A super shindig, cooled by the prospect of reform
As heads of the $1.3 trillion superannuation industry descended on Canberra on Tuesday night to celebrate 20 years of compulsory super, hanging over them was the impending release of draft regulation to reform super based on a draft report from an industry panel headed by Paul Costello.
As heads of the $1.3 trillion superannuation industry descended on Canberra on Tuesday night to celebrate 20 years of compulsory super, hanging over them was the impending release of draft regulation to reform super based on a draft report from an industry panel headed by Paul Costello.The draft regulation will include what form MySuper, the default superannuation option first suggested by Jeremy Cooper in his review, will take. It will also make some recommendations aimed at addressing the poor transparency, inadequate disclosure and low level of corporate governance that is all too common among most super funds.Super funds make decisions on the fourth-largest pool of managed money in the world, largely built from compulsory savings. The Gillard government and the prudential regulator, APRA, needs to get some backbone and do something about the level of governance, board composition, conflicts of interest and standard of education and suitability of board and trustee members.The decision in 1991 to set up a superannuation guarantee scheme to force people to save for their retirement was far-sighted.But two decades on, our super system is out of date and in desperate need of reform - not a nip-and-a-tuck type reform, but a radical overhaul.Super funds are not obliged by law to disclose detailed investment outcomes or the salaries of the senior executives or board. Nor are they required to provide members with a full set of audited accounts. And when it comes to buying and selling assets, they are not required to disclose whether they bought assets at market price or sold them at a fire-sale price, or who the buyer was.And in most cases members don't have control over the people who manage their money. As a rule, members do not elect the managers or trustees. This means they can't replace them - duds or otherwise.This has created a perception that the boards of industry funds have become retirement homes for redundant union officials, with nothing super fund members can do about it. Ditto on the employer side of the ledger.And while the Costello report to Treasury will be welcomed, it hasn't been allowed to go near enough to addressing the problems of transparency and disclosure in the industry.But these are not the only issues that need to change. The default fund process is fraught with conflicts and flaws.Since the introduction of Fair Work laws, super funds have been written into industrial awards. This means retail funds find it almost impossible to get default fund status. Indeed, of all 122 modern awards, only one retail fund, AMP, has managed to get default fund status, and only then because it was grandfathered into them, and it includes relatively obscure awards such as the Seagoing Industry Award.The Cooper review tried to rectify this by recommending the Productivity Commission review the processes by which default funds are nominated into the awards.Cooper also recommended a mandatory default product structure for the default segment MySuper be created and all approved and "able to be nominated, for default fund purposes in awards approved by Fair Work Australia".Despite pressing on with developing MySuper, the government has not yet set a date for the Productivity Commission to undertake this review. Indeed, it excluded it from the Costello review. This means when MySuper is introduced it will be subject to the same cosy default fund process that currently exists, where retail funds are essentially locked out.The country's compulsory super industry was born in the 20th century. It has a lot to be proud of in terms of helping Australians amass so much personal wealth. But in the interests of its owners, vested interests should take a back seat to allow the industry to live and thrive in the 21st century.