Superannuation fund members seen but not heard

As superannuation fund balances rebuild to levels not seen since before the global financial crisis, Mike Taylor reflects on how little say super fund members have in the destiny of the funds they join.

What is the difference between members of Perth-based industry superannuation fund, Westscheme, and the shareholders of AXA Asia Pacific (AXA AP) and, indeed, members of the old NRMA before it was demutualised and listed on the Australian Securities Exchange (ASX)?

The shareholders of AXA Asia Pacific and the members of the old, mutual NRMA were asked to vote on the fate of the organisations in which they were shareholders and members. The members of Westscheme have had no say about their fund being merged with the nation’s largest industry fund, AustralianSuper.

Amid all the debate about the Government’s Future of Financial Advice (FOFA) changes, particularly opt-in, there has been absolutely no discussion about the degree to which the legislative and regulatory environment covering superannuation funds in Australia has left members largely disenfranchised.

It may very well be the case that a merger between Westscheme and AustralianSuper is in the best interests of both funds, but the decision will ultimately reside with the trustee boards of the funds, not the members.

The same goes for the manner in which superannuation funds are allowed to conduct themselves generally.

If the trustee boards determine that it is appropriate to contribute $6 million a year towards a national television advertising campaign extolling the virtues of industry superannuation fund membership, fund members can neither question nor veto that decision.

Similarly, if a trustee board decides it is okay to sponsor a rugby league team, there is no need for the fund members to be consulted.

In circumstances where the trustee boards of many industry superannuation funds are the nominees of unions and employer groups, then it is possible members might vent their anger via their union membership — although this has rarely been the case.

Indeed the entire legislative and regulatory regime built up around superannuation in Australia has far more to do with protecting the money held by superannuation funds than ensuring that the rights of the people whose money it ultimately is.

This places superannuation fund trustee boards and executives in positions vastly more powerful than their counterparts in the boardrooms and executive ranks of publicly listed companies.

In essence, provided the Superannuation Industry (Supervision) Act (SIS Act) or other related legislation is not breached, people running superannuation funds have wide-ranging discretion with respect to investments and expenditures.

The legislation would suggest that the so-called ‘sole purpose test’ would preclude expenditures on things such as sports sponsorships and wide-ranging television advertising, but the approach adopted by the Australian Prudential Regulation Authority means that a sympathetic precedent was set some years ago.

What is puzzling is the degree to which both sides of politics in Australia have allowed what amounts to an anomaly to remain in existence.

While the 1990s and early 2000s saw Australians being encouraged into share-ownership and consequent shareholder activism, the same has not been the case with respect to superannuation.

This anomaly has been allowed to continue despite the average superannuation fund balance of a 38-year-old Australian being worth significantly more than the same person’s share exposure to Australia’s major publicly listed companies.

In a very real sense, therefore, the legislation deems superannuation funds to be products in the same sense as managed funds where people invest their money with the acceptance that it is being handled by appropriately qualified personnel capable of delivering an acceptable return.

People who are members of AMP Flexible Lifetime Super have no more say in the running of that product than those who are members of WestScheme or AustralianSuper, but they do have the option of purchasing shares in AMP Limited and therefore having a vote when AMP chooses to acquire a company such as AXA AP.

Members of all superannuation funds do, of course, have recourse to the ultimate sanction of voting with their feet. If they are not happy then they can simply take their account balances elsewhere or, if appropriate, look to establish a self-managed superannuation fund (SMSF).

However, in the absence of establishing an SMSF, any person switching superannuation funds in Australia needs to understand that they are placing their trust in yet another trustee board and that, for the most part, they will remain disenfranchised when the big decisions are made.

As Australia moves towards having fewer but larger superannuation funds and where the assets controlled by those funds run into the billions of dollars, Governments are going to have to reflect upon the appropriateness of having so much power in the hands of people answerable to so few.