For a long time, superannuation was available only to permanent public sector workers and managerial employees in the private sector. So-called “blue collar” workers were not so privileged. In the mid-1980s, only about a quarter of these workers had access to superannuation, more often than not following union-led campaigns in targeted industries.
This changed in 1992 when the Paul Keating Labor government introduced compulsory superannuation, initially at 3% of wages, following an agreement with the ACTU. Contrary to consistent conservative claims this was not an extra burden on employers’ costs — it was a forgone wage increase.
Under a previous agreement with the union movement, all workers at the time were scheduled to receive a 3% wage increase. This was transferred into a superannuation payment, accessible only at some time in the future because the Keating government was worried about the impact of a direct wage increase on the inflation rate.
Union superannuation was mandated in awards, with industry funds set up that had equal trustee director representation from employer representatives and union nominees.
There are, of course, other types of super funds including self-managed funds and retail funds operated by banks and insurance companies. Taken together, these funds currently manage assets in excess of $2 trillion. Industry super funds’ share is about 15% compared with their retail fund competitors’ 33%.
The distinguishing feature of industry super funds is that they are not-for-profit operations, and this makes a massive difference to the eventual payout that members receive. An industry fund member on an annual salary of $70,000 over a 35-year working life would accumulate $880,000 at retirement, compared to $680,000 in a retail fund.
When Treasurer Joe Hockey announced a Financial System Inquiry, one of its terms of reference was to examine the superannuation industry. When the inquiry presented its findings to Hockey late last year, they included a recommendation allowing members of industry funds to opt-out of the funds on the spurious ground that award provisions were a “regulatory impediment” that should be removed.
Another recommendation was that instead of equal employer and union representation on industry boards, a majority of directors, together with the chair, should be “independent” even though many board directors in the private sector are dependent on insider patronage for their appointments.
Coincidentally, the head of the inquiry was a banker, David Murray, who was CEO of the Commonwealth Bank from 1992 to 2005. And it is the bankers who run retail funds who have been lobbying for changes to industry funds, which have outperformed them for the past 23 years.
The first recommendation on opt-out has yet to be addressed but Assistant Treasurer Josh Frydenburg has now released draft legislation requiring a third of the board of trustees of an industry super fund to be independent. One step at a time seems to be the game plan, with an eye on the electoral cycle.
The proposed legislation actually goes further, as it will entirely remove the existing provision for equal representation of the other two-thirds of directors. It also provides for any new super fund director to be approved by the Australian Prudential Regulatory Authority (APRA), and if APRA doesn’t bother to respond to a request for approval in the time required, the approval is deemed to have been refused.
The new legislative framework will undoubtedly be seen as a further attack, albeit vicariously, on unions. And no doubt it is.
But what offends the commercial funds is not so much that half of present industry super boards are union nominees but that they are not-for-profit funds. Being a mutual fund concerned with the interests of members only and not with profit is apparently uncompetitive.