In the latest issue: choice bill misses mark, how much is enough, members sue prison fund, TWU puts heat on Boral, more evidence about master trusts, Members Equity a workers’ bank plus more.

Choice Bill Misses Mark

The future of the Government’s choice of fund legislation remains
uncertain after all members of the Senate Superannuation Committee agreed that
the current Bill is unsatisfactory.

In a report released last month, the
Committee raised a number of issues which it said should be addressed:

  • There should be full disclosure, in a standardised format, of all fees and
    charges, with members having the ability to compare the effect of different
    funds’ fees on their final benefit.
  • The ALP proposal for automatic consolidation of multiple super accounts
    would substantially reduce this problem.
  • The default fund provisions are confusing for employers.
  • Default funds should be required to provide minimum insurance coverage of
    around $50,000 from the date of employment.
  • Defined benefit funds should be exempted from the Bill so long as they are
    fully funded and the employer is contributing more than the 9% SG.
  • There should be a more streamlined procedure for arrears collection.
  • Consideration should be given to the compliance burden on businesses and the
    level and nature of employer fines.
  • All Senators supported the
    provision in the Bill for agreements to override choice.

    Committee Differences

    While all Committee members recommended these issues for examination by the
    Government, only the Coalition members supported passage of the Bill.

    ALP and the Democrats, in separate minority reports, demanded significant
    changes to the Bill, in particular providing equal treatment for same sex
    couples in allocation of death benefits and comprehensible and standardised
    disclosure of fees and charges.

    Labor went further in also recommending
    changes in line with Nick Sherry’s recent paper:

  • A 1.2% cap on fees on SG.
  • A ban on exit, entry and switching fees on SG above reasonable
    administration costs.
  • A cap on insurance charges unless more is agreed by the member.
  • A ban on providers linking super with other benefits to the employer such as
    cheaper insurance or banking.
  • An exemption from choice for small business.
  • How Much Is Enough?

    Around 70-80% of pre-retirement earnings is generally estimated to be an
    appropriate target for retirement incomes, with recognition that this might need
    to be increased for low income retirees and capped for those on higher

    A recent roundtable organised by the Senate Superannuation
    Committee found a high degree of consensus on this view of adequacy.

    key differences revolved around whether or not the existing system would deliver
    this objective and, if not, how it could be achieved.

    An Institute of
    Actuaries analysis of different modelling approaches adopted by Treasury and by
    ASFA concluded that a person on average weekly ordinary time earnings would
    receive 60% of pre-retirement earnings after 30 years employment, taking into
    account the age pension and the SG.

    Missing out

    There was also general agreement that the people who had least hope of
    achieving adequate retirement incomes were baby boomers, most of whom had only
    now reached 9% super, and women, as a result of broken working lives and
    frequent periods of part-time employment.

    It was also noted, however,
    that Australian workers, in common with most of the OECD, are retiring later,
    which would add to their super savings.


    Change to the tax system is an obvious way in which Government could
    contribute to increasing retirement incomes.

    Removal or reduction of
    taxes on contributions and earnings, with the emphasis placed on taxing final
    benefits would be more rational, and also ensure that taxes fell more heavily on
    those most able to pay.

    ACOSS pointed out that superannuation equity
    could be assisted by a shift in the balance of current taxation, given that half
    the total value of the $5b pa cost of super tax concessions goes to the one
    sixth of employees on $50,000 or above, and one third goes to the top tenth of
    employees on $60,000 or above.

    In its submission to the Senate Committee
    ACOSS proposes a new model for super tax:

  • Tax all employer contributions at the employee’s marginal rate and
    abolish the contributions tax and the surcharge, but not the tax on
  • Replace all tax concessions with a rebate, paid annually, as a percentage of
    contributions, and capped at a dollar amount.
  • The rebate would be a co-contribution at low income levels and, above that,
    a rebate up to the cap.
  • Members Sue Prison Fund

    SPSF (Victorian public sector union) members, with the support of the union,
    are suing the Corrections Corporation of Australia Superannuation Fund for
    losses caused by its disastrous investment policy.

    From 1995, the fund
    shifted the bulk of its assets from a pooled investment into direct property,
    including premises occupied by the employer.

    Following the loss of a
    number of prison management contracts by the employer, retrenched employees
    claimed benefits from the fund, requiring sale of property at a significant

    The SPSF claims that fund members lost millions of dollars which
    would have accrued if the fund had remained invested in balanced

    The case is proceeding in the Federal Court.

    TWU Puts Heat On Boral

    TWU members employed by Boral bought company shares to enable them to ask
    questions at the October AGM.

    The owner drivers were outraged by the
    company’s decision to terminate 30 drivers without any redundancy pay, and
    its refusal to negotiate a redundancy agreement for all drivers employed by
    Boral, whether employees or contractors.

    The drivers are part of the
    Boral Shareholder Alliance, which is concerned about the long-term effects of
    the company’s cost-cutting, aimed at boosting short-term profit and the
    share price.

    Environmental issues have also attracted shareholder
    interest, including the impact of concrete dust exposure on workers and the
    community, the need to clean up contaminated sites, and whether provision has
    been made for costs associated with green and development issues.

    Significant shareholder opposition, including from institutions, was
    also expressed at the 700,000 share options package approved by the meeting for
    Boral CEO Rod Pearse.

    A particular criticism from C+Bus was that half of
    the options would be granted if the company met the average performance standard
    of its peers – a fairly low hurdle.

    Reflecting general levels of concern
    with shareholder remuneration, Garry Weaven from IFS commented that: “The
    most significant thing that a board could do to add to shareholder value would
    be to get rid of the CEO”

    More Evidence About Master Trusts

    Every survey of superannuation fund fees and charges has found that retail
    master trusts average at least twice the costs of industry, public sector and
    corporate funds.

    In a submission to the Senate Super Committee’s
    inquiry into retirement incomes, financial planner Ross Christie estimated that
    over 40 years, assuming $40,000 salary, 3% inflation, 4% salary growth, SG
    contributions and a 6.25% after-tax crediting rate, an industry fund member
    paying $1 per week administration and 0.45% investment charges would be $239,079
    better off in retirement than a member of a retail fund paying 2.24%, including
    a trail commission of 0.88%.

    The way in which the master trusts operate
    has been described with admirable honesty by Tom Collins, an experienced
    financial planner and a consultant to the industry, in a recent issue of
    Money Management.
    In his article, Collins calls on the financial
    services industry to “get its act together and act efficiently and
    prudently or wait for the draconian hand of regulation.”

    He is
    particularly critical of the commission-based remuneration system for financial
    planners, which encourages churning.

    “So if you don’t move
    the client’s money there is no implementation – so no reward is

    Collins recognises that commission-based remuneration
    means that ongoing client payments for financial planning services are not

    “No confronting invoices for the client, which would be
    the case if the client stayed in their existing government/corporate/industry

    He then points out that the financial planning industry
    has become bigger and more profitable largely because of the compulsory

    “The industry would be a mere shadow of itself without the

    Collins’ comments offer strong evidence in favour of
    Labor’s policy to prohibit excessive fees, including commissions, on SG

    Members’ Equity – A Workers’ Bank

    The ACTU has had a longstanding commitment to the development of low cost,
    high quality financial products to meet the needs of working people.

    1994, the ACTU initiated Super Member Home Loans, initially run by National
    Mutual (now AXA) and consistently the best home loan product

    SMHL, together with a business loans product, have been
    heavily promoted by unions and industry superannuation funds, and is now
    operated by Members’ Equity (ME), 50% of which is owned by over 40
    superannuation funds, with the other 50% owned by AXA.

    ME now has a
    banking licence and has launched credit card and savings products, acknowledged
    as the best on the market.

    AXA has recently offered to sell its 50% share
    in ME, giving superannuation funds the opportunity to become sole owners of a
    bank with the potential to develop into a diversified financial institution
    operating as a partner to industry superannuation funds.

    information about ME products call 1300 654 990 or

    Unions Accuses RACV Of Misuse Of Super Fund

    Millions of dollars of RACV workers’ super savings have been used to
    fund redundancy packages, according to the AMWU.

    The union claims that
    trustees of the RACV corporate fund agreed to a request from management to make
    the surplus available to the company.

    The RACV is refusing to give
    workers access to a letter from APRA which the union believes states that the
    payments from the fund to the company are illegal and improper.

    In a
    circular to employees, the RACV states that it has acted within the law, and
    that the super fund paid augmented superannuation benefits to employees who
    participated in a voluntary departure program.

    Following a union
    demonstration outside the RACV AGM, the Finance Sector Union has joined the

    AIST Handbook Great Trustee Tool

    The Australian Institute of Superannuation Trustees has produced the
    4th edition of A Practical Handbook for Superannuation

    This loose leaf guide covers issues with which trustees
    must be familiar – the law, administration and investment.

    Each section
    has been prepared by experts eg equitable duties, the scope of regulation,
    discrimination issues, insurance, claims, tax and many others.

    handbook, which will be updated regularly, is provided free to AIST members,
    and can also be purchased from AIST tel: 03 9923 7122 or email:

    Union Slams Telstra AGM

    Avoidance of criticism and examination was the main agenda item for the
    Telstra AGM, according to the CEPU.

    Questions and discussion were
    scheduled after the election of directors, ensuring that their re-election went

    Even then, lunch took place during the meeting, ensuring that
    most shareholders were outside during discussion of key issues, such as the
    desperate need for more capital investment, particularly in the cable network,
    and the restoration of staff numbers, with 45,000 jobs lost since

    Given the disappointing share price, discussion might have been
    expected about significant write-offs due to failed overseas investments, but
    these were barely mentioned.

    Any difficult questions were not answered,
    but deferred to private discussions between the questioner and

    The manoeuvring would seem to be unnecessary, given the
    Government’s 50% ownership, and the high institutional support for
    management – no doubt because of hopes of further

    Nevertheless, Len Cooper, vice president of the
    union’s communications division, who regularly stands for election to the
    Telstra board, received almost 162 million proxy votes.

    MPs Asked To Find Lost Members

    The Australian Preservation Fund has written to all federal members of
    parliament telling them the number of lost super money accounts in the postcodes
    covered by their electorates.

    Lost super money is held for people who
    can’t be contacted by their super fund.

    While millions of dollars
    of lost super was reunited with their owners during the recent Unclaimed Super
    Recovery Campaign, there is still $6b unclaimed.

    It is estimated that
    one in three Australians has lost super – a guide to claiming it can be found

    Man Bites Dog

    Actually, it didn’t. But even more newsworthy, the first employer to
    compensate employees who lost pension savings as a result of company collapse
    has pledged $25m of his own money to Global Crossing workers. Gary Winnick, the
    chairman of the bankrupt telecommunications group, had made $512m over three
    years, mainly by selling his company shares before the

    Winnick has promised to compensate workers who were hurt by
    the collapse because their pension fund was heavily invested in Global Crossing


    The $150b California Public Employees Retirement System has found that its
    policy of engagement with companies to promote better corporate governance has
    resulted in stronger performance by those companies.

    A study of 62
    companies, reported in the ASFA magazine Superfunds, found that they had
    outperformed their index by 23% in the five year period of active dialogue with
    the fund, compared to an 89% underperformance by the same companies prior to the
    engagement by CalPERS.

    Companies Commit To Better Labour Standards

    More US companies have agreed to third-party monitoring of their
    international labour practices in response to pressure from their own

    “During the 1990s, shareholder activists had only sporadic
    victories in persuading companies to adopt more stringent codes and monitoring
    systems,” said Peter DeSimone, a senior analyst with the Investor Responsibility
    Research Center and author of Shareholder Initiatives Against Sweatshops

    “But beginning in 2000, shareholder proponents have persuaded a growing
    number of companies each year to either commit to third-party monitoring or to
    significantly beef up their codes of conduct.”

    In 2000, New York City
    pension funds withdrew shareholder proposals after two companies—Nautica
    and Polo Ralph Lauren—agreed to revise their codes to bring them in line
    with the ILO’s core conventions and to implement third-party monitoring systems.

    In 2001, New York City pension funds and the LongView Collective
    Investment Fund received similar commitments from Abercrombie & Fitch,
    Hasbro, Jones Apparel and May Department Stores.

    Similar results are
    emerging in 2002, with eight withdrawal agreements already struck by New York
    City and other lead proponents.

    A comparison of corporate codes of
    conduct in 1997 and 2001 provides additional evidence that companies receiving
    shareholder proposals on global labour standards have responded by strengthening
    their codes. Nine of the 27 companies receiving such shareholder resolutions in
    2001—General Electric, Home Depot, Kellogg, Kmart, Nordstrom, Philip
    Morris, Sears Roebuck, Unocal and Wal-Mart—also provided IRRC with their
    codes of conduct in 1997. Then, none of the nine companies had policies on
    freedom of association or collective bargaining—two of the ILO’s core
    labour conventions. Today, five of the nine have a policy on freedom of
    association, and three have a policy on collective bargaining

    IRRC observed similar improvements in minimum age, forced labour,
    discrimination, worker health and safety and working

    Look For The Union Label – And Run The Other

    The difficulties caused by market declines for underfunded defined benefit
    funds around the world is of serious concern.

    It has been estimated that
    the pension funding gap in the US automotive industry will reach $30b this

    Due to quirks in pension accounting, companies were previously able
    to increase their earnings as a result of gains in pension assets during the
    share boom.

    In a highly contentious analyst’s report issued last month,
    Morgan Stanley Equity Research North America warned against investing in
    companies with a unionised workforce.

    The key reason given was the need
    to avoid the “plagues” of defined benefit pension liabilities and
    post retirement health benefits, which the analyst believes are found
    predominantly in industries with “outsized” union

    The report has been slammed by AFL-CIO President John
    Sweeney, calling it an attack on all union members, their employers and their
    benefit funds. Sweeney pointed out that these pension funds provide much of the
    capital on which the markets rely, and reminded Morgan Stanley of the collapse
    of anti-union companies like Enron, Tyco and WorldCom – which the analysts
    failed to foresee.

    In a later note, Morgan Stanley has attempted to
    qualify and clarify its position stating that unionisation cannot be identified
    as the cause of stock underperformance in these “old economy”
    companies, and acknowledging that industries such as airlines, automobiles and
    railroads are tough businesses.

    Funds Sue Over Share Price

    A US corporate governance activist, together with corporate lawyers are
    planning court actions on behalf of pension funds against companies which they
    believe haven’t paid enough attention to shareholders and whose share
    price has dropped.

    They hope that the courts will order improved
    corporate governance, as well as award damages.

    Early targets for the
    action include Sprint, Quest and AT&T.

    ACTU SUPER goes to member representatives on
    superannuation fund boards and other interested individuals. We are reliant on
    unions providing up-to-date information about the trustees of their
    members’ funds. Please email details to

    EDITOR: Linda
    Rubinstein fax: 03 96634051 email: