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Statement to correct the record

  Published: 05 Jun 2018

An Executive of the Business Council of Australia published an opinion piece concerning industry super funds in the Australian Financial Review on 30 May 2018, following a similar speech delivered on 27 May 2018, as well as opinion pieces published in the Daily Telegraph on 10 April 2018 and 27 February 2018. This statement corrects the record.

Claim that industry super funds are “union controlled”.
Under “Equal Representation” governance, the directors of the superannuation fund trustee must include an equal number of directors nominated by employers or representatives of employers, and members of the fund or representatives of members including trade unions.1 

Less than one-third of industry super fund directors are current or previous union officials.2

The “large, one-off” payments to unions are income on their investments.
Industry Fund Services undertakes non-superannuation investments on commercial terms for individuals and entities, including unions and other membership organisations.  While investors often reinvest earnings, they can also receive a distribution.  One of the clients of Industry Fund Services is the Australian Manufacturers Workers Union.  The criticised payments of $1.1 million and $900,000 to the AMWU were investment income remitted to this union.

Claim that industry super funds have “gifted $60 millions [sic] to unions in the past decade”.
The Australian Electoral Commission has different categories of payments, including one for “gifts”.  Payments by industry super funds are in the category of “other receipts” which expressly excludes “gifts”.

Payments by industry super funds to unions and employer groups are primarily for services, including for director remuneration, marketing and sponsorship. 

These payments are subject to prudential regulation, and Australian Electoral Commission disclosure requirements. 

In contrast, the major banks do make donations directly to political parties.  According to AEC records, over the period 2008 to 2017, the major banks (all of whom are members of Business Council of Australia) have disclosed payments directly to political parties of over $50 million in the form of donations and other receipts (which may include investment income).

Adding up payments made by over 44 super funds over a 10 year period still results in an amount that is about 10% of what Commonwealth Bank spends in a single year on advertising and director remuneration.3 

Claim that AustralianSuper is “ACTU-run”.
The Board of AustralianSuper has an equal number of directors nominated by the ACTU and the Australian Industry Group, and one independent director nominated by both organisations.  Ai Group is a peak employer organisation which directly and through its affiliates represents the interests of more than 60,000 businesses.  It has been supporting businesses across Australia for more than 140 years.  Five nominees of Ai Group serve on the Board of AustralianSuper.

IFM investors is an institutional global funds manager.
IFM Investors invests on behalf of almost 300 institutional investors around the world, primarily not-for-profit pension funds.  At 30 April 2018, 89% of IFM Investors’ products and mandates outperformed client objectives, after fees and taxes on a rolling five-year basis.  

IFM Investors’ approach to investment was selected by the OECD as a case study for how to pool institutional investor capital for purposes of the G20/OECD Task Force on institutional investors and long term financing.4

The sale of Pacific Hydro by IFM.
The sale of Pacific Hydro, in January 2016, by the IFM Australian Infrastructure Fund delivered the Fund proceeds well above Pacific Hydro’s carrying value and at an exit multiple of 22 times Enterprise Value/EBITDA, above other industry comparables.

This successful exit contributed to the Fund delivering almost 22% (net of fees and investor taxes) for FY16 on behalf of its institutional investors, in a Fund which has generated average investment returns of 12.0% per annum, net of fees and taxes, since inception (1 August 1995).

Claims of “secret industry fund payments” and “kickbacks”.
The claims made by the Business Council of Australia Executive were based on publicly available information.  Payments made to unions are subject to Australian Electoral Commission disclosure requirements. 

Based on public reports, from 1 January 2017 to 30 April 2018, the major banks and financial institutions have paid remediation for consumer harm and penalties totalling about half a billion dollars as set out in Table 1 and Table 2.

 TABLE 1: Compensation and remediation payments(a)

Bank(b) Remediation
AMP $4,715,188.00
ANZ $83,090,789.00
CBA $205,475,500.00
Macquarie $24,700,000.00
NAB $71,103,347.00
WBC $103,887,073.00
Total: $492,971,897.00

Note:(a) Includes compensation, reimbursements, refunds, payments, and remediation of consumer loss for alleged misconduct including poor financial advice, failure to properly apply fee reductions and charging a fee for advice that was not provided.  May include interest payable. (b) Includes the specified institution and its subsidiaries.

TABLE 2: Penalties(a)

Bank(b) Total
ANZ $15,130,000.00
CBA $5,000,000.00
Macquarie $505,000.00
NAB $10,000,000.00
Westpac $127,250.00
Total $30,762,250.00

Note:(a) Includes penalties paid or issued for bank misconduct including breaching responsible and consumer protection laws, and allegations of contravening market integrity rules and engaging in cartel conduct. (b) Includes the specified institution and its subsidiaries.

 Claim that industry super fund payments to unions are “as shady as banks and insurers charging dead people for financial advice”.

The example from the Royal Commission of CBA charging fees to deceased persons bears no resemblance to industry super fund payments to unions or to employer associations.5  As indicated above, payments to unions include interest on investments, as well as director fees and payments for marketing or sponsorship.

Claim that industry super funds have combined with GetUp!, environmental groups and unions to form a powerful activist “cabal”.
Industry super funds do not fund political campaigns against tax cuts, nor marginal seat campaigns. Industry super fund members’ savings are not being donated to unions.

The Business Council of Australia is funding an organisation called ‘Centre Ground’, which is running the “For the Common Good” campaign.

Claims about Cbus payments to the CFMEU are misleading.
Cbus is Australia’s largest super fund for the building, construction and allied industries.  Payments made by Cbus to the CFMEU relate to partnership agreements (which are entered into with a number of unions and employer associations to deliver branding, member education and advertising opportunities) and for director fees.  Cbus did not pay the CFMEU’s legal bills.

Claim that industry super funds “have a monopoly on ‘default fund selection’ through the Fair Work Commission”.
The Fair Work Commission process for determining eligible default superannuation funds in Modern Awards does not make decisions based on union affiliation.  The criteria to be considered by the Fair Work Commission are specified in the Fair Work Act.6

Industry super funds continue to support implementation of the Fair Work Commission process as legislated in 2012, which is a merit-based system.7

Several retail super funds currently are listed in modern awards, and others remain eligible for default status due to grandfathering arrangements.

Claim that “Union tycoons” are “getting richer”. 
Where trustee directors are an employee of the union, service as a trustee director is often considered an element of the expected work performed by the employee.  In these circumstances, additional remuneration to the trustee director is not appropriate, and it is appropriate for the director fees to be paid to the union that employs the official, not to the individual.  The implication that union officials are personally benefiting financially from trustee director fees and sponsorship payments to the union is incorrect and internally inconsistent with the other (erroneous) arguments advanced that industry super funds are making payments to unions.  

Industry super funds are not for profit.
Industry super funds are run on an all-profits-to-members basis.  No dividends are paid to shareholders.  The payment of director fees and marketing costs are the same as administration and investment costs – the necessary expense of running a superannuation entity.   Industry super funds have lower operating expense ratios than retail super funds.

According to The Productivity Commission draft report released to the public on 29 May 2018, “Not-for-profit funds, as a group, have systematically outperformed for-profit funds.”8

The Industry Super Australia Pty Ltd ABN 72 158 563 270, Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514. Consider a fund’s Product Disclosure Statement (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision. Past performance is not a reliable indicator of future performance.

[1] See, Superannuation Industry (Supervision) Act 1993 (Cth) §§ 10 and 86 et seq.
[2] See, Liu and Ooi (2018), ‘The Impact of Related-Party Outsourcing and Trustee Director Affiliation on Investment Performance of Superannuation Funds’ at page 15.
[3] Commonwealth Bank of Australia, Annual Report 2016-17, Financial Statements Note 2 (reporting Advertising, marketing and loyalty expenses of $437 million in 2017, $491 million in 2016, and $522 million in 2015).
[4] OECD, Pooling of Institutional Investors Capital – Selected Case Studies in Unlisted Equity Infrastructure, April 2014.
[5] NOTE: An earlier version of this Statement mistakenly referred to AMP when it should have referred to CBA. [6] See, Fair Work Act 2009 (Cth) § 156F.
[7] See, Fair Work Amendment Bill 2012.
[8] Productivity Commission, Superannuation: Assessing Efficiency and Competitiveness, Draft Report, April 2018, at 45.

*The above material, whilst correct at the time of publication may include references or statements which are no longer current.

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