Australia is now set for a major change in the way employees select their superannuation funds. The AMP, MLC and other privately owned superannuation funds have a second chance to take market share from the industry funds. But self-managed funds are set to continue to increase their dominance of Australian superannuation.
This conclusion comes from a rare peep the Arthur Sinodinos KGB interview gave Business Spectator readers into the workings of the government and the widespread power of Small Business Minister Bruce Billson.
And, as I will explain below, we are looking at a radical change in the way superannuation funds will be chosen by employees.
We asked Assistant Treasurer and Superannuation Minister Arthur Sinodinos whether he was going to allow small enterprises to add their superannuation contribution to their BAS and then allow the employees to choose which fund they wanted to manage their investment.
He answered that he had received representations on this subject. When I pointed out that it was a Tony Abbott promise Sinodinos invited me to set out the promise.
I was distracted by other events and only recently came back to Sinodinos showing where the promise has been made.
His people replied almost instantly: “this will sit with minister for small business, it is an election commitment and will be implemented.”
Clearly this was an undertaking that came up through small business, not treasury. But there is no question it will be implemented.
Currently, most employees on awards are virtually required to use industry funds. The relevant industry fund is often specified in awards and, in any event, small enterprises do not have the systems to enable them to send money to a variety of funds. This has enabled the industry funds to capture 26 per cent of the superannuation pie. While industry funds are below the 31 per cent held in self-managed funds, industry funds dwarf the 20 per cent held by the traditional retail funds headed by AMP, MLC etc.
The government will allow small businesses – which are the country’s largest employer – to remit compulsory superannuation payments made on behalf of workers directly to the Australian Taxation Office. This will cut red tape for small business but also make worker superannuation entitlements more secure.
Once employers have transferred money to the tax office, workers will then be able to instruct the tax office as to which superannuation fund that money should be sent. The industry funds will no doubt work very hard to keep the money but suddenly employees have a clear choice, which they have never had before.
There will be surprises in the decisions that are made. There is no doubt that the Coalition would like to weaken the nexus between employment and union-dominated superannuation as many of the industry funds have become.
The need to break that nexus was underlined by the statements earlier this year by the building unions saying they would work to switch building employee’s money out of the Cbus superannuation funds if Cbus continued to back Grocon projects.
Grocon is trying to break the cartel-style agreements between the unions and the big commercial builders like Leighton and Lend Lease. The government is determined to break those agreements and cut the cost of infrastructure and commercial building. That building union action when Tony Abbott was in opposition made the Coalition even more determined to break the nexus.