There could be some big changes to superannuation on the way.
The Government says they’re aimed at making super funds more transparent and accountable.
Liberal Party sources also hope the changes will reduce the flow of money to the Labor Party’s election campaigns, but more on that later.
In a nutshell the super changes will:
- Ensure all workers can choose their own funds, regardless of enterprise agreements
- Further disclose how members’ money is spent through new reporting standards
- And, controversially, ensure at least a third of directors in Industry Super boardrooms are “independent”
Why is it so controversial?
Currently, unions and employers each appoint 50 per cent of the directors on Industry Super boards.
The Government’s reforms would diminish the proportion of union representatives in boardrooms from half to one-in-three.
Industry Super, Labor and the unions say that would dismantle a system of superannuation governance that has served its members better than other funds.
So how would this affect the ALP?
The Liberal Party feels it has been massively outgunned financially in recent election campaigns, an issue laid bare by the need for Prime Minister Malcolm Turnbull to plough $1.75 million of his own money into last year’s federal campaign.
One reason is that Industry Super funds deliver substantial funds back to unions.
The unions appoint the board members, who then collect directors fees and pass them on to the unions.
Many payments, including directors fees, are declared in the industry funds’ annual reports, but not all.
The Government doesn’t know exactly how much money is directed to trade unions, and it wants greater transparency.
Along with sponsorships and other payments, Government sources believe as much as $8 million could flow from Industry Super funds to unions every year.
If passed, these changes would likely put a big dent in Labor’s election war-chest.
“They fought like mad over a decade to stop independent directors on their boards. This is despite every other part of corporate Australia having independent directors on their boards,” former acting federal director of the Liberals, Andrew Bragg, told 7.30.
“They simply know that if there are independent directors, the payments they make to their mates in the unions will not be signed off on.”
What does this mean for my superannuation?
The biggest challenge for the Government is that Industry Super funds consistently perform better than all others.
Over the past five years, Industry Super has delivered average returns of 10.3 per cent annually, while retail funds (which include those run by the banks) are the worst performing at 8.2 per cent.
“That’s around $200,000 extra by the time [workers] retire,” according to Matthew Linden from Industry Super Australia.
“Our concern is [the changes] could disrupt and undermine a very successful model, that’s delivered incredibly good outcomes for members.”
The Government insists the changes will improve the performance of all funds.
“I’m only interested in members and their money and protecting it,” Financial Services Minister Kelly O’Dwyer said.
“I’m not interested in ideological campaigns. I’m simply wanting to ensure that we have the highest standards apply across the board.”
So, will the reforms pass Parliament?
As always, it’s difficult to predict.
Similar changes to governance rules failed to pass the Senate in 2015, but this package of reforms is much more comprehensive.
It will be hard for Labor and the Senate crossbench to argue against greater transparency and accountability in a sector worth $2.3 trillion (yes, trillion).
But Labor will be sure to fight the changes to boardroom governance.
“It’s a representative model which has got employees and employers coming together to make decisions about investments in people’s retirement,” Shadow Finance Minister Jim Chalmers said.
“Overwhelmingly and consistently, Industry Funds have delivered better returns for members and the Government should be focused on maximising those returns, not on micro-managing the composition of boards.”
In other words, a big fight is imminent.