This month in ACTU Super News: Public Private Partnerships (PPPs) Under Microscope; Super Funds; Public Sector Unions Negotiating New Fund; ANSETT Case Resolved -Warning To DB Funds; STA Tells All On Voting; ACTU Submission On Safety; New Step For Workers’ Bank; Aussie Not Swiss Laws To Blame For Cheats; Labors SUPER Program; Policy Papers; TUC Pension Activism

PPPs Under Microscope

The ACTU will be making a submission to the inquiry into infrastructure financing established by the ALP’s National Conference to investigate ways to finance Australia’s much needed physical and social infrastructure.

A meeting of ACTU affiliates, called after a heated debate about the decision by industry funds to invest in the DAF Social Infrastructure Fund, a vehicle for investment in Public Private Partnerships, decided to make the submission after discussing several concerns about PPPs.

The DAF fund, a joint venture with ABN Amro, currently contains four projects: Melbourne’s Spencer St railway station redevelopment, a water treatment plant and 9 new schools in NSW and a Brisbane office building.

PPPs are contractual relationships between government and private partners to deliver public infrastructure or facilities.

For Australian state governments they are a means of avoiding public debt while using the private sector to deliver projects more efficiently.

Union Concerns

Critics of PPPs, including the ACTU, argue that they can cost the public more because of higher borrowing costs and fees.

Congress 2003 called for PPPs to be subject to greater transparency and accountability, with more rigorous examination of claims for public benefit of this funding model.

Congress proposed that super funds’ infrastructure investment should be through provision of debt finance to governments.

Issues For Super Funds

Super funds look at the PPP issue differently than unions.

Trustees are required to make investment decisions solely in the interests of members. While investing in PPPs is not mandatory, it is difficult to argue that investment in listed shares is any more socially useful.

If funds want to help develop social infrastructure, and governments are not borrowing, and PPPs will give a reasonable return to fund members, the case for investment is strong.

ABN Amro has agreed with DAF that it will attempt to require all contractors to ensure that employees receive their legal entitlements and their right to bargain collectively and unions will be given reasonable access for recruitment and representation purposes.

The Way Forward

A Victorian Government report has found that there is a place for PPPs in delivering large, one-off projects, but recommended that the cost to government should be calculated by separating the risk component from the discounted value of the expenditure.

For super funds, the challenge will be to become active owners of infrastructure projects, and influence their conduct and operation as they seek to do with other investments.

Public Sector Unions Negotiating New Fund

The CPSU has called for more time for consultation about the proposed commonwealth super fund for new employees starting after 1 July 2005.

The new accumulation scheme will not affect existing members of the CSS/PSS and the Government is committed to contributing 15.4%, equal to the average contribution made to the PSS defined benefit fund.

The union is concerned that the new fund’s rules will not be available until the PSS board has approved them, meaning that the trustees will not be in a position to consult with the union prior to making a decision.

The CPSU has made a detailed submission to the Government seeking:

  • urgent modelling to be done to confirm that changing the salary base used
    for super will not result in a reduction of benefits;
  • provision for voluntary employee contributions;
  • access to the new scheme for PSS/CSS members with preserved
  • improving the current schemes to provide for salary packaging, indexation of
    benefits and equal treatment for same sex couples.
  • ANSETT Case Resolved -Warning To DB Funds

    The long-running litigation involving the Ansett Administrator and the major company super fund has been resolved, with fund members receiving the equivalent of their vested benefits as part of their employee entitlements.

    Although this was a better-than-expected result for Ansett employees, it does highlight the risk faced by members of defined benefit funds, particularly in times of economic volatility.

    Shortfalls in defined benefit plans is a huge issue in Europe, the US and Japan, involving many billions of dollars, and adding significantly to the liabilities of most major corporations.

    While this has been less of a problem in Australia, the Ansett case demonstrates that when a company with a shortfall in its DB fund becomes insolvent, employees will not receive all their benefits.

    Although ASIC is concerned about companies with super fund deficits that do not account for them as liabilities, it also notes that in some cases companies, such as Amcor, claim that they are not under a legal liability to make good a deficiency because trust deeds give the employer the right to vary or terminate the fund at any time.

    The ACTU is contacting unions in order to collect information about fund shortfalls, and to plan a strategy to ensure that members of these funds are not cheated of their retirement benefits.

    STA Tells All On Voting

    STA has taken the trend towards greater proxy voting activity a step further by giving details on its web site of the fund’s vote at a number of corporate AGMs.

    Like a number of industry funds, STA follows the guidelines developed by the Australian Council of Superannuation Investors and has focussed on inappropriate remuneration arrangements in companies including Qantas, News Corp, QBE, Patrick Corp, AGL and Foodland.

    STA also voted against re-election of directors at PBL, Harvey Norman and AMP.

    STA’s action was strongly supported by the Financial Review, which called on other funds, and fund managers, to do the same, as “such publicity is the best way to pressure public companies to improve their conduct”.

    ACTU Submission On Safety

    The ACTU has written to the Senate Economics Committee asking it to clarify that the Superannuation Safety Amendment Bill will not impose new capital adequacy requirements on not-for-profit funds, nor require directors of fund trustees to meet individual tests of competency.

    The ACTU submission reminds the Committee that the Government rejected the Superannuation Working Group recommendation for capital adequacy requirements, and that it accepted the concept of a trustee company treated as a single entity for licensing purposes, with the ability to “buy-in” expertise if required.

    The ACTU is concerned that the Bill leaves these issues open, and the result could be financial requirements which would be impossible for employer organisation and union sponsors of industry funds to meet.

    New “competency” requirements for trustees could prevent employers and unionists without formal qualifications from serving on trustee boards, even through all the evidence shows that their presence on funds is linked to good returns, low fees and a high standard of prudential management.

    The ACTU letter also raised the need for greater transparency and funding requirements for defined benefit funds.

    New Step For Workers’ Bank

    “No bullshit” is one of the key principles of the industry fund vision for a new mutual network, including Members’ Equity as a diversified financial institution involved in banking, funds management and retail financial services strongly linked to industry funds administration.

    The other principles set out by IFS Chair Garry Weaven in a recent briefing were: mutual ownership – all profit to members, low cost delivery and workplace-focused distribution.

    Weaven was announcing a step towards the achievement of the vision – the transfer of ownership of infrastructure and private equity investment provider DAF and eligible rollover fund AUSfund to IFS.

    The move is a precursor to a future absorption of IFS into ME, which has an option to purchase shares in IFS at fair market value in 2006.

    Aussie Not Swiss Laws To Blame For Cheats

    Tax and stock exchange manipulators are protected by Australian, not Swiss laws, according to Shann Turnbull.

    In a letter to the Financial Review, Turnbull pointed out that treasurer Costello was wrong when he claimed that the problem was Swiss privacy laws.

    “The Australian Government has licensed the Australian Stock Exchange to operate with privacy rules that protect brokers from disclosing the ultimate beneficial owners and/or controllers of traded securities to either the buyer/seller or the public. It is the protection of privacy in Australia by the ASX, corporations and their governments that allows shares to be secretly traded and/or manipulated,” said Turnbull.

    Labor’s SUPER Program

    Why is it that far greater interest has been taken in Labor’s super changes for judges, pollies and the GG than in its other super policies?

    Labor’s determination to improve the super system remains unchanged by the election of Mark Latham to the leadership, given his long-standing commitment to increasing Australians’ ability to save and his launch, when Shadow Treasurer, of the first of four ALP policy papers.

    “Providing for old-age will always be risky. The risk may fall on a government which may renege on its predecessors’ promises, or on a company that may welch on its contributions, or on a money manager who may deliver rotten returns. Increasingly, individuals will have to decide how to invest their savings. It won’t be easy, but then it never really was.” The Economist

    It is attitudes like this which contribute to community fear of an agenda to push responsibility for retirement onto the individual.

    In Europe the move is towards reducing pension levels, shifting from the state to private provision and lifting retirement age.

    Liberal Attacks

    It is not well known, but Chifley set up a European-style pension scheme in the late 1940s which was scrapped by the Menzies government.

    Once again Australia’s superannuation system is under attack by a Liberal government with the PM’s call for increasing pension and preservation age and the push for more super to be invested in the large financial institutions’ retail funds.

    What needs to be done

    Super is important because of our aging population which expects to be able to retire with more than the subsistence living delivered by our age pension.

    Labor is committed to restoring public confidence, improving Australia’s poor savings record, ensuring higher retirement incomes and encouraging private savings.

    Policy Papers

    “Simpler Super” concentrates on automatic consolidation of accounts, safe choice of fund and equal treatment for same sex couples.

    “Safer Super” is a package of measures to:

  • compensate fund members for losses caused by fraud;
  • regulate fees, including banning exit fees over a basic administration
    charge together with commissions on the SG;
  • require standard and clear disclosure of fees and charges in percentage and
    dollar amounts;
  • include super in an entitlement protection scheme when employers become
  • better control over financial planners.
  • The next policy paper will, for the first time ever, set a goal for retirement incomes for all Australians.

    The final paper will outline a series of incentives to help Australians achieve this goal.

    Edited notes: ALP super spokesperson Nick Sherry: Fabian Society speech 11 Feb 2004

    TUC Pension Activism

    The British TUC is very active on a number of pension and investment- related issues.

    Key efforts include:

  • building a member trustee network of over 1000 trustees collectively
    responsible for over £260b, or a third of all UK pension assets, which
    receives regular newsletters and email alerts, as well as research on investment
    issues such as manager selection and hedge funds;
  • providing trustee training with a focus on shareholder activism and social
  • conducting a Fund Manager Voting Survey as a means of encouraging greater
    transparency about proxy voting by fund mangers on behalf of trustees;
  • developing collective shareholder campaigns against excessive executive