In this months ACTU Super Newsletter: Union Super Power conference Syd/Melb September 2004; Union members — super; Industry funds; Financial planning — choice of fund; Super Guarantee; Superannuation; Financial advice — bargaining for super; Fund representatives — bargaining for super; 2004 super budget measures; MEAA members — Fairfax; TUC — UK pensions; Consultant conflict — US — AFL-CIO.
ACTU Superannuation Trustees Network Newsletter No.25
July / August 2004
EDITOR: Linda Rubinstein
Fax: 03 96634051
Email: lindaru@actu.asn.au
Union Super Power
The ACTU is holding a one day conference about campaigning and bargaining
around super.
The conference will be held in Sydney on 14 September and
repeated in Melbourne on 21 September.
Speakers and panel discussions
will cover topics including:
The conference
is designed for elected union officials, organisers, industrial officers and
union super trustees.
For more information and registration contact sav@actu.asn.au
Union Members Care About Super
In preparation for the Union Super Power conference the ACTU’s Member
Connect conducted a telephone poll of union branch secretaries about attitudes
to super.
A majority of those polled said their members were very
concerned about whether they would have enough to retire on, with another 39%
saying members were somewhat concerned. Only 4% said members were not
concerned.
While most of those polled thought their organisers had high
or medium understanding of issues such as the difference between for-profit and
not-for-profit funds and the effect of fees and charges on members’ super,
there was a substantial number describing organiser understanding as
“low”.
Understanding of the role of awards and agreements in
super, and of the operation of salary sacrifice was relatively high.
Not
surprisingly, given its recent passage, 40% said their organisers had low
understanding of the choice legislation.
62% of the unions said they had
campaigned for increased super contributions, with 64% claiming increased
employer contributions and 32% a mix of employer and employee
contributions.
44% thought members would bargain for increased super,
with a third saying they would not and a quarter responding “don’t
know”.
Industry Funds Outperform Again
Although final figures are not yet available, it seems that industry funds
have brought in very solid performance for the 2003-4 financial year, well into
double digits.
Figure It Out, Alison
ALP Financial Services spokesman Stephen Conroy recently quoted from an
article by Alan Kohler which tells the hypothetical story of a young woman named
Alison going to see a financial planner to choose a fund.
“At the
end of a spirited, persuasive pitch [the planner] solemnly intoned:
‘I must inform you, Alison, that the fee charged by the fund is 2.2%
per annum, including an ongoing commission to me of
0.6%.’
“’Gee,’ said Alison. ‘That
doesn’t sound much.’
“’Well, Alison,’
replies the planner, ‘You’re right – it doesn’t sound much.
But under the regulations duly passed in 2004 I must also inform you that if you
contribute 9% of your salary to the fund until age 65, and your salary increases
by 5% per annum, and the fund earns a gross investment return of 8% per
annum’ (by this time Alison’s eyes are quite glazed) ‘the total
amount you will have paid in fees by the time you retire is $535,812, including
$90,089 to me as your adviser. This represents an average of $992 per month
during your working life including $172 a month to me.’
While some
fees are unavoidable, Labor’s commitment to ban entry and exit fees and
commissions on compulsory SG contributions will significantly boost retirement
savings for people like Alison.
Choice Of Fund
After eight years of talking about it, the Democrats passed the
Government’s choice of superannuation fund legislation during the last
frantic week of the parliamentary session.
The legislation passed
following agreement with the Government to treat all “dependency”
relationships, including same-sex relationships, on an equitable basis for
superannuation purposes.
While ASFA and the Consumers Association raised
serious concerns about the Government’s disclosure model for fees and
charges, it has apparently satisfied the Democrats.
Choice of fund will
begin on 1 July 2005. From that date, employers will be required to give
employees a form on which they can indicate their chosen fund.
Choice will
not apply to members of some public sector and defined benefit funds, and to
those whose fund is specified in a state award, certified agreement or
AWA.
If the employee does not make a choice the award-specified fund will
apply or, if there is no applicable award, the employer can choose the fund, as
is currently the case.
The legislation specifically prohibits funds and
their associates (like banks) from offering inducements to employers on
condition they sign up employees to their fund.
The passage of the choice
legislation highlights the importance of unions including the appropriate
superannuation fund in certified agreements by 1 July next year.
Superannuation Guarantee Earnings Bases
Following the Treasurer’s announcement earlier in the year that the
exemption for pre-19991 SG earnings bases would be removed by 2010, Parliament
has legislated for this to occur in 2008, reflecting another Government
agreement with the Democrats.
The ACTU and a number of unions,
particularly the mining division of the CFMEU, have campaigned for this change,
as there are cases where employees are not receiving the full SG due to the
definition of “ordinary time earnings” in applicable awards,
agreements, superannuation trust deeds or legislation being inferior to that in
the SG legislation.
The campaign for immediate change will continue,
with hopes that Labor will agree to this should it be elected.
Talking About Super
The new financial services licensing regime makes superannuation funds liable
for their representatives who give financial advice without having met required
training, disclosure and conduct standards.
Who Are Fund Representatives?
A union official who is a director of a superannuation fund trustee is
automatically a fund representative. In some circumstances, a union official or
delegate who is not a trustee might be taken to be acting on behalf of a fund:
for instance, if the official or delegate is a member of a union which is a
sponsoring organisation of the fund and is actively seeking to persuade
individual employees to leave or place their superannuation with that particular
fund.
What Is Financial Advice?
First of all, a union official or delegate is not giving financial advice
when engaged in collective negotiations about the superannuation fund to apply
to employees generally. Arguing for an industry fund to be specified in a
certified agreement or for the employer’s corporate fund to be outsourced to an
industry fund is not giving financial advice.
Financial advice is a
statement or opinion intended to influence a person to make a decision in
relation to a financial product. Advice can only be given when the recipient
has a discretion or choice about the financial product they will use.
Should union officials and delegates give financial
advice?
Unless they have received some training, it is best for union organisers and
delegates not to give financial advice.
This does not mean, however,
that officials and delegates cannot talk about industry funds. It just means
that they should stick to the facts, rather than give opinions and
recommendations.
Union officials and delegates can:
and investment returns;
access to home loans;
commissions, and some do this every year;
surveys.
Union officials and delegates who might be seen as
representing a fund and have not received some training should avoid:
other;
industry fund with lower fees and thereby seeming to endorse that
fund.
If this type of general advice is needed it can be
provided by the relevant superannuation fund and their representatives who can
provide financial product advice.
Union officials and delegates should
never give individual advice to individual members about what they, as
individuals, should do in relation to their superannuation.
2004 Super Budget Measures
The ACTU put its concerns about the Government’s expansion of the
co-contribution and decrease in the surcharge to the Senate Economics Committee
inquiry last month.
The ACTU is strongly opposed to reducing super tax
for the highest paid employees, but not for most workers.
While the
expanded surcharge will support more employees making voluntary contributions,
the reality is that the scheme is likely to be most attractive to those earning
low incomes but who are members of relatively high income families.
The
legislation has gone through Parliament, with the Government agreeing with the
Democrats to reduce the surcharge to 10% rather than the original proposal of
7½% by 2005/6.
Who Gets The Co-Contribution
The Federal Government has recently extended its co-contribution, so that
workers who make super contributions from their after-tax incomes of up to $1000
in a financial year will receive a matching contribution into their
superannuation accounts.
Workers on incomes up to $28,000 pa receive 150
per cent of their contribution; that is, if they contribute $1000 they will
receive a co-contribution of $1500. The co-contribution begins to phase down by
5 cents for every $1 of income over $28,000 and ceases to apply once incomes
reach $58,000. An employee earning $35,000 pa, for instance, would receive
$1150 for a $1000 contribution, an employee on $45,000 would receive $650 and an
employee on $55,000 would receive $150.
The ACTU believes that the
co-contribution applies to employees making after-tax compulsory contributions,
whether to defined benefit or accumulation funds.
MEAA Move For EGM Moves Fairfax
When Fairfax announced it would be making up to 45 senior journalists
redundant, MEAA members (many of them shareholders) began to collect signatures
for an EGM.
The purpose was to consider resolutions calling upon
directors to protect the quality and credibility of the newspapers and the long
term value of the company rather than implement cost cutting.
Before the
meeting was called, however, agreement was reached that there would be no
compulsory redundancies.
TUC Marches For Pensions
The British TUC’s Pay Up for Pensions campaign went on the march in
London last month in support of its demand for compulsory employer pension
contributions.
With no compulsory scheme, and employers abandoning their
defined benefit funds, fewer than half of workers under 30 have started
contributing to a pension.
Consultant Conflict
The US Securities and Exchange Commission is considering regulating to
prevent asset consultants from taking benefits, directly or indirectly, from
fund managers.
Asset consultants advise funds on manager selection, a
process which should require total independence.
The SEC is concerned
that some consultants receive inflated fees for conference registrations,
research services sold to managers, performance reports, training courses,
participation in data bases and the like.
The AFL-CIO’s Center for
Working Capital suggests that trustees ask detailed questions of consultants
about their links with managers.
