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Wednesday, 23 October 2002
Page: 5702


Senator SHERRY (1:00 PM) —The Liberal and National parties have a long history of making inaccurate and misleading assertions about nonprofit superannuation funds, particularly multi-employer or so-called industry funds. Despite all the evidence to the contrary, they just cannot help themselves. Today I want to lay out the accurate and true picture of superannuation funds and give some examples of the blatant inaccuracies and claims that have been made by ministers in this government. No amount of evidence of the strong performance of corporate, industry and public sector superannuation funds in terms of investment returns, prudential soundness and value for money, particularly when it comes to fees and charges, can divert the Liberal-National Party government from their political attacks on trustee funds.

The most common line used by almost everyone in the Liberal-National Party government, from ministers who should know better—I am sure they know better but they do not want to tell the accurate story—to backbenchers, some of whom have little idea about superannuation, is that industry superannuation funds are union funds. This is a blatant lie. While there are many superannuation funds where some trustees are appointed by trade unions, there are no union-only funds allowed in Australian law. The law, the Superannuation Industry (Supervision) Act, requires that all nonprofit funds have equal employee and employer trustees. All decisions must be taken by a two-thirds vote. It is simply impossible, even if they wished to, for a trade union or a group of trade unions or, for that matter, a group of employer trustees or their representatives, to control exclusively these funds, provided that employee representatives are independent of employers.

I will provide some more details on the reality of nonprofit superannuation funds a little later, but first it is worth hearing some of the inaccurate and, at times, frankly, stupid statements that have come from some members of the government on matters relating to superannuation. In 1985, the Liberal Party member for Mayo, now the Minister for Foreign Affairs, Mr Alexander Downer, came out with one of the greatest pearls of wisdom that we have seen in terms of an economic prediction when he argued against the insertion of superannuation provisions in industrial awards. Superannuation was, he said:

... one of the most underrated threats to the future stability of Australia's economy, and indeed to the capitalist system ...

Apparently, superannuation—and most Australian employees now have it—was going to bring about the collapse of the Australian economy and the capitalist system. Since then, superannuation coverage has increased from around 40 per cent to well over 90 per cent of the Australian work force—thanks to the Labor Party—and superannuation assets stand at some $532 billion but, despite Mr Downer's dire warnings, capitalism is still alive and well.

Another example occurred in the 1998 election campaign. In the Bulletin magazine, the former Liberal Party director, Mr Robb, suggested that industry funds are a source of donations to the Labor Party and that unions involved in industry funds derive profits from administration fees. He said:

The unions, which would stand to benefit from millions of dollars of management fees over the years ahead, may have a great incentive to put their hands deep in their pockets to see Labor win this election ...

I searched the list of publicly available donations made to all political parties and I could not find one industry fund that has ever made a donation to the Labor Party. Nor could I find from the evidence that I have seen any trade unions that have received financial benefits through the payment of administration fees—presumably that would be approved by the trustees, if it ever happened. In nonprofit trustee funds administration, all the fees are used to cover the expenses of the operation of the fund and any surpluses are paid to members of the fund via the return. Corporate industry and public sector funds do not pay a dividend to their shareholders. They effectively pay any profits to the members of the fund. So Mr Robb's allegations were just totally false. As I said at the time, Mr Robb was either ill-informed, totally ignorant or deliberately misleading in his article in the Bulletin.

More recently, on 2 October last year, the then Minister for Financial Services and Regulation, Mr Hockey, made an extraordinary claim when he launched proposed changes to the regulation of super funds. He said:

It is going to be tough. It is going to be hard particularly for the industry funds. It is going to mean that the representatives of some of the workers on those industry funds, including union officials, are going to start to be held accountable for investment decisions. It is going to force those people to disclose and at times, seek approval, of members if they are going to engage in related-party activities. So if they are giving work to mates they are going to need to seek approval of members of the fund. The days of the cosy relationships in superannuation are now over.

I found Mr Hockey's claim of `cosy relationships' particularly extraordinary, given that the very next day Mr Hockey appointed Mr Baume—former senator, former Consul General in New York and confidante of the Prime Minister—to the independent Superannuation Complaints Tribunal. If that is not a cosy relationship, I do not know what is. When I asked Senator Coonan, on notice, what Mr Baume's qualifications as a member of the tribunal were, she replied:

Mr Baume has had a long and distinguished career in parliament ...

A quick search of the Hansard over this long and distinguished career reveals that Mr Baume said next to nothing about superannuation. Despite his appointment to this independent tribunal, Mr Baume continues to act as a shamelessly partisan newspaper columnist in defence of the worst policies of this government. On 15 May this year, I asked Mr Hockey's successor, Senator Coonan, on notice, whether APRA, the prudential regulator, had any evidence to support Mr Hockey's wild claims about industry funds and whether APRA had ever provided Mr Hockey with any such evidence. Senator Coonan's answer was short and to the point: `No. No to both these questions.' In other words, Mr Hockey's comments had no basis in fact. They simply reflected the blind prejudice of the Liberal Party towards any outcomes reached through cooperation between employers and trade unions. Despite disowning Mr Hockey's comments—and, if the draft of the Superannuation Working Group is anything to go by, most of his ideas for the regulation of superannuation—the new minister, Senator Coonan, has made similarly inaccurate statements of her own. On 14 May, in response to a question from my colleague Senator Buckland about this government's tardy response to the Commercial Nominees debacle—a case of theft and fraud in superannuation—Senator Coonan made the following outlandish claim:

... Labor's union masters are responsible for $200 billion in investment assets. This, of course, is a wonderful fund for the union movement's political wing here in the Senate.

It is worth reiterating that at no stage has an industry superannuation fund made donations to the Labor Party—or any other political party for that matter. Again, it highlights the remarkable degree of paranoia on the part of this government that Senator Coonan seems to believe that some of Australia's most high-profile employer groups, such as the Australian Industry Group, who are joint trustees of many of these funds, would conspire with unionists to divert superannuation moneys to her political opponents. Since then I think even Senator Coonan has tried to hide the stupidity of the remarks she made on those occasions. When challenged on this issue in question time on 22 August, Senator Coonan had the President rule the question out of order. Had she possessed a shred of evidence to justify her wild and inaccurate claims, she could have come into the chamber and presented it to the Senate. Not to be outdone by his more senior colleagues, Senator Ferguson, during a debate in this chamber on 26 September—when dealing, amongst other things, with this government's failure to provide for adequate superannuation fee disclosure—posed this question:

If you want transparency in superannuation and you want to talk about showing everybody the exit fees and charges, why do you not tell us how much Bernie Fraser is being paid to do his ads for Cbus? Where does that appear on the balance sheet—or is he being very generous in his retirement and saying, `I'm prepared to do all of these ads for the industry fund for nothing.'

Senator Ferguson did not need to ask the Labor Party about Mr Fraser. He could, and he should, have asked Cbus before making those remarks—and in a highly accusatory manner. On 2 October, Cbus wrote to Senator Ferguson, informing him that Mr Bernie Fraser does not receive payments from Cbus or from industry funds for his involvement in these advertisements. It seems that Mr Fraser really is prepared to do all of these ads for nothing. This may come as a profound shock to Senator Ferguson and others in the Liberal-National Party government, but most trustees on superannuation funds are honorary. They receive nothing for the tireless, dedicated work that they do on behalf of superannuation fund members.

This is the issue at the very core of the Liberal government's approach to superannuation: they simply cannot believe that representative trustees would be motivated by anything other than financial reward. Trustees appointed by employers, employer organisations and trade unions, or elected by members, overwhelmingly are not paid. The Liberal Party mindset requires the invention of secret ulterior motives such as the diversion of funds to the Labor Party, even if such accusations are untrue. The Liberal government simply cannot stomach a successful stakeholder system of governance, particularly when the governance of too many Australian corporations, most of whose directors and executives are handsomely rewarded, has been shown to be wanting. The government would do much better to focus on ensuring that this country does not produce another Rodney Adler or a Jodee Rich rather than to focus on its delusional vendetta against superannuation trustees.

What is most galling for this government is that nonprofit superannuation funds with representative trustees outperform the for-profit sector on every criterion, including investment return, safety and fees and charges. For example, an independent research organisation, Rainmaker, which monitors fees and charges, reported that for 2001-02 retail superannuation products lost on average 4.7 per cent, while nonprofit superannuation funds such as industry and corporate funds lost 2.3 per cent. The company responsible for Australia's worst case of superannuation fraud, Commercial Nominees, was a for-profit trustee company. Where fraud or mismanagement has occurred in nonprofit superannuation funds, it is where employers have established funds without genuine employee representatives. In the draft report of the Superannuation Working Group, the prudential regulator stated:

The equal representation rules for trustee boards of standard employer-sponsored funds provide balanced representation of employer and employee interests. They are conducive to active member interest in the prudent management of these funds. This benefit exceeds the cost of finding and appointing members who are capable of undertaking trustee duties.

This is the exact opposite of the sort of ideologically motivated misrepresentations coming out of this government. A report prepared for the Investment and Financial Services Association by Phillip Fox actuaries and consultants, which was presented on 9 April this year, showed that member costs as a percentage of assets were 0.95 per cent for nonprofit corporate funds, 0.43 per cent for public sector funds and 1.18 per cent for industry funds—and these costs were coming down. This compares favourably with the 2.34 per cent for-profit personal funds and 2.5 per cent for so-called retirement savings accounts offered by banks. The cost of these products is rising. In other words, in the for-profit sector the costs of fees and charges and particularly commissions are double those of the not-for-profit sector. An additional explanation for the government's attitude to some superannuation funds is that they do not really believe in, and never have believed in, universal superannuation at all. It was the Liberal Party that opposed the Labor Party and then Treasurer Keating's initiative for universal superannuation for all Australian workers. They have continued their white-anting, their incorrect claims and on many occasions their false claims against the success of the Australian superannuation industry.