Superannuation reforms and the values of equity and plannining for the future. Bill Mansfield, Assistant Secretary, ACTU.
Over the last two decades the ACTU and Australian unions have been involved in one of the most significant social reforms of this century – the introduction of a universal employee superannuation scheme which can ensure retirement with economic security for all Australian workers.
We have led a process which started with superannuation being the benefit largely confined to a privileged minority of employees to now in 1996 where it is enshrined in legislation to provide to virtually the whole workforce an employer funded benefit of 9% of salary by the year 2000.
In the industrial struggles which accompanied the development of superannuation across all industries and its growth to the $240 billion of employee savings today [$450 billion in the year 2000] we did not see the coalition parties alongside giving support to the values of equity and planning for the future.
Now however they have an astonishing number of proposals for reform of superannuation. Some can be seen as an ideological reaction to the involvement of unions in the future development of superannuation and their nominating employee representatives on Boards of Trustees. Others are misguided. Some are worthy of further consideration.
In terms of where the ACTU and its affiliate trade unions are coming from with our ambitions for superannuation it is worthwhile restating that it is not some secret socialist agenda as alleged in a particularly silly part of the Liberal Party policy. The aims of the union movement are basically:
i] To introduce a universal superannuation benefit to employees which will enable them to retire with dignity
ii] To give employees a say in how their funds are invested through Trustees who are accountable
iii] To manage the funds efficiently and maximise returns to contributors
iv] To achieve a higher level of savings for investment in Australia and, where appropriate, overseas
The development of superannuation has been a process of continuous improvement in terms of the operation of the funds and the benefits to contributors. Forecasts of misuse of union influence in the operation of funds have proven from experience to be wildly off-the-mark. The fact that half the Board is made up of people nominated by employer organisations with a two-thirds majority required for decisions is often overlooked by critics in government and elsewhere. The funds have largely operated without conflict because the Trustees have had the common goal of advancing the interests of members.
In regard to the reform agenda made as promises by the coalition parties in the lead-up to the last election the ACTU views the package insofar as it differs from the Labor party proposals as largely negative for members of funds and the future growth of superannuation in Australia. In terms of the specifics of the most significant elements of the policy the ACTU views are as follows : –
Choice of Fund
This is one area where there is potentially a very large gap between policy and the fair and effective implementation of that policy. It must be recognised that there is a potential downside to an increased choice of fund. The first problem is that it could add to an employer’s administrative costs where employees choose a range of different funds within the one establishment. Secondly, to the extent that employees switch between funds, this can create a large obligation on funds to hold liquid assets. In general terms, this is bad for the economy and for the growth in long term national savings as it will tend to restrict the flow of longer term risk capital and debt finance to Australian businesses. It will also impact adversely on earnings and administrative costs, resulting in lower growth rates for individual benefit levels.
It is not clear that there is any fundamental analysis to show that the limited choice currently available is a major problem for individuals or the superannuation industry and there is a widely held view that the Government policy is in fact a misguided attempt at discriminating against Industry Funds because half of the Board of those funds is typically made up of trustees nominated by the ACTU or relevant unions.
If the objective was to curb the growth of Industry Funds, it would be an exceedingly stupid policy from the point of view of achieving the national agenda of increased savings and increased effective investment. In any case, with the proviso that full disclosure of fees, charges and commissions is required in the exercise of choice, the new policy proposals of the Government will in the view of some superannuation specialists, have the effect of accelerating the growth of Industry Funds unless the regulations implementing this policy are explicitly discriminatory against members’ rights to choose to be in an Industry Fund.
The ACTU opposes the moves by the government to introduce a choice of fund and will be working to maintain the current role of the industry funds.
We agree with a number of the points made in a recent presentation by Ken Lockery where he stated in regard to the issue of choice of fund : –
“While I basically agree with the theory, I have to say that there are particular features of superannuation in Australia, which lead me to the conclusion that a comprehensive implementation of individual choice just doesn’t work very well in practice. Primarily those features of superannuation are :
– a highly complex system, which makes it difficult and costly to determine the best option on a case by case basis
– a high level of individual member ignorance, so that they are easily misled
– a system where the benefits of competition can be lost many times over if we lost stability and a long term orientation
– many situations where the playing field can be unfairly tilted in a particular direction”
The Inclusion of Superannuation Provisions in Awards of the IRC
In the list of issues nominated as the new jurisdiction of the Industrial Relations Commission in the Workplace Relations legislation superannuation is not listed as a matter about which there can be an industrial dispute.
Issues which can be dealt with include matters such as jury service, leave loadings, adoption leave and piece rates. Superannuation, a matter which affects nearly every employee in a very substantial way, is excluded.
In the ACTU’s view the exclusion of superannuation from the jurisdiction of the IRC is motivated by the lack of support by the government for industry funds and the fixation on promoting choice of funds.
The ACTU, [and many employers,] are supportive of the constructive role the IRC has played in the development of superannuation. We want that role to continue and one of the amendments we will be putting to the opposition and minor parties in the Federal Parliament is that the matter of superannuation should continue to be part of the jurisdiction of the IRC.
Retirement Savings Accounts
This proposes to allow banks to offer superannuation products which do not require a trustee and therefore do not require that earnings on funds invested flow through to the members of the fund. Rather, a bank will set a fixed [presumably low] interest rate and hope to attract funds through its banking structure and then re-invest those funds and pocket the margin on behalf of the bank’s shareholders. The essential point will be that this needs to be fully disclosed to potential fund members so that they can choose between that form of superannuation and the alternative of trustee supervised superannuation wherein all of the earnings and profits find their way back to the members of the fund.
The ACTU supports the retention of the Trustee system. We are opposed to any competition where there are differing regulatory or reporting obligations on the funds in their dealing with members.
The most controversial aspect of the new Government’s superannuation policy has been the proposal to allow workers earning between $450 and $900 in a month to opt out of super and receive a cash payment instead. It has been estimated that this could take hundreds of thousands of employees out of superannuation. It needs to be recognised that it not just people earning less than $900 in total per month. It would also pick up people who earn substantially more than that amount but have it spread over two or more part time jobs with different employers.
The policy intent is ill-conceived. Industry Funds now protect the account balance of small account holders against erosion through administrative charges so that over time part-timers will be able to accumulate very worthwhile future retirement nest eggs if they stay in the system. In reality, employees who opt out of superannuation will find that any wage benefit they get is in fact quickly eroded by inflation and/or by general movements in community wage levels. And at retirement their superannuation benefits will be seriously reduced.
One of the clear results of employees opting out of superannuation is that they would not then be entitled to future increases in the Superannuation Guarantee payments and they would also be saving the Government money because the Government would not have to follow through with the additional 3% matching contribution proposed by the previous Government.
One group which would be particularly affected by the opting-out proposal is women workers. Often in part-time or lower income areas they would be most often encouraged to take the short term cash option. Only at retirement will they realise the price that has been paid.
Election of Trustees
The new government proposes that all trustees should be elected rather than appointed by unions and employer organisations. While superficially an approach that will give all members an equal say in the choice of trustees and an equal right to stand for trusteeship there can be no doubt that the aim of the coalition is to weaken the role of unions in the control of industry funds.
In practice, I doubt that this policy will have much effect on industry funds other than to increase the administration costs of the funds in working through the nomination and election process. Given the commitment required to be a trustee of a major industry fund and the need for substantial time off work to do the job, I can’t see a whole lot of new candidates appearing to being likely to get widespread member support.
Experience with elections of trustees in some superannuation schemes is not encouraging as to the quality of the outcome. In the Commonwealth Superannuation Scheme during the 1960s there was provision for contributor representatives to be directly elected. With a long list of “hopefuls” there were some very strange results. The biggest advantage was to be selected at the top of the ballot paper. On one occasion a young contributor won the only position available from such a position – her reason for standing was that she “wanted to find out some more about superannuation”. Subsequently unions ran a “ticket” of preferred candidates and were successful in the ballots.
The government policy seems equivocal on these issues. The previous government policy was for the phasing in of a 3% contribution from members which would be matched by government contributions, so that ultimately the system would provide total contributions in the order of 15%, or even higher for low paid workers [ie 9% employer contribution; 3% employee contribution; 3%+ government contribution]. The current government policy is lacking in a firm commitment on this point and in an environment of expenditure cutting, it will presumably be tempting for the government to abolish member contributions and therefore avoid the need to make government matching contributions. This would be short-sighted as the member contributions will give employees higher retirement benefits, a real sense of ownership of superannuation and a real involvement in national productivity and national savings and investment.
Overall the ACTU continues to be a strong supporter of industry superannuation funds. There is a need for further improvement in contribution levels to ensure that retirement benefit levels are adequate.
Issues such as investment choice and the use of funds as seeding money for funds offering housing finance are obviously on the agenda for further improvements to the advantages available to contributors.
The ACTU has a large stake in the development of superannuation. It intends to participate fully in the debate over the changes which may be proposed by the Howard government.
Bill Mansfield, ACTU Assistant Secretary. 20 June, 1996