With Australia’s retirement pool of savings at $4.2 trillion, this nefarious activity is going to become more prevalent, especially with hackers having access to increasingly sophisticated technology.
The power of in-depth, fundamental research into companies and broader sectors and trends to generate alpha remains a compelling argument for active investment strategies.
Profit-for-member funds’ failings don’t warrant a royal commission
An elected Coalition Government might well be tempted to instigate a royal commission into the profit-for-members superannuation funds.
The symbiotic relationship between the unions and these funds rankles with this side of politics, so, in the wake of recent revelations about failure to pay insurance claims and poor service, it could seem an apt response. The fact it would bring funds such as Cbus and its relationship with the disgraced Construction, Forestry, Maritime, Metals and Energy Union (CFMEU) to the fore again would be the icing on the cake.
The Coalition’s antipathy to the profit-for-members funds can be dated back to when Labor introduced compulsory superannuation in 1992. Back then, Liberals still yearned for a voluntary model. Indeed, on the cusp of the 1996 election that swept John Howard to power, the fledgling superannuation industry was uncertain about its future until shadow treasurer Peter Costello put their fears to rest by guaranteeing its existence. After 13 years in opposition, it was a political decision – not an affirmation of compulsory super.
Since then the Coalition, whether in government or opposition, has railed against these funds. For the most part it has focussed on the undue influence they claim unions have had over these funds via their employer-employee (read union) board structures. Issues such as excess spending on sponsorships and advertising have been on their radar, but it’s the union role that embitters them.
There is no better evidence of this than the recent interim report into superannuation fund governance arrangements by the Senate Economics References Committee where four of the seven recommendations urged changes to board structures with the profit-for-members funds clearly in mind. [Labor’s minority report, incidentally, laid bare the ideological divide when it called the inquiry “yet another rushed, un-serious and reheated wish-list of reforms from the chair, (Liberal) Senator Andrew Bragg”.]
The reality is that, for the most part, Coalition politicians have little else to hang their hats on. These funds have delivered healthy returns over the journey. They emerged from the Hayne Royal Commission – it concluded in February 2019 with 76 recommendations – with their record largely unblemished, in stark contrast to the retail funds that the Coalition has unofficially championed.
The irony is, of course, that member-for-profit funds currently deserve censure. Lots of it. As First Super chief executive Bill Watson bluntly puts it, when it comes to member service, insurance claims, handling complaints and now cyber-attacks, there’s plenty to look at. The question that must be asked is – are we on top of servicing our members?”
Certainly, there are many of the more than 11 million profit-for-fund members who would answer in the negative, a sentiment that could influence a Coalition push for a royal commission, especially if the current spate of cyber-attacks continues unabated, rattling confidence in the system.
But if they are tempted to do so – this is more likely to happen if Bragg, a vocal opponent of profit-for-member funds, gets ministerial oversight of superannuation – they would be well advised to have “a cup of tea, a Bex, and a good lie down”. It might be good politics, and even that’s uncertain. It would definitely be bad policy.
Cast your minds back to the Hayne Royal Commission. A notable feature of that inquiry was how it exposed the two regulators, APRA and ASIC, as toothless tigers. Who could forget APRA’s deputy chair Helen Rowell’s tortured appearance in the witness box explaining why that regulator did not take enforceable action, only having done so once in a decade.
Today, as Watson reminds us, the regulators are far more proactive. ASIC is taking legal action against AustralianSuper and Cbus over death benefits and TPD insurance. APRA recently released eight proposals to strengthen prudential governance for banks, insurers and superannuation trustees in a move that goes to the heart of a longstanding Coalition grievance against profit-for-member funds – board longevity. The tigers are growing some teeth.
In addition, many funds are openly acknowledging their service deficiencies and taking steps to address them, acutely conscious of the fact that as members near or enter retirement (and have sizeable balances) they will demand service. Another fund, or, dread the thought, an SMSF, are options.
The other point to remember is that profit-for-member funds, with nearly $1.5 trillion in assets under management (the biggest super sector), are an essential part of this country’s economic and social fabric. A royal commission that would probably take at least two years to hand down its findings could damage those important roles.
The evidence to date would suggest the failings of the profit-for-member funds is more an issue of bureaucratic inertia (in part due to growing pains), of cultures where service is more honoured in the breach than the observance, and, to be frank, where some trustees and executives have become far too comfortable at the top end of town.
But widespread malfeasance, no. By all means a Coalition Government should address the myriad failings of the profit-for-member funds – and they will have willing accomplices in the regulators. But the focus must be what’s good for the members – not political advantage. By this criterion, a royal commission would be the wrong option.
