Protecting the interests of superannuation members

Here we go again. Politicians and public servants looking at the possibility of superannuation funds underwriting their policy objectives.

Memo to all politicians and public servants: the Australian superannu­ation industry is not to be used as a revenue milch cow nor as a source of funds with which to prop up industry sectors or provide liquidity when times are tight.

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There is a tendency for politicians and, indeed, the odd public servant to look at Australia’s billions of dollars of accumulated superannua­tion savings as a resource which can be leveraged to de­liver public policy outcomes or, in the case of securitisa­tion, to deliver liquidity where the market has seen fit to hold back.

Over the past 10 years there have been any number of politicians who have looked to Australia’s growing pool of su­perannuation savings as a source of funding for their par­ticular pet projects, whether it be infrastructure develop­ment, cheaper housing or industry subsidies.

What these people have failed to adequately under­stand is that Australia’s su­perannuation savings have, via the terms of the relevant leg­islation and the trust structure of superannuation funds, been quite rightly placed well be­yond the reach of politicians no matter how well-inten­tioned their agendas.

However, these legislative and trust structure safeguards have not always acted to pre­vent superannuation monies being invested in politically-motivated projects. On a num­ber of occasions, superannua­tion fund trustee boards have voted to make investments that might be broadly inter­preted as complying with the wishes of their corporate and political masters.

In NSW, for instance, mem­bers of a public sector fund saw the value of their invest­ments undermined by a deci­sion to invest in a public/pri­vate partnership involving one of Sydney’s many road tunnels while, elsewhere, at least one or two corporate funds have run foul of members on the basis of poorly-researched investments.

Given the tendency for those pursuing particular agendas to see the world through rose-coloured glasses, it seems probable that they have cho­sen to overlook the fact that Australia’s superannuation funds have spent the past two months communicating the re­ality of seriously negative re­turns to their members.

While ratings houses have tended to discuss the decline in superannuation fund re­turns in terms of percentages, those working in superannu­ation fund call centres will tell you that members have been talking in terms of dol­lars and cents.

What is more, instead of talking about a 10 per cent or 11 per cent decline, fund members have been talking about the loss of $10,000 or $11,000 off of their previous superannuation fund balance.

So is this a good time to be suggesting to superannuation funds that they get re-involved in the securitisation business? Probably not.

Notwithstanding the sug­gestion by a Treasury official in mid-August that he could not speculate on why super­annuation funds had not got involved in the securitisation market, only one or two su­perannuation fund executives indicated they would be tempted into such a strategy.

All the anecdotal evidence points to the fact that super­annuation fund trustees have been decidedly cautious in the face of the current mar­ket volatility, and it seems likely that the continuing taint associated with the US sub-prime meltdown will en­sure that they continue to steer clear of most mortgage-related products.

But, as the Treasury official said: “They [the superannua­tion funds] make their own decisions.”

Of course, there are likely to be at least some superannu­ation funds that, acting on the advice of their consultants, will venture into the validity of their decision/strategy, which will then be weighed against the impact that has on the ultimate returns they de­liver to members.

Those who have been through previous market downturns will know that while a cautious approach is well advised through periods of high volatility, so too is a preparedness to position ap­propriately for the eventual recovery.

That said, how funds posi­tion themselves in terms of investment options is a mat­ter for their trustee boards — not politicians and certainly not officials of the Federal Treasury.