It’s Corruption! The Federal Government is Missing in Action on Superannuation for Millions of Australians

Soft corruption it may be, but it’s still corruption.More than unethical governance, more than a sin of omission, more than mere neglect or delay or incompetence, soft corruption is knowing full well that bad behavior exists, that people are suffering heavy losses, and not fixing it, not regulating to change it because of interest group pressure. For years both sides of politics are to blame. Even though there aren’t brown paper bags stuffed with cash changing hands, it’s still corruption. 

That’s what we have in our $2.8 trillion superannuation industryand especially in the $50bn a year that flows into the default superannuation funds system. These are funds workers don’t choose for their super and often leave behind when they leave employers. 

When Kenneth Hayne bought out corruption in hearings of his Financial Services Royal Commission we all shook our heads at the greed, the concealed nature of the banks’ fee rip-offs and trailing commissions.  But this superannuation rip-off, covering all Australian workers and implementing Government regulated compulsory contributions over the past 25 years, is far bigger and far worse than big bank fees rip-offs.

The 10/1/2019 Australian newspaper quotes 23 year old Angus Dalton “Why was I micromanaging my bank account when there’s way more money in my super”  And further quotes “most households spend more on super fees than gas and electricity combined”.

On the same day Michael Roddan summarised the just released Productivity Commission Report Recommendations in The Australian:

-create a list of “10 best in show super funds” and offer workers that choice instead of default funds

-force fee-gouging funds to exit 

-tie workers through tax file numbers to a super account which follows them to new employers 

-legislate to consolidate lost and forgotten super accounts (so that multiple fees cannot continue to be charged)

-force regulators to cancel super funds that fail to deliver good returns after a warningP

-set higher performance standards for financial advisers who set up Self Managed Super Funds for individuals, on many occasions setting up small unviable SMSFs bound to fail from which they can charge fees  

-change terms of reference to force the Australian Prudential Regulation Agency APRA and the Australian Securities and Investments Commission ASIC to act because they are missing in action on superannuation for millions of Australians 

-enact the Productivity Commission report to boost Australians’ super by $3.8billion.

-Australians pay some of the highest super fees in the world ($30bn a year)

Some egregious sins of the present super system include:

-five million members with $270bn are trapped in underperforming funds; over a lifetime the cost can be a difference of $660,000

-millions of workers experience small slow increases in their super savings but pay high fees to super funds; 

-workers are given little if any information on which super funds are on offer and even less on how they’re performing; 

-there are many badly performing super funds and government hasn’t acted in 25 years to fix them; 

-there are many hidden fees; government still hasn’t forced super funds to explicitly explain alltheir fees

-government is fiddling while Rome burns: current proposed legislation requiring more independent members on super boards is a pimple on a pumpkin, completely missing the point.

Allowing new employees to choose from the ten best performing fundswould increase retirement balances by an average of $165,000 in a lifetime, even 55 year old workers could expect to collect an extra $80,000 by retirement. Policing underperforming funds out of the system would lift savings by a further $188,000 over a lifetime.

Why has the federal government allowed this disastrously bad system  to continue for 25 years? Why isn’t it maximizing people’s superannuation payouts and reducing their reliance on government pensions? Why hasn’t it required APRA and ASIC to find and punish these failing super funds?

The answer is simple: interest group pressure on Labour and CoalitionInfluenced by unions, Labour won’t countenance industry funds losing their Pgrip on the “rivers of gold” coming from the three-fifths of default contributions made to their industry super funds and the Coalition’s friends in funds management don’t want a system that could remove their “rivers of gold” coming from their even higher fee-charging bank-controlled retail funds, the other two-fifths.

Lets hope the Royal Commission will also recommend the Productivity Commission’s sensibleactions in its final report in late January. The Productivity Commission gave the Royal Commission its draft report before Christmas. Together they can put stronger pressure on government to act or to promise to act in the election campaign.

Franking Credits Anomaly

And there’s another hard-to-understand anomaly.  If Labour wins the May 2019 election, it will remove excess franking credits paid to Self Managed Super Funds run by individuals but not from the large super funds which include the industry super funds run by unions. Double taxation can be applied to individuals but not to industry super funds!  Excess franking credits are credits above the tax the SMSF has to pay but are still credits on which the corporation from which they have come has paid tax

A Final Note on this not-so-soft Soft Corruption

I am gravely upset by these serious failures of the federal government to protect so many people from so much harm for such a long time. In my twenty something years in the Federal government,  I always thought government would consider and act on good advice and certainly remove harmful policies and programs when they arose. I am now in a quandary. l don’t know what government will do about our failed financial systems meant to support us. I will send my comments to my federal member, Andrew Laming, a member of the Coalition and hope he conveys some of my anxieties to Ministers.

When I Googled soft corruption I found a book whose summary gave some examples of soft corruption:  public officials accepting favours from lobbyists, giving paid positions to relatives, rigging electoral systems where campaign money is used to buy government results (the situation we are describing here!) and so on……

Zrinka 

10/1/2019