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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Safe super depends on total disclosure

Friday, January 29, 2016

One of the most arrogant aspects of Australia’s industrial relations system is the treatment of workers as if they are stupid and cannot make decisions for themselves.

The existing superannuation system takes this assumption to high levels. It assumes that workers are so dumb that they must not be allowed to decide where their retirement superannuation money is parked.

Instead, employers in collusion with unions under the masquerade of the Fair Work Authority make the decision for them. Workers are forced to put their retirement money into superannuation funds controlled by unions and employers.

This system could look like state-‘sanctified’ collusion in which small numbers of union and employer representatives control billions of dollars of workers’ money. It creates opportunity for corrupt ‘milking’ of the superannuation funds by such representatives.

Whether this occurs is unknown. But such potential for corruption has been highlighted by the Heydon Report, which details how some unions with some employers collude together against workers. Heydon has recommended criminal prosecution of both employer executives and union officials. He has recommended that payments from employers to unions be subject to criminal sanction.

As Robert Gottliebsen previously reported, the Minister for Employment, Michaelia Cash, has declared that the government will implement Heydon’s employer–union corruption-busting recommendations.

At the same time, Assistant Treasurer Kelly O’Dwyer is moving to give workers full rights to choose their superannuation fund. So far, Labor has opposed this on the excuse that the current system stops employers exploiting workers. But Heydon has shown that it’s frequently employers with unions that do the exploiting.

What’s not yet reported however is that O’Dwyer is preparing to introduce strong disclosure requirements on what superannuation funds do with workers’ retirement money. It’s a huge shock to discover that the Australian Securities and Investments Commission does not audit the Industry or Retail superannuation funds. ASIC only reports what the funds report, without question!

The Labor Government’s review of superannuation (The Cooper Review, 2010) expressed major concern about lack of transparency and disclosure by the funds. It recommended a suite of disclosure requirements be imposed on Industry and Retail funds. However, Labor did nothing. O’Dwyer is moving to implement Labor’s Cooper recommendations.

What’s also clear is that workers don’t decide to choose their own fund because there’s no real verifiable, easy-to-understand transparency surrounding funds’ comparative performance.

Treasury currently has a Draft Exposure Bill up for discussion. The explanatory statement says, “Consumer testing of the product dashboard commissioned by ASIC indicated that participants who claimed to pay less attention to financial matters were highly engaged when provided with an interactive tool to allow them to assess their superannuation balance at retirement.”

That is, workers make choices when they have proper information.

The Draft Bill aims to provide high levels of disclosure in two ways. First, superannuation funds will be required to report on a standard ‘dashboard.’ This will provide workers with summaries of funds’ comparative performances in easy ways to understand.

Second, all funds will be required to undertake portfolio holdings disclosure. Funds will have to report every investment they currently hold. It’s staggering that this is not currently required.

The Draft Bill, however, does not require disclosure of superannuation funds’ expenses. This is a glaring omission. It’s not possible to verify funds’ claims of performance or financial stability without full declaration of investments, income and expenses.

There are international benchmarks that should guide Australia. The Californian public employees super fund CalPERS is one of the largest super funds in the world.

Anyone can go on to the CalPERS website and discover literally everything CalPERS does with its workers’ money. Even the expenses of the chairman of the board are publicly declared. Examples of investment and expenses declarations are here. Australian workers should demand this level of disclosure from their superannuation funds.

There’s an important principle at stake. Superannuation is money forcibly taken from workers by way of lower wages. The money goes into huge superannuation funds over which the workers have little if any control. The funds are not required to disclose anything. This sets the opportunity for corruption on a massive scale.

The problem is that there is no way to check if corruption is occurring in superannuation funds because there’s no information. What’s disturbing is that the Heydon report has exposed employer–union corruption in other areas. The risk of corruption in superannuation must accordingly be real.

There is no question that full disclosure and transparency should be imposed. Workers are not stupid. They need full information. 

[First published in Business Spectator, January 2016]

 

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