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From the Desk of the Executive Director

Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Supers big boys need to disclose

Friday, October 04, 2013

The big superannuation funds are at it again. They're campaigning against the one million Australians who own and control self-managed super funds.

The big funds have done this before, under the Rudd-Gillard Labor governments.

There's about $1.6 trillion of Australians' retirement money in superannuation. The industry (union-controlled) funds have 26 per cent. The retail funds (controlled by banks and AMP) have 20 per cent. Ordinary Australians with SMSFs have 31 per cent, or $500 billion.

The big funds want more. They seem to believe they have an in with the Abbott government.

The new Minister for Superannuation, Arthur Sinodinos, is planning an inquiry.

Media spin has been claiming SMSFs buying houses as investments are a problem.

The big funds say it's unfair that SMSFs are allowed to borrow money. They complain that they face tougher rules than SMSFs. Unions have bought in on the side of the big super funds.

But before Sinodinos launches any attack against SMSFs he needs to look at deep problems in the big super funds. It's in the big super funds that the risk lies.

In 2010 the Institute of Public Affairs released a report called Keeping Super Safe, which exposed an appallingly low level of disclosure and transparency in how the big funds managed workers' retirement money.

It identified a heavy concentration of money in a small number of big funds controlled by a small number of people. Concentration is increasing.

The IPA identified that the government regulators (the Australian Securities & Investments Commission and the Australian Prudential Regulation Authority) looked at processes but did not undertake any direct auditing of the big super funds. Auditing is left to the private sector. And the biggest and most respected auditor, Morningstar, stated that the fund managers had a "mish-mash" approach to disclosure. Some funds don't disclose any information at all.

The IPA report was released while the Labor government's official Cooper review of superannuation was under way.

That review recommended the big funds be forced into high-level disclosure. Labor leader aspirant Bill Shorten was in charge of implementing the Cooper recommendations.

But the disclosure recommendations were quietly buried and nothing done.

Here's the issue. Australians are forced to put money into superannuation. The money in the big superannuation funds does not belong to the people who control the funds. It's not their money.

Fund managers should be subject to strict regulation. At the top of the regulation list should be massive disclosure.

Take one example of what should happen. CalPERS in the US is one of the largest superannuation fund managers in the world. On its website it's possible to find out where every dollar is invested and every expense made. It even lists the accommodation expenses of the chairman when he attends conferences.

This is the standard that big Australian super funds should be forced to match. Without such disclosure the risk of fraud, poor performance and ineptitude is greatly increased.

It's a great worry that some large super funds have a history of suing anyone who tries to investigate and report on their activities. What's to hide?

The difference with SMSFs is that the people who have their money in the fund also control the fund. They don't risk fraud, just poor investment decisions.

Sinodinos should ignore the whining of the big super funds about competition from SMSFs.

Instead, the top priority should be to force the big funds into full disclosure.

 

[First published in The Australian, October 2013.]

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