The federal government’s efforts to give the banks a greater share of workers’ superannuation has suffered a setback.
The Productivity Commission has confirmed what unions have long maintained: industry superannuation funds are the best performing vehicles for workers’ retirement savings.
A draft report by the commission says bank-owned retail super funds charge twice the fees and produce 28 per cent lower returns than industry funds.
Members of industry funds such as the health care industry’s HESTA are, on average, much better off when they retire.
A retail fund member who saves 9.5 per cent of current average weekly earnings for 40 years, will earn an average annual return of 4.9 per cent and retire with $996,000.
That is a whopping $666,000 less than the $1,662,000 nest egg an industry fund member will earn with average annual earnings of 6.8 per cent.
The comparison comes from leading financial journalist Alan Kohler, who said it ought to put an end to the government’s “dishonest attacks on industry funds”.
“The fact that the government has not denounced this and given the banks a deadline for fixing the problem can only be explained by the Coalition’s absurd bias against industry funds because union officials sit on their boards,” wrote Kohler in The Australian.
Industry funds are managed jointly by union and employer representatives.
The government has campaigned to undermine industry funds and ensure that “more of the spoils go to the private sector retail funds” despite their “exorbitant” fees, wrote Sydney Morning Herald political editor, Peter Hartcher.
Prime Minister Turnbull, a former Goldman Sachs investment banker, and Financial Services Minister Kelly O’Dwyer, a former executive of National Australia Bank, refused to comment on the Productivity Commission’s damning findings against retail funds.
Super is an industrial right
Bernard Keane, politics editor for crikey.com.au, described the Productivity Commission report as “a ferocious blow for the government and the retail super sector. Not even Kelly O’Dwyer’s pre-emptive – and pathetic – attacks on industry funds can distract from it”.
The ACTU said the commission report made a “sound case” for the need to reform super to elim- inate multiple accounts and unnecessary insurance.
However, the peak union body criticised the commission’s recommendation to break the link between super and industry awards.
“Superannuation is an industrial right and comes from workers’ deferred wages,” said ACTU Assistant Secretary, Scott Connolly.
“The link between employers, unions, workers and their funds has been a key reason why industry super funds have systemically out-performed bank-owned super funds, and a pillar of the success of our retirement system.”
Connolly said the commission had “ignored the need to lift the Abbott/Turnbull government’s freeze on superannuation contributions, which should be urgently raised to 12 per cent”.
Compulsory superannuation started in 1992 as a result of a union initiative supported by Labor governments.
Under the system, the employer compulsory contribution rate rose to 9.5 per cent in 2014.
It was supposed to gradually increase to 12 per cent by 2022 but the Abbott and Turnbull governments blocked its progression.
Under the Coalition, the 9.5 per cent rate will remain until 2021 and will not reach 12 per cent until 2025.