Andrew Leigh

The Abbott Government's super blind spot, Business Spectator, 3 September

Joint op-ed with Bernie Ripoll MP

People sometimes ask why those of us in the Labor Party are such strong advocates for evidence-based policymaking. The reason, of course, is that without drawing on evidence, personal prejudices can quickly come to guide public policy, paving the way for blind spots to cloud the view of what needs to be done.

The Abbott Government is letting just such a blind spot block out good evidence when it comes to changing the governance arrangements for Australia’s industry super funds.

The Government is proposing to end more than two decades of successful joint governance by employer and employee-nominated fund directors and instead force boards to take on both an independent chair and one-third independent directors.

Setting aside the amusing spectacle of a so-called ‘liberal’ party seeking to mandate how independent investment funds structure themselves, this decision flies in the face of all available evidence about what’s in the best interest of Australians saving for retirement.

For starters, recent research by Monica Tan and Marie-Ann Cam from the University of New South Wales found investment management fees and operating expenses rise with the number of independent trustees sitting on a fund’s board.

These higher fees and expenses are paid for out of members’ savings. That means having more independent directors could lead to lower after-fee returns.    

To meet the government’s proposed rules, industry funds would also have to find and appoint 64 new chairs and bring in 295 new directors. Industry Super estimates this churn would cost up to $168 million – a price that would also be passed directly on to fund members through higher fees.

These costs might be worth paying if there was any evidence that super funds with more independent directors perform better overall. But in fact, the evidence points in the opposite direction. 

Modelling by SuperRatings shows industry funds with employer/employee boards have outperformed retail funds by 1.66 per cent over the past decade. That’s why the average industry fund has delivered $16,000 more to their members in the last 10 years than the average retail equivalent.

Of the top 10 best performing super funds for the past financial year, just two were retail funds. If we take a longer view and look at the top 10 funds over the last decade, not a single retail fund makes the list. Given this, it’s not surprising that the Assistant Treasurer recently switched his work superannuation from a retail fund to an industry fund.

So if having more independent directors on super fund boards doesn’t improve returns and may actually reduce them, why is the Abbott Government so fixed on making this change?

As is so often the case with this government, it comes down to a question of ideology. The Coalition opposed universal superannuation in 1992, froze it in 1996, and froze it again in 2014. In fact, we can’t recall the Coalition ever casting a vote in favour of superannuation for ordinary Australians.

But ideology doesn’t just apply to their opposition to superannuation. This government has a pathological dislike of unions and wants to weaken their role in every aspect of public governance it can.

They don’t care that unions continue to play an important role in keeping Australians safe at work, or that they are a vital force against rising inequality.

And so they are studiously avoiding the facts staring them in the face: that combined governance of funds by employer and employee representatives delivers the best outcomes for Australia’s super savers.

The proposed super governance changes are being driven entirely by prejudice, not evidence. That’s a poor basis for making policy that could cost Australian households thousands of dollars in retirement incomes.

Australia’s industry super funds don’t need drastic governance changes. What they would benefit from is a government that’s a little less concerned with pursuing vendettas, and a little more focused on ensuring all Australians are set up for a financially secure old age.