Ive had a read of some of your articles on super and you're clearly an authority. But let me make some points.
1) Yes the compulsory super is a creature of the Tax Act. But that is merely a technical issue that enabled the Commonwealth to have the authority. So lets not be distracted on the policy issue. The compulsory super issue was clearly promoted as and continues to be promoted as an employment 'benefit' that would otherwise be paid in increased wages.
2) I consider the disclosure law updates of the last decade or so to be more a ruse rather than hard update. The fact is that the Cooper Review recommendations on this issue were sidelined and have never been properly implemented.
3) On the Haynes report it was the great flaw of Haynes to ignore the Industry Super funds. Whether this was because the Commission swallowed the PR from the Industry Funds as to their superiority, I don't know. But certainly the bad behaviour of funds (eg CBus) is now coming out. And there's experience where when an Industry fund is 'outed' for bad behaviour they switch on the lawyers big time to suppress information. Disclosure ? rubbish! Coverup? Yes in my view!
4) The directors fees issue is minor. I agree that directors fees, which are transparent are a non-issue. However the Industry Funds are milked in multiple way and milked hard by this new financial 'establishment.'
5) I would totally disagree about the governance being 'the strongest in the world.' That's PR spin pushed out by the industry and not substance is my view.
Finally and most importantly. If the Super scheme is so stunning, the test of the integrity and performance of the funds is to make the scheme voluntary. Take away the compulsion. If the scheme and the funds are so brilliant, let them be subject to the market place of 'the people.' There in is the test. Let people decide what they do with their money.
Thanks for you comments and feedback. The debate on this is important.
Ken, the biggest issue with industry super is the lack of transparency. Billions invested in unlisted assets valued at cost not market value. If the crunch ever came, the industry funds would be unable to pay members. This is a disaster waiting to happen
It infuriated me in the 1980s that while paying off a mortgage at 13.5%, my money was being taken off me and only earning 6% in super: I was effectively having over half of my wealth growth stolen.
That said, a major part of the absurdity of super is people simply *not*caring* - it's hard to persuade a 20 year old to care about money they won't see for half a century!
The way to encourage people to save would be to let super funds run online gambling, with your losses going into your super funds - the funds still benefit, since they get more money invested, and the gamblers build a future.
You have totally pinged the core problem. There is no better lifetime investment than owning your own home. Yet the super industry creams off your income denying you access to your money to enable you to pay down your mortgage. And this applies at any age.
The super industries claims to saving for retirement are entirely false demonstrated by your example.
It all comes back to one issue. Compulsion. If the super system is so good, remove the compulsion and make it voluntary. Let the super funds be subject to the market place of individual people making their own choices in life.
Your article raises some important issues, however, I do believe that it misrepresents some key facts.
First, it falls into the common mistake of assuming that employer SG contributions are forgone salary to employees. While this does form part of the total cost of labour, it is only a small and highly remunerated cohort who forgo salary for SG contributions. The method of setting pay for most workers is via a modern award or a collective agreement. SG is determined separately and in addition to pay when these determinations are made. The 35% of employees that rely on a common law contract to set pay. There’s more of an argument here that no SG could give greater bargaining power to employees to negotiate higher wages - but it’s certainly far from a pass through scenario as labour markets are not efficient at pricing labour.
Secondly, the article also cites issues raised decades ago that have subsequently been the subject of fundamental law reform. Portfolio holdings and financial disclosure laws are comparable or more stringent than other prudentially related entities.
Finally, the article seems to suggest that the employer and member sponsoring organisations for industry funds profit from these arrangements. Aside from token sums for director fees, the constitution of these trustees provides that the class of shares issued carries no right to dividends or transfer value. The Hayne Royal Commission inquired deeply into this issue, and made no recommendations on the matter.
There has been a significant effort over the past two decades by many honest and smart people to improving governance across our financial sector, including trustees of superannuation funds. They are now regarded as some of the strongest governance arrangements for pension funds anywhere in the world.
I agree. Especially not fair on young people .. they would be better off with that extra 11.5% than it being forced into a fund, much of which will be eaten up by fees. Lots of office buildings owned by union controlled industry funds which I suspect are leased to government Depts too
Jonathan.
Ive had a read of some of your articles on super and you're clearly an authority. But let me make some points.
1) Yes the compulsory super is a creature of the Tax Act. But that is merely a technical issue that enabled the Commonwealth to have the authority. So lets not be distracted on the policy issue. The compulsory super issue was clearly promoted as and continues to be promoted as an employment 'benefit' that would otherwise be paid in increased wages.
2) I consider the disclosure law updates of the last decade or so to be more a ruse rather than hard update. The fact is that the Cooper Review recommendations on this issue were sidelined and have never been properly implemented.
3) On the Haynes report it was the great flaw of Haynes to ignore the Industry Super funds. Whether this was because the Commission swallowed the PR from the Industry Funds as to their superiority, I don't know. But certainly the bad behaviour of funds (eg CBus) is now coming out. And there's experience where when an Industry fund is 'outed' for bad behaviour they switch on the lawyers big time to suppress information. Disclosure ? rubbish! Coverup? Yes in my view!
4) The directors fees issue is minor. I agree that directors fees, which are transparent are a non-issue. However the Industry Funds are milked in multiple way and milked hard by this new financial 'establishment.'
5) I would totally disagree about the governance being 'the strongest in the world.' That's PR spin pushed out by the industry and not substance is my view.
Finally and most importantly. If the Super scheme is so stunning, the test of the integrity and performance of the funds is to make the scheme voluntary. Take away the compulsion. If the scheme and the funds are so brilliant, let them be subject to the market place of 'the people.' There in is the test. Let people decide what they do with their money.
Thanks for you comments and feedback. The debate on this is important.
Ken, the biggest issue with industry super is the lack of transparency. Billions invested in unlisted assets valued at cost not market value. If the crunch ever came, the industry funds would be unable to pay members. This is a disaster waiting to happen
I’m with you on that. It has all the signals of a massive ponzi scheme. It’s only held up by the enforced contributions increasing as a %
I don't know if contributions ill save them!
Sort of.
It infuriated me in the 1980s that while paying off a mortgage at 13.5%, my money was being taken off me and only earning 6% in super: I was effectively having over half of my wealth growth stolen.
That said, a major part of the absurdity of super is people simply *not*caring* - it's hard to persuade a 20 year old to care about money they won't see for half a century!
The way to encourage people to save would be to let super funds run online gambling, with your losses going into your super funds - the funds still benefit, since they get more money invested, and the gamblers build a future.
James.
You have totally pinged the core problem. There is no better lifetime investment than owning your own home. Yet the super industry creams off your income denying you access to your money to enable you to pay down your mortgage. And this applies at any age.
The super industries claims to saving for retirement are entirely false demonstrated by your example.
It all comes back to one issue. Compulsion. If the super system is so good, remove the compulsion and make it voluntary. Let the super funds be subject to the market place of individual people making their own choices in life.
Your article raises some important issues, however, I do believe that it misrepresents some key facts.
First, it falls into the common mistake of assuming that employer SG contributions are forgone salary to employees. While this does form part of the total cost of labour, it is only a small and highly remunerated cohort who forgo salary for SG contributions. The method of setting pay for most workers is via a modern award or a collective agreement. SG is determined separately and in addition to pay when these determinations are made. The 35% of employees that rely on a common law contract to set pay. There’s more of an argument here that no SG could give greater bargaining power to employees to negotiate higher wages - but it’s certainly far from a pass through scenario as labour markets are not efficient at pricing labour.
Secondly, the article also cites issues raised decades ago that have subsequently been the subject of fundamental law reform. Portfolio holdings and financial disclosure laws are comparable or more stringent than other prudentially related entities.
Finally, the article seems to suggest that the employer and member sponsoring organisations for industry funds profit from these arrangements. Aside from token sums for director fees, the constitution of these trustees provides that the class of shares issued carries no right to dividends or transfer value. The Hayne Royal Commission inquired deeply into this issue, and made no recommendations on the matter.
There has been a significant effort over the past two decades by many honest and smart people to improving governance across our financial sector, including trustees of superannuation funds. They are now regarded as some of the strongest governance arrangements for pension funds anywhere in the world.
I agree. Especially not fair on young people .. they would be better off with that extra 11.5% than it being forced into a fund, much of which will be eaten up by fees. Lots of office buildings owned by union controlled industry funds which I suspect are leased to government Depts too
Spot on!
Great article, Ken.