Super sneaky way to boost a poor investment: Judith Sloan

‘What possible interest do super members have in funding a less than informative online publication that provides paid gigs to mainly male, white, left-leaning retired journalists?’
‘What possible interest do super members have in funding a less than informative online publication that provides paid gigs to mainly male, white, left-leaning retired journalists?’

I received an email from AustralianSuper last week informing me I would be enrolled as a subscriber (no charge) of online website The New Daily unless I opted out. That’s right: the default position was that all AustralianSuper members would become unwitting subscribers to what can only be described as a propaganda rag for industry super funds.

Given that most of us get lots of rubbishy emails along with some genuine ones, it’s a fair bet many members won’t even read the email, let alone hit the opt-out button. Note here that AustralianSuper is the largest super fund with about 2 million members.

This is surely the low point in what has been an absolutely disgraceful episode in which the trustees of super funds have failed to act in the best interests of the members to maximise their retirement incomes.

What possible interest do super members have in funding a less than informative online publication that provides paid gigs to mainly male, white, left-leaning retired journalists? If you are interested in news and current affairs, The New Daily is the last place you would go.

(You might ask me why I have an account with AustralianSuper. The short answer is that I was compulsorily enrolled in the old Australian Government Employees’ Superannuation Trust when I worked at the Productivity Commission and AGEST was taken over by AustralianSuper.)

This sorry saga started in 2013 when a number of the larger industry super funds decided to chip in $2 million each to fund a new website that would cover “news, finance, entertainment and lifestyle”. Even then, this was a very crowded market space.

Unsurprisingly, the initial capital didn’t last long – achieving significant revenue has eluded The New Daily – and so in the 2015-16 financial year the ownership was transferred to Industry Super Holdings for zero consideration. (I’m still waiting for my email from AustralianSuper apologising for this loss.) The New Daily continues to lose money – close to $3 million a year – and ISH continues to bail it out. Presumably, the latest tactic by AustralianSuper is to enrol members as subscribers unless they opt out to improve the scope for The New Daily to raise more advertising revenue.

(ISH is a private company owned by a number of industry super funds and “provides services to industry super funds and fund members and manages equity and debt portfolios”. ISH is chaired by former Labor federal minister Greg Combet.)

Apart from the depressing details of this story, the main message is that the trustees of superannuation funds can spend members’ money almost without constraint and without being restricted to meeting the legislated sole-purpose test to maximise the retirement incomes of members.

Coupled with completely inadequate regulatory oversight by the Australian Prudential Regulation Authority — the commissioner in charge of superannuation saw no prudential problems with the investment in The New Daily — the funds are free to spend on almost anything they deem appropriate.

(Interestingly, APRA has said this week that it will look into AustralianSuper providing the contact details of members to The New Daily unless they opt out.)

A fund can sponsor a football team — no worries. Sponsor awards — no worries. Commission politically slanted advertising on policy issues — no worries. Pay for dubious promotional advertisements — no worries. Hand over money to unions and employer associations — no worries.

It is a curious situation in which the superannuation accounts are owned by the members and the funds manage those accounts on behalf of the members. Yet their accountability to members is close to zero. The members don’t get to vote on who should be the trustees. The members don’t get to see a detailed remuneration report of staff and trustees or vote on a report. The members are never asked about expenditure decisions of the trustees.

All the time, because of the compulsory nature of superannuation, money flows to these funds. Given the arcane features of our industrial relations system, a considerable proportion of these monies heads to funds without the consent of the members.

In acknowledging the problems arising from the funds’ lack of accountability to members and other problems, the government has been seeking to improve the outcomes for members by making a number of legislative changes.

At every stage, the funds have opposed any changes to their cosy arrangements. If you ever wanted to see self-interest accompanied by well-resourced, aggressive lobbying, you need look no longer. Labor MP Stephen Jones has become the most prominent vocal supporter of the industry super funds in parliament.

Nevertheless, the government has made a number of changes, including the consolidation of small inactive accounts and the removal of opt-out insurance for young members with small accounts. Far too many young people were reaching the age of 30, having worked in multiple jobs, only to find their super balances had been eaten away by excessive fees and charges, and unwanted insurance. Mind you, the super funds were more than happy to retain these small accounts.

Last October, another set of reforms was announced as part of the budget. Called Your Future, Your Super, the proposed legislation covers a number of issues. One of the changes relates to stapling, a process whereby workers retain membership of their first super fund unless they opt to change. Not only was this proposed by the Productivity Commission, it was also a recommendation of the Hayne royal commission.

For the industry super funds, however, such an arrangement upsets the applecart because they rely on members being forced to change funds. For example, many young workers will start in retailing or hospitality, so funds that don’t cater for these workers could potentially lose out. (The industry structure of industry super funds actually makes no sense at all, but that’s another story.)

The most contentious part of the legislation relates to the scope for the Treasurer to prohibit certain spending decisions made by trustees. But this measure is contained among broader measures that are designed to improve member accountability (disclosure of spending on promotion, marketing and sponsorships, for instance) as well as ensuring that trustees act in the best financial interests of members.

Whether this is the end of the line is unclear. New low-cost, well-marketed funds such as Vanguard may provide a market-based solution to many of the endemic problems in the industry. But the industry super funds will keep fighting and opposing.

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