Let's set the record straight on industry funds

Superannuation debate has become mired in misinformation, writes Fiona Reynolds.

Superannuation debate has become mired in misinformation, writes Fiona Reynolds.

IT SEEMS that climate change and superannuation policy have a lot more in common than the need to take a long-term, rather than short-term, view of one of Australia's great economic reforms.

Just as the climate debate has often been driven by ideology rather than science, recent discussions about reforming Australia's $1.4 trillion superannuation industry have become mired in misinformation, commercial self-interest and plain old anti-union prejudice. The strongest vitriol focuses on the role of employee representatives in compulsory super specifically, the role of union appointees on the boards of not-for-profit super funds, which include industry, public sector and some corporate funds. More subtly, but still in a pejorative way, industry funds are often labelled as "union-controlled".

This is just plain wrong as, by law, industry funds must have equal numbers of employer and employee (union) directors on their boards. And by law, those directors must act solely in the interests of their members, not in the interests of banks or organisations that are seeking to make profits out of the super system. And that's what they do. Whether they have a union background or, in the case of employer-appointed directors, they come from organisations such as the AI Group, the Master Builders Association or the Victorian Employees Chamber of Commerce, the skill-set of not-for-profit boards is wide-ranging.

Curiously, the calls from banks and retail funds for more competition (read "more profit") in our compulsory super system are getting louder and are being given more airplay. But just where is the evidence that the unions' role in super and that of diligent employer representatives who make up the other half of the boards that we represent has been anything but positive for the nearly two-thirds of Australian workers who belong to the not-for-profit super funds with union representatives on their boards? Indeed, all the available research suggests that these workers are significantly better off than had they invested their super in retail super funds mostly owned by the major banks that have a very different governance structure. This research has been conducted by the Australian Prudential Regulation Authority, leading academics from Sydney University and many other educational bodies, as well as independent rating agencies such as SuperRatings and Chant West.

Over the past three years, there have been many reform proposals for the super sector. This year, APRA will introduce new industry standards. Earlier this month, the Minister for Superannuation, Bill Shorten, announced a Productivity Commission inquiry into how default super funds are selected as part of industrial awards.

As the peak body for the not-for-profit sector, representing more than 80 funds with equal representative boards and managing $450 billion in working people's retirement benefits, the Australian Institute of Superannuation Trustees supports the intent of all 12 of the new APRA standards. We've long championed high standards of governance and have led the debate on raising the bar across the entire industry.

As industries grow and develop, so too must their governance arrangements. AIST wants highly motivated and skilled directors on the boards of its member funds. Ongoing professional development and training of directors is essential and this is something that APRA watches closely. It also regularly reviews super fund boards. Anyone not up to running a super fund should be removed.

Similarly, AIST has welcomed the Productivity Commission inquiry because we are confident that our default funds will remain the best place for members to build their retirement savings.

With so much happening in the world of super, robust debate is to be encouraged. But this debate should be well-informed. Super funds with equal representation on their boards have typically outperformed retail funds by more than 2 per cent a year over five, seven and 10 years. This outperformance has resulted in many thousands of dollars in extra retirement savings for members of these funds.

Without the union movement's involvement in superannuation and agreement by far-sighted employers at the time Australia wouldn't have a universal superannuation system that is the envy of countries around the globe. Without pressure from unions, there may never have been any pressure on governments to stamp out the practice of hidden fees and commissions being paid to financial advisers on compulsory superannuation contributions.

And, perhaps most worrying of all, instead of employee and employer representatives on super boards, we would have had a lot more super funds run by the corporate "experts" who brought us the global financial crisis.