Industry super fund investments violate sole purpose obligation

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Trustees of many Industry Super funds receive free tickets to sporting events

By Judith Sloan, Economics Editor, The Australian  26 Nov 2016

A few years ago I had a bit of fun querying the decision of several industry super funds, including AustralianSuper, to use members’ funds to invest in an online newspaper, The New Daily. The overall commitment was several million dollars.

I even went to the trouble of writing to the chairwoman of AustralianSuper as a member of that fund. (I held a government job, so there was no choice but to be signed up to the Australian Government Employees Superannuation Trust. AGEST was taken over by AustralianSuper.)

Needless to say, I received a sappy, wordy reply to the effect that there was nothing to worry about. The “investment” had used funds accumulated from the payment of our administration fee and was not taken from members’ account balances. So nothing to see.

This rather begged the question of why I would not be better off with a lower administration fee rather than the unelected trustees wasting money on a product in which I had no interest.

But the real issue that no doubt did worry the chairwoman and the trustees was whether there had been a violation of the sole purpose test that legally binds them. A superannuation fund can exist legally only for the sole purpose of “providing retirement benefits to the members or their dependants if the member dies”.

Contravening the sole purpose test is a very serious matter and risks the members of the fund losing their concessional taxation benefits. The trustees also can face civil and criminal penalties.

The discussion at the time soon spread to the many dubious sponsorship deals undertaken by the industry super funds, ranging from sporting teams to events such as the Trust Women Conference. I particularly love some of the self-serving rationales put forward by the trustees, half of whom are union nominated and the other half nominated by employers — read employer associations.

MTAA Super has sponsored car racing events because its members are interested in car racing and cars. Hostplus has sponsored a sporting team because its members are employed at sporting events. HESTA has sponsored the Trust Women Conference because most of its members are women. 

The fact trustees receive free tickets to all these events is completely beside the point — obviously.

When the Australian Prudential Regulation Authority was asked about some of these sponsorship deals — note that it is the role of APRA to regulate the industry super funds — staff members claimed to have insufficient resources to look at individual sponsorship deals.

But here’s the thing: if APRA is not checking to ensure the sole purpose test is being met, who is? After all, members of industry super funds do not elect the trustees and have no way of getting rid of those who make decisions of which members may disapprove.

And what’s with all that expensive television advertising of industry super funds involving minor celebrities and retired sports stars? The lame argument is that it is in the interests of existing members to have more members, because per member overhead costs can be reduced.

This raises the question: why don’t the trustees concentrate on merging with other funds and forget the costs of advertising for new members?

The answer is that some of these trustees may lose their well-remunerated jobs and that will never do. (The alternative scenario is the boards of trustees become inordinately large after funds merge, something that has happened.)

Confusion over the role of industry super funds has, if anything, deepened in recent years. This month, Garry Weaven, one of the fathers of the system of compulsory superannuation, gave a lecture about the role and benefits of industry super funds. He talked about their “economic, social and environmental role”.

What about the sole purpose test? What’s this about industry super funds having an “economic, social and environmental role” beyond providing retirement benefits to members? This is surely a slippery slope, which the underlying legislation deliberately sought to avoid.

And, while we are on things social, how is it acceptable that only 25 per cent of the trustees of industry super funds are women? The reason for this is obvious: most officials of unions and employer associations are male, so the people who get nominated to trustee positions at industry super funds are overwhelmingly male.

Moreover, they tend to stay for long periods. Once appointed, they will stay as long as they hold their positions with the union or employer association. One union official was on the board of the Retail Employees Superannuation Trust — one of the largest industry super funds — for nearly three decades until he retired from the union.

So when you hear a trustee from an industry super fund banging on about the need for more gender equality on the boards of listed companies or limiting the tenure of directors, hand them a mirror and ask them why these rules don’t apply to industry super funds.

There are several policy topics that are challenging trustees of industry super funds.

The first is whether their public declaration of support for the government’s plans to impose additional taxes on some superannuants, including retired ones, is in violation of the sole purpose that must govern their behaviour.

Having been a complete failure in political life (he was Liberal leader of the opposition in NSW), Peter Collins now enjoys a well-remunerated role in the world of industry super funds and has become a vocal supporter.

And he has not held back on all manner of topics, including his opposition to the government’s plans to reform the governance of the industry super funds or change the default status of these funds.

He has publicly supported the government changes to the taxation of superannuation, drawing a completely unwarranted comparison with Labor’s plans to restrict negative gearing.

According to Collins, “for any high-net-worth individual the budget changes to superannuation caps would have been more than outweighed by the impact of Labor’s negative gearing changes. While unpalatable to the wealthy, they cancelled each other out.”

He is treading on thin ground.

Indeed, there was talk of a class action being launched against another industry super fund unless the trustees made it clear that they were opposed to the additional tax imposts proposed by the Coalition government. The industry super funds continue to oppose any changes to the equal representation model and dismiss the need for independent — read expert — trustees. I guess all those men must be doing a sterling job.

No doubt the people who run the industry super funds are behind the dirt sheet that is circulating in an attempt to besmirch the reputation of retail super funds, as the industry funds struggle to hold on to their monopoly position as default funds of workers covered by awards and enterprise agreements. It’s not pretty, but the stakes are high for the industry super funds.

Given the credible predictions that dependence on the age pension will not be reduced by the system of compulsory superannua­tion, I would be inclined to shut it down now and allow it to run off.

The fees and charges [of union based Industry funds] are excessive, and those who brag about it being the envy of the world are actually the industry insiders.

And just think: the interminable discussion about tax concessions could end, too.

Original article here

Note:  This is why the number of Self-Managed Super funds continue to grow.  You can save up more money to send yourself to your favourite sporting event instead.

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