banking royal commission

The Liberal–National Coalition government and big banks have waged a long campaign to weaken industry superannuation, the system which most nurses rely on to accumulate retirement income.

Large numbers of members of retail funds have switched to industry funds following findings by the Productivity Commission and Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that industry funds have consistently outperformed retail funds.

Industry super funds receive employers’ compulsory super payments on behalf of employees and are jointly managed by equal numbers of employer and union representatives.

The Coalition government is ideologically opposed to union involvement in superannuation.

The Coalition has strongly supported so-called retail funds owned by banks and financial services companies like AMP.

Despite that support, retail funds have been losing account holders in droves.

“Almost $11 billion flowed out of scandal-plagued retail superannuation funds into industry funds in 2018,” the Australian Financial Review reported.

“(Royal) Commissioner Kenneth Hayne found retail funds to be riddled with problems but identified few failings by industry funds,” the paper said.

The findings of the Productivity Commission and royal commission represent a spectacular own-goal by the Coalition government.

The government tried to legislate to make it easier for employers to switch their employees from industry funds to for-profit retail funds. The move failed when independent senators voted with the ALP and Greens to defeat the legislation.

The government then ordered the Productivity Commission to examine the superannuation industry, thinking the findings would favour retail funds.

Instead, the Productivity Commission reported that industry funds outperformed for-profit funds by nearly two percentage points.

The Coalition government repeatedly refused to order a banking royal commission on the grounds it wasn’t necessary. It finally did so after some Nationals MPs threatened to break ranks and vote with Labor to establish a royal commission.

Furious at being forced into a royal commission, the government expanded it to include superannuation funds as “a direct smack at Labor” as one Coalition source told the Australian Financial Review.

That move backfired by delivering an even bigger blow to retail funds. The royal commission found they were managed in the interests of shareholders rather than members and riddled with conflicts of interest and corruption.

Why we support industry super

More than five million workers belong to industry super funds such as HESTA, the health care employees’ fund.

Industry super was set up in the 1980s by agreement between the union movement and Labor government. The aim was to give working people an income stream to supplement the old age pension.

Industry super funds do not pay dividends to shareholders, they charge low fees and deliver better returns to members than corporate-owned retail funds, which are backed by the Coalition government.

As the Australian Financial Review noted: “It is a combination of member switching and excellent investment returns that has ratcheted up the growth of industry funds to the extent that they will soon overtake self-managed super as the biggest segment of the market.”

Where the parties stand on SUPERANNUATION

Liberal–National Coalition

Tried to legislate to make it easier for employers to move their employees from industry funds to inferior retail funds.
Opposed Labor’s Future of Financial Advice (FOFA) laws, designed to clean up the conflicted and corrupted financial advice industry.
Tried to protect big banks by blocking  the royal commission for two years.
Passed laws to stall the increase of employer contributions from 9 to 12  per cent.

Labor

Increased the Superannuation Guarantee from 9 to 12 per cent, introduced low-cost MySuper accounts and superannuation tax concessions for low income earners.
Promise to make it easier for workers to recover their unpaid superannuation as an industrial right.
Promise to implement “policies that work towards closing the significant gender gap in superannuation savings”.

Greens

Want to promote greater competition with legislation that forces big banks and financial institutions to break up their businesses and operate in just one of four areas:

Retail banks, that take deposits and give loans including credit cards, mortgages and business lending
Superannuation funds
Insurance, including life insurance
Complex wealth management products.

Prime Minister Malcolm Turnbull and Australia’s four big banks changed their minds about the need for a royal commission into the banks at the end of 2017.

After two years of ruling it out, Turnbull back-flipped and ordered a royal commission. And after two years of strongly denying the need for one, the banks welcomed the PM’s announcement. Why?

Turnbull’s hand was forced by rebel National Party MPs who joined moves by Labor, the Greens and others to set up a royal commission through parliament.

Turnbull moved first in order to prevent this group from writing the commission’s terms of reference.

Turnbull and his treasurer, Scott Morrison, put together the terms of reference after consulting the banks, but not the banks’ “many victims of bad advice, bad investments, customer rip-offs and facilitating money laundering” as ACTU president Ged Kearney put it.

The Australian Financial Review (AFR) reported the banks’ reaction: “Although the banks had vehemently resisted calls for a royal commission … a feeling of relief washed over the sector as senior bankers welcomed the government taking control of the inquiry.”

The reason for this relief soon became clear: the government wants to use the royal commission as part of its agenda to help the banks get more control over workers’ retirement savings.

The royal commission terms of reference require it to investigate not-for-profit industry superannuation funds, which are run by boards made up of employer, union and independent representatives.

Ged Kearney called the move “a shameless, breathtaking and nakedly political act”.

“Industry super is hugely successful. That’s why the government has legislation before the parliament to give big banks access to workers’ retirement savings.

“Industry super isn’t broken and doesn’t need fixing. It’s the big banks that are broken that’s why we needed a real banking royal commission.”

Another attack on unions

Industry superannuation funds agreed the government was using the royal commission to extend its ideological war on the sector.

The Australian Institute of Superannuation Trustees (AIST) said banks had “abused their social licence and betrayed community trust … resulting in a deluge of complaints from their own customers”.

But AIST chief executive Eva Scheerlinck rejected the need for the inquiry to be extended to super, suggesting it was part of an agenda to weaken the unions.

“We think this is ideological. It is an extension of the royal commission into the unions, where the government probably didn’t get the results it wanted. It is another attempt at getting at the unions through the super model,” Ms Scheerlinck said.

“Australia’s super system is world class, and there is no evidence of gouging, fraud or unethical behaviour to warrant a royal commission into the industry.”

Former Victorian premier and chairman of the Cbus industry super fund Steve Bracks accused the government of embarking on an ideological battle to reduce the influence of unions in Australia’s retirement savings industry.

“Clearly, there is an ideological agenda there … to break the model so they can get at the equal representation and trade union involvement in superannuation funds,” he said.

David Elia, chief executive of the hospitality workers super fund Hostplus, said the commission should look at the structure and relative performances of Super schemes run by the not-for-profit industry funds, for-profit retail funds controlled by the banks, and public sector retirement schemes.

“Of the 50 largest superannuation funds, not-for-profit industry funds have on average outperformed the for-profit sector by 1.5 to 2 per cent a year,” he said.

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