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Making Super Safe: Summary of the Report

15 April 2010

A ground-breaking report into disclosure levels by industry and retail superannuation funds has been released. The report from the Institute of Public Affairs finds that the funds generally have low levels of disclosure about what they are doing with members' money. This suggests that workers' retirement funds could potentially be at risk. It's an eye-opener of a report!

The full report is here.

Here's our summary

Superannuation contributions are compulsory for most Australian workers. The money is paid by your 'employer', but it's your money. You can choose into which fund type your money goes and you have one of three broad choices.

You can put your money into
  • Retail funds that are controlled by large corporations/trusts such as AMP for example
  • Industry funds that are controlled by appointees from unions and employer associations.
  • A Self Managed Super Fund that you control.
The report looks at the retail and industry funds. Combined, there are 233 of these funds controlling $497 billion of workers' retirement money.

The funds are required to comply with accounting and other management standards, but there is no official government auditing to verify the funds' claims about performance.

Private rating agencies 'monitor' and report the funds' performance, but at least one of these rating agencies says that some funds report nothing.

The IPA report says that it should be possible to go into the website of any of these funds and easily find out:
  • where the money is invested,
  • how it is performing relative to similar funds,
  • who gets paid to manage and administer the fund,
  • how much is paid in management fees and other costs, and
  • whether the fund's trustees have any cross-directorships.
The report has looked at some overseas superannuation funds and domestic non-super investment funds and found that this 'benchmark' of disclosure is commonly and freely available.

  • None of the 36 sample funds looked at fully meeting the needed disclosure standard.
  • Some funds had quite good disclosure but not to the standard needed.
  • Retail funds tended to have higher disclosure than industry funds.
Industry funds were looked at more closely. This is because they receive privileged financial advantage through the industrial relations system where they dominate (84%) the 'default' arrangements under the modern award system. That is, if a worker does not nominate a super fund to which their money goes, the award requires the money to go to an industry fund in 84% of cases.

The report investigated the structure and controlling systems in the industry fund sector and found a complex web of intertwined corporate and trust structures. They discovered a 'round-robin' of control where one outsourced fund company exercises control over huge amounts of industry super funds. Some industry funds have purchased shares in these outsourced fund management companies, but many of these assets pay no dividends and their return potential is difficult to assess (because of poor disclosure).

This has previously not been fully mapped or understood. Further, the report identifies the twelve most powerful people in superannuation today, who between them have effective control of $188 billion of industry (workers') retirement money.

This is a massive concentration of financial power in the hands of a small number of people and businesses, making them some of the most powerful people and corporates in Australia.

The report says that the low disclosure creates significant problems:
  • Confidence in the super system is put at risk
  • Fund members are uninterested in their fund operation because they cannot easily find out information.
  • If misuse of members' funds were to occur, it would be hard to uncover. The report gives examples of funds' misuse from overseas situations and non-superannuation worker trusts in Australia.
The conclusion is that the policy and regulatory environment for industry and retail superannuation funds is inadequate and that strict disclosure requirements should be enforced under law. The report details a standard reporting format that should be required of the funds.

ICA general comment

ICA has been concerned for some time about the attacks being made against Self Managed Super Funds. Our observations have been that the attacks have mainly come from the industry and retail superannuation sectors. We are extremely suspicious that the attacks are a campaign to increase the regulatory burdens on SMSFs, to push up the cost and difficulty of running SMSFs and to push money into retail and industry funds. Our suspicions have been sparked by alerts from people who know this area well.

This report by the IPA brings a new and valuable perspective to the debate. The poor disclosure levels among industry and retail funds raise important concerns because it's other people controlling workers' money.

People with SMSFs control their own money. This is a much safer model for retirement, particularly given the poor disclosure in the industry and retail funds sectors.

We hope that the current review into superannuation comes up with practical and sensible proposals to improve the operation of SMSFs. For workers who don't control their superannuation fund, we hope the review calls for mandated disclosure and that the Australian parliament moves in this direction.

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