License article

Industry super must pick its battles and this shouldn't be one

Lobbyists for the union-aligned superannuation sector are harming their credibility by opposing a change to give all workers the right to chose their own fund and would be smarter to focus on the bigger battles.

As first reported by The Australian Financial Review in early December, the Turnbull government is consulting on draft laws to make it illegal for enterprise agreements to lock workers out of the right to chose their own super fund.

In announcing the reform Assistant Treasurer Kelly O'Dwyer said that roughly two million Australians are currently disadvantaged by the 26 per cent of enterprise agreements that give workers no choice of super fund and a further 5 per cent that offer only limited choice.

Employees of supermarket giants Coles and Woolworths will be among those affected by the new laws, with the workers covered some of the lowest income earners in the country.

Supporters of the status quo argue that restricting choice of fund guarantees economies of scale that enable employers and industry funds to negotiate bulk discounts on insurance and other costs.

But that argument just doesn't seem to stack up when looking at the performance data of many of the funds that benefit from the agreements.


Royal commission into trade union corruption commissioner Dyson Heydon last month concluded that: "none of the arguments made against freedom of choice are compelling."

The major peak bodies representing industry super funds, Industry Super Australia and Australian Institute of Superannuation Trustees, continue to argue against extending choice of fund to all.

"It is not in the interests of members of such funds to switch into superannuation funds that offer lesser benefits and may remove certainty and security," AIST chief executive Tom Garcia said. 

 And even the Association of Superannuation Funds of Australia, which represents both retail and industry funds, is resisting the change. 

"While supporting the principle of choice within the superannuation system, ASFA is cognisant of specific circumstances where providing full choice may result in an impractical or costly outcome," ASFA chief executive Pauline Vamos said.

In taking this stance the industry fund bloc is handing a free kick to the Financial Services Council, which represents the bank-owned and other retail wealth managers, and other critics who accuse them of union cronyism.

The banks are eager to win more business in the default market, not only because it is growing at roughly 15 per cent per annum but because it provides an opportunity to win new customers to whom they can sell a range of other products over their lifetime.

More opportunities to banks

Extending choice of fund to all workers is just one small part of the government's plan to break-down the influence of unions across the nation's $2 trillion compulsory retirement savings sector, but particularly within the $434 billion default super market, that would hand more opportunities to the banks.

Plans are in train to dismantle the "equal representation" model of non-profit super funds, by forcing them to appoint a minimum of one third of independent directors and an independent chairman to their boards and the Productivity Commission has been charged with reviewing the mechanism by which employers and unions negotiate the default super fund workers entitlements are paid to.

The shake-up follows the 2014 financial system inquiry, led by former Commonwealth Bank boss David Murray.

In fighting this broader suite of reforms the industry fund movement has fairly argued that on average non-profit funds have recorded superior long-term performance to their retail rivals and not been drawn into the scandals that have plagued the likes of Commonwealth Bank and IOOF.

By refusing to budge on the issue of protecting choice the industry fund sector undermines its attempt to take the moral high ground.

ISA boss David Whiteley has estimated that as few as 160,000 people would take advantage of a newfound right to chose, making the change unnecessary. So how would extending choice to all harm the ability of funds to offer value for default contracts?

People who want to chose their own super fund should not be blocked by a deal made between their employer and a union they may not even belong to.

Correction: The original version of this article incorrectly attributed the below quote from AIST chief executive Tom Garcia to ASFA chief executive Pauline Vamos. 

"It is not in the interests of members of such funds to switch into superannuation funds that offer lesser benefits and may remove certainty and security," AIST chief executive Tom Garcia said.