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Is your super safe?


Most people probably believe that their retirement money locked up in industry and retail superannuation funds is safe. Think again!

A new report exposes a gaping hole in the system of security covering the compulsory superannuation sector. The report from the Institute of Public Affairs reveals that industry and retail superannuation funds generally have poor levels of disclosure concerning use of members' funds. This creates risk. (Here's a summary of the report.)

It's a rude wake-up call exposing systemic disclosure failure. The report investigates an aspect of superannuation that the soon-to-be-released Cooper Review into superannuation doesn't even have in it's terms of reference. The findings of the report could spell danger for a national compulsory superannuation scheme.

The IPA presents a simple scenario. It says that anyone should be able to go into the website of a super fund and easily find full details concerning, "...where their money is invested, how it is performing relative to similar funds, who gets paid to manage and administer the fund, and how much is paid, and whether the fund's trustees have any cross-directorships."

It's not an unreasonable benchmark of disclosure. In fact, the IPA gives specific examples of how the giant Californian retirement fund CalPERS does just this. Domestically, the IPA picked at random the non-super property investment fund Stockland and shows how its disclosure is high and detailed.

Try it yourself. Go into your super fund website and see if you can locate the type of information you can receive from CalPERS. Or do you find what the IPA found in many instances, a brick wall? Sure, if you're retiring and want to pull your money out you'll receive a statement of your personal position. But what if you're on the journey to retirement? Can you find out what is happening with your money?

This is a regulatory failure. It appears that the two key government finance regulation bodies APRA and ASIC are not required to audit the performance of funds but simply report what the funds report. It's left to private sector ratings agencies to give their take on whether the funds are performing as claimed.

But even the biggest of the rating agencies, Morningstar, says disclosure is a "mish-mash" where "some disclose information on a monthly basis, some quarterly, and some not at all."

The IPA goes further and does something not before attempted. It has looked at the structure of the industry super sector and who controls the $192 billion of workers' money tied up in the 67 industry funds. In what it describes as a "tangled web of control" the report identifies and names the "twelve most powerful people in superannuation" who control $188 billion of financial assets. That's billion, not million!

The industry funds have had special attention because they constitute 84 per cent of award default funds. That is, if a worker operating under an industrial award does not nominate a super fund the award requires deposits into specified (mostly) industry funds. This gives industry funds a monopoly-like power and privilege over competing retail funds. Industry funds are creatures of unions and employer associations in 'partnership'.

Making disclosure even more complex in the industry funds sector is the discovery that "... there is a structural 'round robin' of ownership and control through which much of the industry superannuation 'industry' operates". The IPA identifies one company at the centre of this corporate web. This is new!

There's no suggestion that any of the powerful people named are doing anything wrong or that there is any illegality, misappropriation or mishandling of monies by funds or individuals. Rather the point is that the poor disclosure means that no one knows or can readily find out. It's not possible to watch what the super funds are doing!

Industry funds conduct extensive advertising alleging they outperform retail super funds. But given the IPA report the lack of disclosure means that such claims must be treated with caution. There's no detail to verify the comparisons used.

There are few Australian's who don't have a stake in the superannuation sector. However the inadequate disclosure means all Australians are running blind.

The industry and retail superannuation sectors say 'trust us'! Okay, prove that trust. Disclose everything. No ifs! No buts!

From the Business Spectator, April 2010.

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