Gambling with your savings

Anna Pha

After trying for eight years the Howard Government got its 
"Choice of Fund" superannuation legislation through the Senate 
last week, putting the retirement savings of millions of workers 
at greater risk. This was made possible when the Australian 
Democrats capitulated and did a deal with the Government. The new 
legislation paves the way for an assault on the major industry 
funds and will give employers a stronger hand in pressuring 
workers to sign up with funds of their (the employer's) 
choice.


It may even give the employers the ultimate say.

There is more than $565 billion in superannuation assets under 
management in Australia — more than the total savings in bank 
accounts.

Seven and a half million Australians have super savings in what 
are known as industry funds — not-for-profit funds — which 
charge lower fees and have so far provided their members with 
above average performance. Trade union representatives sit with 
employers on the boards of these funds.

Superannuation funds are one of the major sources of investment 
capital for use by the financial sector and industry. The largest 
funds hold huge bundles of shares in many of the largest 
corporations. The managers of these funds play an extremely 
powerful role in shaping the fortunes of companies, in deciding 
what projects go ahead, and the direction of economic 
development.

The big institutional investors can make or break smaller 
companies and have a dramatic effect on share prices and stock 
markets.

And of course they make huge profits out of the fees for managing 
people's savings, as well as all the under-the-counter 
commissions and other associated rackets.

This new legislation will open the field to greater competition, 
leading to higher risk-taking, crashes (workers' losing their 
savings), take-overs and the eventual monopolisation of the 
sector by a handful of financial conglomerates.

Complex

Members of super schemes already have choices within their fund -
- each carrying a different degree of risk, such as what 
proportion of savings are invested in real estate, fixed term 
deposits, the stock market, derivatives (pure gambling) or 
overseas. Most workers do not exercise these choices — they 
leave it to their funds to decide.

Now workers are being told they have another choice: a choice of 
fund. Superannuation funds will be required to make certain 
disclosures about fees and other charges for each of their 
products in the coming year as a trade off for the introduction 
of choice of funds.

Any worker seriously thinking of exercising this new right to 
"choice of fund" faces a complex and confusing situation.

The performance of funds — as measured in percentage returns on 
savings — is cyclical reflecting the economic situation. There 
are fees and other charges to consider. It also depends on how 
long a worker will be in a fund.

For example, the difference between a fee of one and two percent 
over 30 years, all other things being equal, could make a 
difference of 20 percent in outcome — the difference between say 
$200,000 and $160,000. But all other things are not equal. There 
are so many factors to take into consideration. And if the period 
were over 10 not 30 years, the picture would be completely 
different. No one can tell in advance.

There are good years and bad years. The only certainty in the 
super casino is that individual workers' retirement savings are 
at risk. The fund managers and other parasites feeding off this 
super profit "industry" do not put their capital at risk.

The finance sector, the most parasitic of all, is riddled with 
corruption and the risks become greater as funds compete for the 
highest immediate returns to attract customers.

Workers cannot make an informed choice. Any "choice of fund" will 
be illusory in practice.

Employer choice

Under the legislation, if a worker wants to choose a fund there 
is a set of procedures, including giving the employer written 
notice to that effect. The employer has two months to carry out 
the request. Not all categories of workers have a choice. The 
chosen fund must meet certain criteria, and employers may refuse 
a request in certain circumstances.

Employers will be required to provide certain groups of workers 
with a "standard choice form" on July 1, 2005, for completion 
before July 29.

The net effect of all the bureaucratic paperwork required is that 
no worker could, on their own, exercise that right unless the 
employer co-operated. The government's aim is to facilitate the 
destruction of the industry funds and enable employers to choose 
which fund suits them — including their own corporate fund.

The real and secure alternative is a return to the age pension — 
funded under a progressive tax system during working life — with 
investments made in public infrastructure and services such as 
housing, utilities etc which generate ongoing income and meet 
social needs of the community.