Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

We have heard a lot from the Labor government, and from the Assistant Treasurer in particular, about reforms to the superannuation system. Some of the reforms recently announced are clearly sensible and uncontentious, such as improving paper flow and streamlining the back office. But there has been suspicious silence on a central issue, and that is the privileged role that the union movement has in the governance of much of the superannuation sector. There are a series of questions which really deserve further scrutiny. I want to speak about the role of the award system in feeding volumes of compulsory superannuation contributions into industry funds. I want to ask why it makes sense to give unions a privileged role in the governance of a large part of the retirement savings pool and comment on the transparency and disclosure.

APRA reported that as at June 2010 there was around $1.2 trillion in superannuation, of which $226 billion was held by the industry funds. The Parliamentary Library calculates that, based on the APRA reported statistics, industry funds had investment and operating expenses of 0.8 per cent of assets under management, which equates to a revenue stream of $1.8 billion a year which the industry fund segment is receiving.

Let me speak firstly about the role of the award system. By law, employers must pay a nine per cent superannuation guarantee charge on behalf of the employee into a superannuation fund. Under the modern award system there is a standard superannuation clause, which all modern awards must contain, which says that unless the employee actively exercises a choice, the payment will go into the default fund specified under the award. The vast majority of default funds are industry funds. According to a paper prepared by the Institute of Public Affairs in 2010, under 166 modern awards examined there were a total of 530 funds listed as default funds and 477 were industry funds.

Given the reality that most employees tend to not pay much attention to their superannuation arrangements, being appointed as a default fund under an award is of considerable value as it leads to a stream of contributions being received by the fund and in turn increases the value of the pool of assets to which the expense ratio applies. Retail super funds have highlighted their concerns that the union officials who negotiate awards will tend to appoint industry funds as the default fund under modern awards, and the statistics I cited earlier show that that concern appears to be well founded.

Let me ask therefore about the privileged role of the union movement in the governance of the superannuation system. The Australian Bureau of Statistics reports that 18 per cent of Australians in full-time work are union members. In other words, the vast majority of Australians are not union members. Despite this fact, unions continue to have a remarkably privileged role in the governance of the superannuation system. The industry funds typically have an arrangement in which the trustees are 50 per cent appointed by a union and 50 per cent appointed by employers, with a nominally independent chair. Typically, the arrangement appears to be that the relevant union simply nominates the trustees to the fund and generally the fund members do not get a say. This raises a number of questions: why should unions have a dominant role in appointing trustees when many members of the superannuation fund are not union members? What are the qualifications and financial experience of these trustees? Indeed, is there any requirement for them to have relevant financial experience?

A more general question is: if you were designing a system from scratch, why would you allocate retirement funds into a series of pools which happened to match the structure of union coverage of particular industries? And another obvious question: how are conflicts of interest to be disclosed and guarded against? For example, the Sunday Telegraph recently reported that Bernie Riordan, secretary of the Electrical Trades Union, is also a director of the Electricity Industry Superannuation Scheme and the chairman of FuturePlus Financial Services and Chifley Financial Services. Mr Riordan has been lobbying electricity industry employers to lift superannuation contributions to 15 per cent. It is easy to see how that might be in the interests of the superannuation fund and indeed of Unions New South Wales, which receives a dividend from Chifley Financial Services. Is it necessarily in the interests of employees? If employees were asked, they might very well prefer to have more cash in hand rather than a higher superannuation contribution.

The last point I want to want to raise is that I have been surprised, looking into this area, at the relatively limited degree of disclosure by industry superannuation funds. Their annual reports are substantially less detailed than those issued by publicly-listed companies, even though many of them are very large ventures, such as AustralianSuper, with assets of $43 billion.