Millions of Australian workers have faced the worst losses in their superannuation since 1992. Super funds have shown losses of on average 6.4% for the last financial year, with some showing losses as high as 15%, putting workers' retirement funds in jeopardy.
Australian super funds have been invested in the debt and mortgage markets that have suffered as a result of the US sub-prime mortgage crisis, where predatory loaners made cheap loans to impoverished people who would never be able pay to them back, while their debts were made a part of major financial packages and sold to investors. This has resulted in massive losses for financial institutions in the US.
The internationalisation of financial markets has meant that Australian investment has been exposed to these losses, which include superannuation fund investments. Australian banks have also felt this squeeze, with the National Australia Bank writing off 13% of their value in a single day of trading and announcing the stepping-down of CEO John Stewart on July 31, who was asked by the NAB board to retire early in the wake of the high losses. ANZ has reported similar losses in recent trading.
Not feeling the pinch are financial planners in the superannuation market, who — according to the Sydney Morning Herald — have collected $2.3 billion in commissions over the last financial year for advising fund managers on where to invest workers' superannuation. These commissions come directly from workers' super contributions and are usually paid to planners regardless of superannuation performance. In addition, financial planners are usually from companies which are potential places for investment and there is nothing stopping them from advising managers to invest super in their own companies, regardless of their potential performance.
Superannuation minister Nick Sherry admitted this to ABC Radio on June 21: "There's no doubt there's a correlation. If someone is paid a commission, there is a temptation to ensure the money flows to the provider paying the commission. It does warp advice." Sherry has flagged a review into commissions made to financial planners.
While these factors have specifically made this crisis obvious now, the general cause of the crisis is the privatisation of retirement funds made by the Paul Keating Labor government in 1992, when it became compulsory for workers to set aside super funds from their wages to help fund their retirement.
Reflecting on his changes to superannuation, of which he is obviously proud, Keating told the Australian in December 2006: "I have always thought that owning the home was fine, but being able to share in the basic wealth of the nation in the stock market was a way of having the ordinary mums and dads having a share in the bounty." He argued that his super scheme was responsible for creating such a large financial market in Australia.
This vision may have seemed reasonable to most workers when financial markets were stable and their superannuation was growing, but with financial markets becoming increasingly unstable, and their "planners" revealed more and more as self-interested, greedy and unable to predict the futures of an increasingly complex financial system, workers' retirement funds are under threat.
Where previous generations of workers could count on a state pension upon retirement, access to the pension has also been attacked in recent decades: it is now means tested rather than guaranteed, and is not adjusted sufficiently to take into account the rising cost of living. The recent announcements about the superannuation losses leave a section of Australians, often struggling below the poverty line, at the whim of volatile global markets.
Already, some people due to retire in the next 12 months are facing the possibility of that being financially impossible, given their superannuation losses. Meanwhile, the managing director of research company SuperRatings, Jeff Bresnahan, told the July 29 SMH that super investments could be expected to lose money one out of every six years.