APRA turns up heat on union super millions

The Australian, September 11, 2017

The financial regulator will be granted broad new powers to force the $2.3 trillion superannuation industry to make detailed disclosures of millions of dollars in hidden annual payments to unions and employer groups, and issue orders against any fund that fails to act in the best interests of its members.

Legislation is expected to be introduced this week by the Turnbull government to give far-reaching oversight and intervention powers to the Australian Prudential Regulation Authority to crack down on the unscrupulous use of members’ funds.

This would include the ability for APRA to have greater scrutiny over the appointment of super fund board members, including ordering the removal of directors found not to be acting in members’ interests.

A focus of the new laws will be to also crack down on “dark payments” from industry funds to their associated unions — now ­estimated at more than $8 million a year — through transparency laws forcing the detailed disclosure of what has become a soaring cash pipeline to the union movement.

The Australian can reveal that the legislation drafted by Revenue and Financial Services Minister Kelly O’Dwyer would give unprecedented powers to APRA to ­intervene and make corrective ­directions to funds, mirroring similar powers granted to act against misconduct within the ­retail banking sector. The laws will cover all industry, retail and corporate super funds and are ­designed to give greater accountability and protection of members’ funds. Non-compliant funds that fail to reveal the details and nature of union and employer-group payments could face stringent ­action by APRA, including suspension of the payments.

The changes, which need Senate crossbench or Labor support, will be the first plank in a series of legislative reforms The Australian understands will be put to the federal parliament this week.

Ms O’Dwyer said that under the new laws, members would also be granted lawful ability to seek ­answers from their funds on how their super contributions were being used.

“We want to see greater transparency with all super funds — whether they are industry, corporate or retail funds,” Ms O’Dwyer said. “After all, this is members’ money, and they get no say in whether their money is being ­siphoned off for purposes other than their own retirement savings.

“In the very near future, we will be introducing legislation that will make all super funds more ­transparent and also give members the ability to question how their fund is run and where their fund invests their money.”

While broad in nature, the transparency and members’ interest laws would further tighten the noose on what the government has described as “rivers of gold” flowing from super funds and workers’ entitlement funds particularly to the union movement.

According to Australian Electoral Commission disclosures and financial statements of the industry super funds, the government has estimated that more than $8m was paid last year to unions and declared only as unexplained “sponsorship” payments.

The super funds and unions have not been required to detail what those payments were used for. Over the past 10 years, unions have skimmed an estimated $53m to their coffers through these payments.

The industry fund Cbus, chaired by former Victorian Labor premier Steve Bracks and boasting 732,000 members and $32 billion in funds under management, last year paid $1.06m in sponsorship fees to unions including the ACTU, CFMEU, AWU, AMWU, ETU and the PTEU.

Of that, $351,705 was paid out in directors’ fees, including to union officials. Cbus does not disclose what the sponsorship arrangements are, only declaring in its ­financial statements the aggregate value of what it pays directors and sponsorships to affiliated unions and employer associations.

TWUSuper, which covers transport workers, paid almost $1m to the TWU last year and $126,000 in directors’ fees. It does not publicly release its financial statements. One of the largest industry funds, AustralianSuper, with an estimated two million members and $92bn in assets under management, declared only one payment to the ACTU of $225,000 for advertising, promotion and advocacy. However, several unions, including United Voice, have declared to the AEC that they received “sponsorship” payments from AustralianSuper.

The AWU also received “sponsorship” payments from AustralianSuper explained to The Australian as sponsorship of the AWU’s national conference.

With the growth in the investment value of the funds already at $2.3 trillion, and expected to grow to $4 trillion in the next 10 years, the union payments, if not scrutinised, would be expected to rise to $22m a year.

When combined with similar payments from various worker-entitlement funds established to create a future fund to cover redundancy, training and sickness benefits, the government estimates the total payback to the union movement was about $53m a year.

The government has accused the unions of having used such payments to bolster commercial and campaign operations, while unions continue to suffer from a continuing decline in their membership base over the past 20 years.

The Australian revealed last week the 47 trade unions had managed to build a combined political war chest now worth $1.5bn in ­assets and an estimated $900m a year in income. The government claims there was a widespread practice of paying directors’ fees, applicable to union officials that sit on the boards of the industry super funds, directly to the unions rather than the directors themselves.

ACTU president Sally McManus said that the greatest threat to members’ money was allowing banks into the superannuation sector.

“Malcolm Turnbull wants to let the fox into the hen house by handing working people’s super over to the banks,” Ms McManus said.