5. Lem

    Unless they have enough to start a SMSF, how does the lowly superannuant obtain any say in how their money is managed?

    Pretty easy, actually. But the average person would have to give a damn, there’s the rub.

  6. blogstrop

    as the ISA attempts to get into the ear of any sympathetic journalists who will listen.

    There are still those here who say the media doesn’t matter.

  7. If you have super greater than 50K and aren’t in a self managed fund, then you are a fool who deserves to get arse raped by these spivs.

    That is all

  8. mizaris

    Won’t it be fun when these super funds are revealed as the greatest Ponzi scheme ever?????

  9. Jock

    Governance, governance. ethics, corp law. Any accountant or young lawyer will repeat this mantra over and over, Directors and Officers of corporates are overwhelmed with laws and regs. Jail, fines and other punishments are manifest if these standards are not met. And frankly (while some laws are OTT) so they need to be to protect people from spivs and crooks etc.But remember , with a share or bond you have a coice as to whether you invest or not. But with super, there is no choice. Super is mandatory. Ergo the governance rules for industry super should at least equal corporate standards.

    There is an argument that they should be higher. How can anyone argue otherwise. The new laws would be fair and protect workers.

  10. Andrew

    If you have super greater than 50K and aren’t in a self managed fund, then you are a fool who deserves to get arse raped by these spivs.

    That is all

    Assuming you want ASX200 with no exotics or active management, you can get it for roughly zero. Industry funds are pretty good at getting scale economies, and it’s takes no particular skill.

    If you ask them to do coinvestments in private equity, you better hope they’re well advised
    And you’ll pay for the privilege.

  11. Blogstrop

    I take the ATO’s pages (linked above) about SMSFs seriously enough to note that a lot of people would (a) make a mess of the investment decisions, and (b) need a good accountant and regular consultations to keep them from straying into a legal minefield. No doubt there are many here who could run one easily, but even a professional person might screw the pooch unless they have the right sort of knowledge and insights. Most of us, when we retire, would like to just get the fortnightly pay, and get on with enjoying the last active decade or so.

  12. Sydney Boy

    As I have noted before, due to my current and job history, my superannuation is split between three funds. One is the military MSBS which I cannot add to or transfer out of. Two is a union-controlled industry super fund (exempt from the superannuation guarantee legislation. Grrrr.). Three is a commercial superannuation fund. All three scored over 10% return last FY. So despite the obvious Union dominance of industry super, etc. why would I or the average punter complain?

  13. Boambee John

    motherhubbard’sdog
    #1748083, posted on July 26, 2015 at 3:45 pm
    Judith, I suspect you have addressed this issue in the past, but what are the real reasons why industry funds have somewhat better performance than retail funds? I am pretty sure they have nothing to do with the skill of the board members, or their allegiances.

    Without having any deep knowledge of the business, I suspect that “investment” in items like wind farms and desalination plants, where ALP governments have set in palce effectively unbreakable long term contracts might be part of the answer.

    If you know the income flow is guaranteed by the taxpayer, you don’t need to be an investment genius to produce reasonable returns.

  14. Ez

    But the real story here is that industry super funds don’t have to worry about managing liquidity because of their monopoly position in respect of default funds (this has to be changed)

    I agree, however it’s one thing for new employees to have an ISF selected as their “default fund”, far worse when a union negotiated EBA mandates a particular ISF for all employees.

    My mother had to resign from the state school system before she was able to transfer her super to a SMSF.

  15. Ez

    Consider a fund like QSuper knows:
    (a) The number of state school employees, and more importantly, their payroll: Their revenue is a known variable.
    (b) The ages and gender of employees: They can project what percentage of members may be eligible to enter the pension phase and at what time.
    (c ) Scare campaigns are very effective at killing off any talk of cuts to an area like education (so you don’t care about our children’s’ future?): This keeps their revenue stream secure.
    (d) Employees can’t move their Super while in the State’s employment or access it while in the accumulation phase: A large majority of the fund cannot be accessed and is forced to remain under the control of the ISF.

    If you set out to design a Ponzi scheme, this would be a great start.

    No wonder you have some funds ‘investing’ in left-wing propaganda news sites.

  16. .

    Indeed Ez, The New Daily is truly loopy, it is nearly self parody.

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