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Issue #1625      February 5, 2014


Industry super funds latest target

In 1992, the Keating Labor government legislated for compulsory superannuation. It had a number of aims, including winding back the publicly funded aged pension; shifting responsibility onto the individual for self-provision during retirement; privatising the provision of retirement income; and providing the private sector with a large source of investment capital.

While it is still far from providing workers with enough income for retirement, from the finance sector’s perspective the growth of superannuation funds has been very successful and lucrative. It now provides investment houses and other financial institutions with a guaranteed continuous stream of investment capital, close to 9.25 percent of wages and set to rise in small increments to 12 percent. By the end of 2013, the estimated value of this pool of capital was $1.62 trillion (APRA). To put this in perspective, the superannuation nest egg is more than twice the $643 billion in household savings in banks. It is almost as large as our Gross Domestic Product (a measure of national income) of $1.7 trillion.

Apart from being a rich source of profits (management, investment, commission, advisory fees, etc), they give financial institutions the power to protect their own interests by such means as manipulating stock markets and financial markets. Superannuation savings have an additional attraction to the private investment houses in that the workers take all the risk. Investment losses, such as during the global financial crisis were carried by the workers. The financial institutions continued to profit from their fees, commissions, etc.

But there are some differences between types of funds. Industry funds, which are not-for-profit, have equal trade union and employer representation on their boards. They consistently outperform the other for-profit funds, known as retail funds. Industry funds do not charge the hefty fees and other charges that the private funds impose. (The rich have their own “do-it-yourself” funds which provide an excellent vehicle to rort the tax system.)

The private funds managers help themselves to outrageous entry fees on deposits, exit fees on withdrawals, performance bonuses, fees for financial planners and other charges for other “services”. Many of them are subsidiaries of major banks and insurance companies and invest savings in products often being managed by related companies. Not surprisingly, the private funds have provided lower returns to members than the industry funds.

The Abbott government is planning to force all industry funds to appoint a majority of “independent”, “more professional directors” to their boards, to “protect the integrity” of such a large source of funds. “Independent” of what? What is really meant, is independent of unions and hence members’ wishes. This would reduce the trade union representation to the level of token representation and place total control completely in the hands of people with links to the private financial institutions – the aim of the exercise.

It would mean an end to any union say in the type of investments made – such as infrastructure in Australia or ethical decisions such as not investing in tobacco or uranium mining companies. It is bad enough that the boards have employer reps on them; after all it is workers’ money that is being invested. It would be the kiss of death for industry funds.

Board membership does not overcome other shortcomings, such as the risks and uncertainties involved in the present superannuation system which provides workers with a lump sum on retirement. The Communist Party of Australia is calling for the establishment of a national superannuation scheme, one which offers those who join it a guaranteed income on retirement – a certain amount on a fortnightly basis – what is known as defined benefit scheme.

Workers and retirees should be able to roll some or all of their super savings over into the national scheme on a voluntary basis. The national scheme would offer security of income and its funds could be used to benefit society, by providing badly needed infrastructure and services, and for job creation. For example, investment in public housing would result in homes for thousands of homeless people and create jobs and stimulate the economy. Likewise the building of schools, hospitals and other public infrastructure would be of benefit to people and the economy.

Next article – Letter of solidarity to the CFMEU from the CPA

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