This is the second in a two part series on the end of retail super. Read the first part here.
Royal Commissioner Kenneth Hayne: Did you think yourself that taking money to which there was no entitlement raised a question of the criminal law?
Nicole Smith: I didn’t.
Nicole Smith used to be the chair of the NAB’s superannuation trustee, NULIS. She spent most of Thursday, August 8, 2018, being examined by counsel assisting the financial services royal commission, Michel Hodge QC, about the administration of the NAB’s superannuation funds, explaining issues like why NAB had charged superannuation account holders fees for advice they had never been given and why dead people had been charged for advice. And, particularly, why NULIS had never said boo about it. As Commissioner Hayne noted, NAB had been robbing its superannuation customers without thought it might be breaking the law.
Smith was being examined that day because the Turnbull government, furious at being forced into a banking royal commission at the end of November 2017, had expanded it to include superannuation funds as “a direct smack at Labor” as one Coalition source told the Financial Review. Peter Dutton was delighted about it, claiming the royal commission would “have a look at some aspects within the industry super funds which have union members and whatnot on the board. I think people lose a lot of their super through fees and through donations and all sorts of support for unions.” But others knew better. The ABC’s Ian Verrender warned “it may end up backfiring on the bank-run super funds if royal commissioner Kenneth Hayne adopts a broader view. “
The Productivity Commission had independently verified the performance gap between industry and retail super in its draft report in May 2018. We’ll never know what effect the PC had, but in the June quarter, industry super funds had for the first time ever overtaken retail super funds in size, surging a mammoth 16% in the quarter as account holders switched out of retail super. Then-financial services minister Kelly O’Dwyer and her predecessor Josh Frydenberg — both former bank executives — had their non-parliamentary super in industry funds, so were obviously aware of the better performance of the sector. The banks themselves were signalling there were problems: at that time, three of the four major banks (it’s now all four) were in the process of hiving off their wealth management and super arms because the returns from vertically integrated financial services were too low for the colossal reputational damage that came from the constant scandals arising from them.
But despite all that, the Liberals were seemingly convinced of their own claims about a sinister connection between unions and industry funds, one that would be exposed by Hayne.
How spectacular a misjudgment this was became clear from two weeks of hearings into the super sector from the 6th to the 17th of August, which barely touched of any hint of misconduct by industry funds but was devoted almost entirely to retail funds. The results were summed up to Hayne by Hodge late on a Friday afternoon.
… it may well be the case that you will conclude that some RSE (registrable superannuation entity) licensees are not, as they are obliged to do, prioritising the interests of their members over the interests of others, including themselves and the groups of which they are parties. And there are certain types of decisions that seem to particularly raise matters of concern. The decision to charge or allow others to charge members’ fees which are then paid to financial advisers in circumstances where the member doesn’t receive or could not have been receiving the services… decisions to charge or maintain grandfathered trailing commissions and other forms of conflicted remuneration… the decision to delay, or at the very least not expedite the transition of accrued default amounts to a MySuper product… the potential failure to become aware and intervene to prevent the charging of fees by a related party where those fees result in negative returns to members…
Hodge went on to detail a number of possible remedies to improve superannuation’s regulatory framework. Not merely had the big banks’ refusal to place customers’ interests over their own been publicly exposed, but the government is almost certainly going to be handed royal commission recommendations for a dramatic toughening of regulation of retail super funds, no matter who ends up owning them — recommendations it would be almost impossible to reject. And we’re yet to see what financial impact the August hearings will have on the huge switch of funds out of retail super that was already underway.
The Liberals’ blunder would be a gift that would keep on giving for industry super funds for years to come.
Yes it is a lay down misere that industry super funds will consistently outperform retail ones. There is nothing new here and I don’t underestimate the private sector to screw things up. I just don’t think that industry super is the answer. The horse has bolted over which sector is the better. The question is what type of industry super fund is right or if a super fund is the right form of compulsory employee savings/investment mechanism. I notice the author hasn’t broached the difficult issues of whether 9.5% is sufficient going forward, what to do with companies that don’t comply with its superannuation contribution requirements, the issue of super for subcontractors or casualised employees, enforcement mechanisms, compliance and administration.
Crikey picks some easy topics at times.
Good points.
Industry super funds overwhelmingly ARE better than retail funds. But is the defined contribution model really the better model? This is a threshold question that is rarely considered these days, because we have accepted that it is incumbent on the individual to save for retirement, rather than the government or workplace to ensure that the employee isn’t in poverty after a lifetime of work.
Industry super is a huge, er, industry with many rent-seekers (like any industry). While the funds themselves may be not for profit, the area is still paying massive salaries to its senior management and spending a large amounts of money on marketing including on conferences and events, ad campaigns and merchandise.
Of course a 9.5% contribution rate is not going to be enough. You only need to go on one of those “will I have enough super at retirement” calculators to see that even with an average wage, our contributions will leave us short.
Although the idea of government-owned super funds isn’t massively inspiring either.
Why are none of these miscreants in prison?
None of them will go to prison. Some poorly paid front of house staff will cop the blame, while the crooks in charge will collect another obscene “bonus” for stealing people’s money
There is scope for the Royal Commission to examime cases where a default retail super scheme has been adopted with no consultation with employees following a bribe of the relevant decision maker.
And what will ‘Labor’ if it falls into office?
S.F.A.
… “what will ‘Labor’ DO…”.
Come on JK, you are a blindly loyal apologist, suggest something. Anything.
Can’t wait for electioneering in Higgins and Kooyong and the opportunity to question O’Dwyer and Frydenberg about their super in industry funds; and how come they made that choice, when they have expended so much energy repeating untruths about union led funds to advantage retail funds. It will be such fun!
OH YEAH!
And take all your mates and rellos with you as well as anyone else you can get.
I’d love to see it on the news.
I’m too far away but if they come around my patch I’ll do the same.
What is fascinating about the Liberal Party including superannuation in the terms of reference to Commissioner Hayne is the smug confidence that industry superannuation funds would be damaged, despite the evidence that existed even then that industry superannuation funds out-perform ‘retail’ funds and that there was and is no structural conflict in industry funds.
That illuminates an interesting feature of the ‘thinking’ of the right; ie ideological belief clearly prevails over evidence and sound reason. Unions are evil because they are ‘socialist’. No analysis, no structured argument, no evidence or even examples. One must just believe that that anything done in society by unions is obviously evil and start any strategy from there. Similarly, to ‘believe’ in anthropological climate change is a heresy in respect of the ideological belief that profit is the engine of all human endeavour; ie a naive Smithian belief that self-interest is not only good, it is the only cause of all good in society. This is why I despise the new right.
The LNP haw, haw, haw, busted the Banks lucrative retail superannuation model. Rumour has it that the banks are planning to take the LNP retaliatory action by not donating $$$ to the LNP for the time being. Poor ol’ Josh and the Dolt from Higgins they are now seen as the banking industry wreckers.
bang on “ideological belief clearly prevails over evidence and sound reason.” – it is the only explanation for the continued existence of both the tories and their deluded voters.