Superannuation celebration guaranteed

The financial services industry has celebrated the 20th anniversary of the Superannuation Guarantee and, as Mike Taylor reports, the industry funds have more to celebrate than most.

A number of financial services luminaries gathered in Canberra last week to celebrate the 20th anniversary of the Superannuation Guarantee (SG) amid plenty of back-slapping and mutual congratulation.

And with 20/20 hindsight, that back-slapping and mutual congratulation was more than justified given the manner in which one of Australia’s most significant industries was born out of what was really a politically-expedient means of bringing Australian wages growth under control.

No one should forget that the Superannuation Guarantee was borne out of the need for a relatively new Labor Government with few economic runs on the board to place a brake on wages growth. It did so by way of negotiating an accommodation with the Australian Council of Trade Unions (ACTU) via the so-called Prices and Incomes Accord.

In short, the Superannuation Guarantee could only have been created because an Australian Labor Party (ALP) Government was in power and because the then leadership of the nation’s peak union body, the ACTU, was pragmatic enough to see the mutual benefits which would flow from such an arrangement.

In political terms it represented an absolute triumph. The Prices and Incomes Accord, via the SG, succeeded in containing wages growth at the same time as laying the foundations for what, 20 years later, became an almost $2 trillion savings pool.

Much was owed to the fact that Australia had an ALP Government but it was equally important that the then, Prime Minister, Bob Hawke, had been a former secretary of the ACTU and intimately understood both the personalities and the issues.

Just as important was that the then Treasurer, Paul Keating, developed a pragmatic working relationship with the then secretary of the ACTU, Bill Kelty.

The Prices and Incomes Accord survived the life of both the Hawke and Keating Governments and moved beyond the development of the SG to also alter the face of Australian industrial relations and to pave the way for the Howard Government’s radical Workchoices.

Two decades later, only a few of the cast of 1991 are still on the stage or standing in the wings. Most influential among those, however, is former ACTU official and industry funds stalwart, Garry Weaven.

Where superannuation policy has been concerned since 2007 the Rudd and Gillard Governments have not had cause to consult deeply with the ACTU. Instead, the touch point has been the industry superannuation funds which grew in strength on the back of the SG.

Much is made of the level of ALP and trade union influence on the trustee boards of industry superannuation funds but, in reality, the make up of those boards is little changed from the early days of award-based superannuation when equal representation was provided to employers and employees.

But it is not at the individual industry superannuation fund level that most change has occurred. Instead, most change has occurred as a result of a number of industry superannuation funds joining together to fund the creation of a commercial entity – Industry Fund Services.

It is worth noting that the evolution of that industry fund commercial entity mostly took place during the period of the Howard Coalition Government and that those responsible, including Garry Weaven, made little secret of their intentions with building what has now emerged as a vertically-integrated financial services conglomerate offering banking services, funds management, asset allocation, financial planning and lobbying services.

As well, what placed the industry funds clearly at odds with the financial planning industry was the Howard Government’s introduction of choice of superannuation fund legislation.

It was the choice of fund legislation which prompted the commissioning of the so-called “Compare the Pair” advertising campaign – something which proved so successful that later surveys clearly showed that industry funds had emerged the net winners in attracting members in early years of choice of superannuation fund.

While there were those that argued the “Compare the Pair” advertising campaign represented a breach of the sole purpose test applying to superannuation funds, the Australian Prudential Regulation Authority (APRA) allowed it to continue (with some disclaimers) on the basis that the industry funds were ultimately acting to benefit members.

Nearly a half decade since the regulator gave those advertisements the nod, it is not clear whether it has seriously revisited the issue in the context of choice of fund no longer being front and centre, or the advertisements having been changed.

With the Future of Financial Advice (FOFA) changes about to be released in the form of legislation, and with the Government moving to implement its “Stronger Super” policy, the Superannuation Guarantee looks likely to be lifted to 12 per cent in time for its 21st anniversary.

What is also certain is that irrespective of whether the Government succeeds in having all its FOFA changes turned into legislation, the industry funds will continue to grow their presence in the financial advice space, particularly with respect to scaled advice.

In fact, the degree to which the rise and rise of the industry funds continues will depend in large part on future Government policy and which particular party is in Government.