Back when it was forced to call a royal commission into the banks late last year, the government came up with a smart idea: if the banks were going to have to suffer, industry super funds would share the pain. It was “direct smack at Labor” a government source anonymously admitted. Peter Dutton was more blunt, saying it was good that the royal commission would “look at some aspects within the industry super funds which have union members and whatnot on the board”, because “people lose a lot of their super through fees and through donations and all sorts of support for unions”.
But like pretty much every smart idea this government comes up with, it turned out to be half-smart, as events of the last week demonstrated. The superannuation phase of the royal commission hearings has seen industry super funds sail through with minimal questioning. Rather than a parade of “venal union officials”, as Tony Abbott so falsely described the employer- and union-appointed directors of super funds, the hearings last week were dominated by executives of NAB and IOOF, and further revelations of account holders being charged for no service, dead people being charged and fund owners trying to evade the need to repay them.
Perhaps that’s what Peter Dutton meant by “whatnot”.
The commission also heard about the problem of related party transactions. Such transactions are a primary motivation for the vertical integration model: retail super funds contract out services to companies owned by their owners, and pay over the odds for the services they get. Account holders end up getting charged higher fees for poorer services.
Crikey has been a lone voice on the issue of dodgy related party deals since reporting on them back in 2012. Fortunately, other outlets have (“exclusively”) started sniffing around the issue as well recently. Almost certainly, this is one of the biggest scandals of the entire superannuation sector, and it’s been happening in plain sight for many years, with probably tens of billions of dollars flowing from ordinary Australians to the owners of the big retail funds in dodgy related party deals. Only now is the royal commission pulling at the threads that will bring the whole thing undone.
Which brings us to the other way the government tried to be cute about the royal commission, by limiting it to a year. That means Kenneth Hayne is preparing an interim report for September 30, with a final report due by February 1. Clearly there won’t be anywhere near enough time to explore the extent of related-party dealings in the super sector, let alone other outstanding matters. The point of the short timeframe was to try to minimise the damage that would be inflicted on the banks; it was the last remaining piece of political protection provided to the banks by the Liberals. It’s now the major impediment to properly cleaning up superannuation.
While misconduct by the banks revealed earlier in the year was appalling, the continuing underperformance, fee-gouging and related-party transactions of the retail super sector raise even more serious issues. Compulsory super requires that policymakers provide a super system that is trustworthy and dedicated to serving members’ interests. They have failed to do so, because of the political power wielded by the banking oligopoly and, to a lesser extent, by the Liberal-aligned financial planning sector. And the consequences will be long-term, in the significantly lower retirement savings of retail fund account holders, which will make it more likely they will have to use the aged pension.
Extending the royal commission might bring some more short-term pain for the government, but it will greatly benefit governments, Liberal, Labor or whoever, of the 2020s, 2030s and beyond.
What do you think? Send your comments and responses to [email protected].