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Issue #1664      November 12, 2014

Hands off our Industry Super funds

Superannuation funds hold a nest egg of over $1.8 trillion which is larger than the Gross Domestic Product! Around $380 billion of these funds are held by industry funds which were originally set up by the trade union movement. Super funds play a key role as a source of capital investment for the private sector, giving those who control them a great deal of power in determining the direction of economic development.

During the global financial crisis the constant flow of super contributions played a significant role in keeping the stock market afloat. Not surprisingly, there is a battle for control of these funds with the big four banks, insurance companies and investment houses eyeing this rich bounty.

The retail funds are owned and run by subsidiaries of banks, insurance companies and other financial institutions. Their main purpose is to make profits for their parent companies/shareholders. The management and investment of workers’ retirement savings is the vehicle for profit-gouging. They make a killing by charging large fees; through financial advisers who are rewarded for recommending their products; and even using the funds to benefit their own interest.

For example, the superannuation arm of one bank redirected super savings to purchasing its own shares to prop them up during the global financial crisis. This apparently is not illegal.

This is in sharp contrast to the industry funds which emerged in the mid-to-late 1980s following campaigns led by the Australian Council of Trade Unions (ACTU). By 1992 compulsory super (the superannuation guarantee) had been introduced, requiring all employers to make mandatory contributions for their employees. Although the employers make the contributions, in reality, most of the money has come out of the pockets of workers who received discounted wage rises to cover them.

Industry funds typically:

  • are run for the benefit of members
  • return any profit made to members
  • have lower fees than retail super funds
  • are governed by trustee boards specifically representing employees and employers in equal numbers with an independent chairperson. A two-thirds majority is necessary for all decisions
  • do not pay sales commissions to financial planners
  • are more likely to make long-term investment in Australian infrastructure.

With such differences, it is not surprising, that figures released in March 2014 by the Australian Prudential Regulation Authority (APRA) show industry funds performed about 30 percent better than retail over 10 years.

At present the boards (trustees) of Industry funds have equal numbers of trade union and company representation with an independent chair.

Shutting unions out

The financial institutions are making a concerted effort to shut unions out. The Abbott government is using the Royal Commission into Trade Union Governance and Corruption and the financial system inquiry to pave the way.

The Commission, the Abbott government’s witch hunt into trade unions, is attempting to destroy the reputation of trade unions and by implication portray their representatives on industry fund boards as corrupt.

For example, the Commissioner has accused an employee (not a board member) of the building and construction superannuation fund, Cbus, of leaking personal details of its members to the CFMEU whose members work in that industry. The actions of an employee, if such claims are proven, do not justify punishing the union and its members. Council assisting the Royal Commission Jeremy Stoljar claims there is a “corrupt culture” in Cbus.

The CEO of Westpac-owned BT Financial Group, Brad Cooper, has called for all super funds to have a majority of “independent” directors. This goes further in the weakening trade union voice on boards than Abbott’s plans for one third of board membership to be “independent” directors.

“Independent” means people with expertise and experience in the financial sector – in other words it would give financial institutions control of super boards. After all, that is the aim.

At present most of the employer representatives come from the same industry as the members of the fund, not the financial institutions.

Stripping awards and agreements

Stoljar recommends the repeal of provisions in the superannuation legislation that make it compulsory for an employer to pay super contributions into a specified default fund where employees have not chosen a fund. Their repeal would make such clauses illegal. Stoljar claims these provisions deny employees genuine freedom of choice (document* released by Stoljar on 31-10-2014). He ignores the fact that union members vote on the agreement which is negotiated by their elected representatives.

Workers who individually failed to choose a fund, would then be allocated to a default fund of their employer’s choice. This could be one of the inferior retail funds linked to a bank or insurance company which could then reward the employer with cheaper loans, fees or cover in return.

This is just one of a number of means aimed at pulling workers out of industry funds into the for-profit, lower returns sector. Howard’s legislation for “choice” was an earlier attempt which failed.

Already unions are finding it more difficult to retain superannuation clauses in their agreements. These clauses often specify employer contributions above the minimum superannuation guarantee rate. Their removal also means employers could cut super contributions back to the bare minimum rate as well as choose funds for workers.

Billions of dollars have been lost in failed schemes based on inappropriate financial planning advice. More than 100,000 Australians have lost their life savings in various types of retail funds.

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.

Securing workers’ funds

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 a defined benefit scheme.

Workers and retirees should be able to roll some or all of their existing 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.

Meanwhile, the message to the government is “Hands Off Our Industry Funds!”

* www.tradeunionroyalcommission.gov.au/Submissions/Pages/CounselAssistingSubmissions31October2014.aspx#Part6

Next article – Editorial – The ANZAC spirit and the dictates of capitalism

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