Proposed changes to Australia’s $2 trillion superannuation sector could see Australia’s largest banks come to dominate the industry, reducing consumer protections and affecting people’s retirement outcomes. The banks are putting pressure on the government to make changes to superannuation laws which could benefit the banks at the expense of ordinary people.
The crux of the issue concerns default superannuation funds – the funds employers choose for their employees if they don’t nominate one themselves. Eight in ten Australians go with the default super fund their employer chooses for them, making it hugely important that businesses are picking super funds based on their employees’ interests.
At the moment, the Fair Work Commission gives businesses a list of vetted super funds to choose from, ensuring only high-quality funds gain access to this slice of the super market and ensuring people are protected from less dependable dealers. The proposed changes would take the FWC out of the equation altogether, opening the default super fund market up entirely and leaving it at the mercy of the biggest, wealthiest players – the major banks.
If the owner of a cafe already banks with Big Bank #1, for example, they might be incentivised with offers of lower insurance premiums or free financial advice in exchange for picking a Big Bank #1-owned super fund as the default option for their staff. The problem is whilst directly offering incentives to change superannuation arrangements is illegal, bundling services and cost structures in such a manner is not.
Despite practices like these being illegal under the Superannuation Industry (Supervision) Act, enforcing the law and punishing institutions who break it has proven extremely difficult. Studies have shown a steep rise in bundling and cross-selling of bank-owned default super funds in the last six years. A 2015 survey found that more than 25% of businesses surveyed have been approached by one of the Big Four banks to change their default funds, and nearly half of all small to medium-sized business had. Almost half the time, businesses reported they had been offered “benefits” as an inducement.
For workers, the danger is obvious. If their workplace moves to a bank-owned super fund because the owner has been lured by the promise of some free VIP tickets to the footy, workers might end up saddled with a super fund that is used to help generate corporate profits, which are returned as dividends to shareholders, not superannuation members. Retail super funds like those owned by the Big Four have markedly underperformed over the last decade, providing returns nearly 2%, on average, lower than their industry fund counterparts. For a worker earning $50,000 a year with $50,000 in super savings, over ten years, that adds up to a loss of more than $15,000, on average*.
Then there’s the uncomfortable matter of the scandals. It’s no secret that the major banks have been caught out in recent years for everything from denying dying people their life insurance payouts to losing thousands of customers’ life savings. A Senate inquiry into the Big Four last year found that “the culture of these institutions is often not one that has consumers at its centre”, and that “the sector collected up to $178 million from consumers that it was not entitled to” between mid-2008 and mid-2015.
That mindset – treating customers as financial resources to be profited from rather than people with lives, families and needs – has historically been unable to gain much of a foothold in the superannuation sector, which enjoys market protections as a workplace entitlement. By introducing legislation that could see Australians’ retirement savings exposed to the profit-fuelled interests of banks, it’s the Australian people who stand to lose in the long run.
Underpinning all this uncertainty is the fact that the government has provided no compelling reason why the system needs to be changed at all. Australia’s super sector is regarded as one of the best in the world, and consumers highly regard the not-for-profit nature of much of the industry. It’s difficult to think of a better way to undermine that confidence than by reducing protections that could see the widely distrusted banking companies gain a greater foothold in an industry that has served the Australian people so well in its current iteration.
Super is for your future. Not to help the banks generate profits.
*Past performance is not a reliable indicator of future performance. Assumes starting balance of $50,000 and initial salary of $50,000. Comparisons modelled by SuperRatings, commissioned by ISA. Modelled outcome shows 10 year average difference in net benefit of the main balanced options of 16 Industry SuperFunds and the 77 retail funds tracked by SuperRatings, with a 10 year performance history, taking into account historical earnings and fees – excluding contribution, entry, exit and additional advisor fees. Outcomes vary between individual funds. Modelling as at 30 June 2017. See www.industrysuper.com/assumptions for more details about modelling calculations and assumptions. 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. ISA Pty Ltd ABN 72 158 563 270 Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514.
This content was created by Guardian Labs as part of a partnership with Industry Super Australia, and published on 2 August 2017. The information referred to may change from the date of publication and care should be taken when relying on such information.
*The above material, whilst correct at the time of publication may include references or statements which are no longer current.