Industry superannuation funds have a problem: the Federal Government appears to regard them with suspicion.
With the push for choice of fund legislation being blocked by the Opposition in the Senate, the Government is pointing to perceived union influence of industry funds and the traditional relationship between unions and the Australian Labor Party as representing a problem.
That, at least, would seem to be the bottom line of comments made by the Treasurer, Peter Costello, in a number of radio interviews conducted in both February and March this year in which he has sought to push the Government’s choice of fund policy on the basis of “high fees” charged by industry funds.
His attitude was made clear in a Sydney radio interview conducted in the immediate aftermath of Federal Opposition leader Mark Latham’s announcement of super policy changes, including cutting, and eventually, eliminating the contributions tax.
Discussing industry funds, Costello said he thought there were a lot of problems with super funds in the sense that people were not being given choice.
“This is the biggest problem to me. If you go into, let’s say, the building industry or you go in to the hospitality industry, then your super goes into these … industry funds and they can more or less charge you anything they like, you can’t take your money and go to another fund,” he said.
“You can’t say, well I didn’t like the investment performance, I am going to go to another one. It is just locked in there,” the Treasurer said.
However, the industry funds have fought back with a number of senior executives countering the Treasurer and insisting he is simply wrong when suggesting industry funds charge high fees.
Leading the charge has been the chief executive of the Superannuation Trust of Australia, Mark Delaney, who says Costello should look again at the fees charged by industry funds because they are some of the lowest in the superannuation sector.
Referring to another radio interview conducted by Costello in February, Delaney says the Treasurer responded to a question about high fees by calling for choice, so that people under awards — typically industry fund members — will be “able to choose a fund with lower fees”.
Pointing to the recent Chant West ASFA Fees Study, Delaney says it shows that people who are industry fund members, typically those under award superannuation, pay considerably less in fees than retail funds, either personal or employer sponsored ones.
He says the study shows that members in large funds with an average account balance of $10,000 pay between 2.02 per cent and 2.07 per cent in retail funds, compared to just 1.04 per cent in an industry fund.
“This means literally tens of thousands of dollars difference over a person’s working life,” Delaney says.
The Government also faces problems in seeking to portray industry super funds as generating comparatively poorer returns, with the latest data produced by Sydney-based consultancy, SuperRatings, suggesting that industry funds are continuing to outperform the master trusts.
The data shows that super funds continued to surge during February with the SuperRatings balanced investment index recording a further 1.3 per cent growth during the month.
However, perhaps more importantly from the point of view of the industry funds, they continue to outperform or match the master trusts with the top five performers in the year to date and over a five year period to the end of February being dominated by industry funds.
As well, the SuperRatings table of superannuation earnings rates shows industry and not for profit funds to be dominating the top 10 places across most categories.
This data is reinforced by research commissioned by Industry Fund Services (IFS).
Its survey of retail super master trusts performance against industry funds shows a 6.7 per cent credit rate for the latter. The master trusts returned a 5.4 per cent credit rate.
In cash terms, $20,000 invested in a retail super master trust would be worth $250,000 after 40 years whereas the industry fund would be returning $380,000 to the member after that period.
“These figures track the net result for an average member after stripping away all the opportunities for glossing and distorting the truth,” says IFS executive chair Garry Weaven.
“The results are equally devastating for the commission-driven master trusts as in the previous figures for the last (2002) year.”
According to IFS, the fees for a retail master trust over five years would be $4239, which compare to investment earnings of $3905 for the same period.
The Government is also faced with a dilemma in circumstances where a number of the major industry and not-for-profit funds, not least the likes of Equipsuper, have registered a number of successes in terms of the outsourcing of corporate super funds.
