Malcolm Turnbull tackles union hold on super

David Crowe

 Political correspondent

Workers will be promised more power to choose their superannuation funds as the federal government shatters the industrial relations rules that control at least $10 billion in annual contributions, as part of a bold move to shake up financial services.

In a critical test for his new government, Malcolm Turnbull will take on unions and industry super funds to inject more competition into the system in the hope of driving down the fees imposed on millions of employees. The decision launches the biggest fight of a reform plan that also promises to cut credit card surcharges by legislating to stop retailers, hotels, airlines and others from asking customers to pay excessive fees for using Visa, MasterCard, American Express and other cards.

The government has also confirmed plans for tighter lending rules that are aimed at improving the strength of the major banks, triggering a dispute over whether the increase in costs will push up interest rates on mortgages and personal loans.

The super changes end two years of Coalition indecision on whether to break open the industrial relations regime and the way it mandates default funds for workers, sparking talk last night that the Turnbull government had “found its mettle” on reform.

Scott Morrison said the new approach would end the “closed shop” in the Fair Work Commission that selected funds and prevented workers choosing an alternative, giving everyone more say on who managed their retirement savings.

“It will be invested for their purpose, for their objectives, for their family,” the Treasurer said. “It won’t be the traded commodity of industrial bargains.

“It will be about them, not about unions and bosses.”

The Australian understands the government’s objective will be to remove the choice of funds from the Fair Work Commission, setting up a system outside the industrial relations regime to list the best funds.

The Productivity Commission, which will be asked to suggest the new model, estimates that about $10bn a year is paid into super funds that are chosen by the industrial umpire as the “default” option for workers who do not bother to select a fund.

The commission has also found that 70 per cent of workers are in the “default” funds, highlighting the power of deals at the Fair Work Commission to decide who gets to manage a huge slice of an Australian super system that now holds $2 trillion in assets.

Assistant Treasurer Kelly O’Dwyer said the government’s changes would increase competition, to help people saving for ­retirement. “I believe with greater competition, efficiency and transparency you will see better products and the potential to deliver lower fees for consumers,” Ms O’Dwyer said.

Industry Super Australia, which represents not-for-profit funds that are backed by unions and employer groups, called yesterday for the Fair Work Commission to keep its role in choosing funds, arguing that industry funds produced better returns.

The role of the workplace umpire is an iconic issue for the labour movement because it was a key feature of the system created by the Keating government in the 1990s, when super contributions were seen as a form of deferred wages.

Industry funds — including Australian Super, which has $80bn under management and has board members from the ACTU and the Australian Industry Group — depend upon being listed in industrial awards at the Fair Work Commission for a substantial amount of the contributions they manage each year.

AMP Super applied in 2010 to be listed on a computer industry award but its application to the ­industrial umpire was opposed by AiGroup.

The royal commission into trade union governance has also found that enterprise bargaining agreements lock workers into super funds. West Australian truck driver Paul Bracegirdle told the commission last year that he asked to choose his own fund at Toll Holdings but was told he had to use TWU Super because it was named in the company’s EBA.

In the retail industry, the enterprise bargaining agreement at Coles and Bi-Lo requires employees to use the REST industry fund, also known as the Retail Employees Super Trust.

The government’s formal statement yesterday said it would “immediately” ask the Productivity Commission to suggest an alternative approach.

There was speculation last night that this could lead to a new system next year, setting up a test in the Senate over legislation to take responsibility away from the Fair Work Commission and prevent EBAs from limiting choice.

Labor superannuation spokesman Jim Chalmers expressed concern about the new process on super as he and Treasury spokesman Chris Bowen sent a positive message about the opposition’s willingness to consider the broader reform plan for financial services set out yesterday.

“We are a bit wary of their motives in this area given their form when it comes to superannuation boards and the treatment of trustees, their failure to give different kinds of boards the capacity and the flexibility to deal with their membership of their boards in a way that benefits members,” Mr Chalmers said.

“We think when it comes to default funds the Fair Work process is designed to provide those protections to members to ensure that it’s their interests that prevail over the interests of their employers.”