Big banks want a share of your super

The federal government’s Financial System Inquiry, led by ex-Commonwealth Bank head David Murray, has recommended changes that could undermine Australia’s successful and widely admired superannuation system.

“If better governance will deliver better returns, why not focus on the underperforming bank-owned funds?” - David Whiteley CEO Industry Super Australia
“If better governance will deliver better returns, why not focus on the underperforming bank-owned funds?” – David Whiteley CEO Industry Super Australia

One of the key recommendations in the Financial System Inquiry’s (FSI) final report, published in December, was that all APRA-regulated super funds should have a majority of “independent directors” on their trustee boards. It also recommended an independent chair.

The FSI’s recommendations relating to super funds have widely been interpreted as an attempt to reduce or eliminate union influence on industry super funds, opening the way for banks to gain a greater market share of the superannuation sector.

But Industry Super Australia CEO David Whiteley says the logic behind the recommended changes is deeply flawed.

He says the superior performance of industry super funds (which are run on a not-for-profit basis), compared to the bank-owned super funds (which are run to profit shareholders) is proof that the current governance structure of industry funds is working.

The industry funds have a representative trustee system with a “sole purpose test” that legally obliges their boards to act in the interests of their members. Bank-owned super funds generally have a contract-based system in which board members are effectively employed and act in the interest of shareholders.

“Industry super is not broken so why try to fix it?” asks David Whiteley. “Industry super trustees come from diverse backgrounds including unions, business, academia, law, politics and economics.

“They come from many sectors – construction, hospitality, health, manufacturing, education, law and retail. They could never be accused of being captured by the finance sector.”

He argues that it should be the governance of banks under scrutiny in light of their poor performance relative to the industry super funds.

Industry super funds have consistently outperformed bank-owned super funds in the past 17 years, according to data published by APRA*.

“The FSI report notes good governance is worth an extra 1 per cent in returns but does not reach the logical conclusion that this is already evident in the outperformance of industry super funds.

“Instead, its curious conclusion is that the better-performing sector could further lift its outperformance by adopting the governance model of the underperforming bank-owned super funds.

“If better governance will deliver better returns, why not focus on the underperforming bank-owned funds?” he said.

David Whiteley says it is the banks that are pushing to fundamentally change the industry super fund structure.

“Increasingly, their calls have become ideological and shrill. The enduring success of industry super funds has been deeply confronting for the major banks, which see themselves as natural custodians of people’s savings.

“This is in stark contrast to community sentiment. Following a stream of scandals, trust in the banks and the finance sector is at an all-time low. Industry super funds, returning all profits to members, typically delivering better returns than bank-owned super funds, should be a source of pride for policy makers rather than a target for commercial and political attack.”

*APRA, the Australian Prudential Regulation Authority, oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation industry.