Report into Super not so super

June 21, 2018
The Productivity Commission proposes changes to the superannuation system

A new round has been launched in the ongoing struggle over the protection of workers' rights to their lifetime savings in Australia's $2.6 trillion superannuation industry.

The Productivity Commission's latest report into Australia's $2.6 trillion, scandal plagued, superannuation industry has called for a number of reforms. While noting a number of serious problems with the current system, its proposals to tackle them are just as flawed and still put workers' earnings at the mercy of the market.

Under the current system, super funds are often included in awards and union agreements, which can lead to employees starting new jobs belonging to different funds, with their savings used up in unnecessary fees and charges.

The Productivity Commission proposes replacing this system with a process that allows workers to choose a single fund from a "drop-down menu" of the ten “best in show” funds when they initially apply for a tax file number.

According to a Sydney Morning Herald editorial on June 4, the current superannuation system is "costing Australians billions of dollars a year in poor returns and undue fees... [and] the average worker could be more than $400,000 better off by the time they retire if given the option to join one of the top 10 performing funds".

Union criticism

The Australian Council of Trade Unions (ACTU) responded to the report with a statement released on May 29, which said it had "identified critical flaws in the direction taken by the commission".

It said: "The suggestion that members' interests are best served by breaking the link between industry awards, workers' representatives and employer bodies ... is badly misguided."

ACTU assistant secretary Scott Connolly said: "Superannuation is an industrial right and comes from workers' deferred wages. The link between employers, unions, workers and their funds has been a key reason why industry super funds have systemically out-performed bank-owned super funds, and a pillar of the success of our retirement system.

"It is deeply concerning that many of former banker [Financial Services Minister] Kelly O'Dwyer's ideas — which aim to put our super in the hands of for-profit bankers — appear to be embraced in this draft report.

"The report does not go nearly far enough in its condemnation of for-profit funds, which have proven they should be banned from our system entirely due to high fees, low returns and massive scandals uncovered at the Banking Royal Commission."

Connolly criticised the proposal to create an independent panel to oversee superannuation regulation and reform, including the selection of the "10 top-performing funds" list: "The ACTU supports taking the politics out of superannuation, but the [current Coalition] government cannot be trusted to establish an independent panel, especially given the number of political appointees and politicised agencies under its direction," he said.

The ACTU said reforms should also include the extension of employer-paid superannuation to all workers, including contractors and those in the gig economy, and the urgent increase of the super guarantee to 12% (from its current extended "freeze" at 9.5%).

The government's legislation, introduced last year, which would mandate more so-called "independent" directors for super funds, is really aimed at removing union representatives from the boards of superannuation funds. This is part of the Coalition government's anti-union offensive, intended to further limit the power of the union movement.

History of superannuation

Australia's compulsory superannuation system has its origins in limiting union power. A key element of the ALP-ACTU Accord in the 1980s, it was sold to workers as part of the "social wage" being traded off in exchange for "wage restraint". Super was finally introduced into law by the Paul Keating Labor government in 1992.

The initial superannuation rate was set at 3% of wages, increasing to 9.5% over time. The rate was "frozen" until 2021 by the current Coalition government, following a Labor government commitment to increase the rate to 12.5%.

The value of super fluctuates wildly from year to year, depending on the state of the capitalist economy. In times of crisis, super funds suffer huge losses, and hence are not a reliable source of income for retired workers. The capitalists gamble with our money, and we suffer both from the poor decisions of particular capitalists and from the irrationality of the system as a whole.

The current super system is also seriously biased against women workers, who tend to have lower paying jobs and take time off for family reasons; against young workers, who are increasingly involved in casual, part-time employment in the gig economy; and those workers who face illegal practices by ruthless employers who avoid paying or under-pay wages and superannuation contributions.

The investment policies of many large superannuation funds are also under fire, including leading industry funds with strong union involvement. For example, members of the National Tertiary Employees Union (NTEU) are challenging the role of their super fund, UniSuper, as the largest investor in the toll road giant TransUrban, currently favourite to buy the controversial WestConnex motorway project in Sydney.

An alternate vision

The Socialist Alliance has a different outlook from the major parties, one that focuses on protecting workers entitlements from greedy fund managers and market forces.

We call for superannuation to be fully protected in the short to medium term. In future, we advocate for a different system of retirement security, based on a universal national retirement pension system, adequate to provide a living income for all. Such a scheme would avoid the pitfalls of the current market-based superannuation system, and provide the basis for a fair retirement provision for all workers and citizens.

In the meantime, the Socialist Alliance calls for much stronger regulation of the current superannuation scheme, to maximise the returns for workers and minimise the profiteering of the fund managers and banks. In the medium term, we should move toward a system restricted to union-industry super funds, with workers constituting 75% of the trustees of each fund.

Trillions of dollars are at stake here. Workers’ funds are being squandered by a privileged minority. The problems of the current system brought to light by the Royal Commission into the banking and insurance industries highlights the urgent need for a fully-funded, long-term alternative to the current profit-driven system.

National legislation will be needed to provide a government guarantee of the value of all worker contributions and protect and expand the real value of wage shares which have been incorporated into superannuation. The Socialist Alliance proposes the creation of a pool of combined super funds as social capital for public housing, public education, public health and other essential social and environmental projects.

Superannuation should not be a lifetime lottery for workers, in which their retirement incomes are subject to the whims of the capitalist market, and constantly in danger of being whittled away by unscrupulous bankers and fund managers.

In future, the labour movement needs to campaign for a guaranteed, universal and adequate retirement pension for all, funded by a steeply progressive taxation system in which the extremely wealthy and the big corporations pay the greatest share of tax.

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