If you are one of the five million members of an industry fund you should be concerned about the superannuation recommendations contained in David Murray's financial system inquiry.

Read More: SMH

The recommendations, if adopted by the government, could all but destroy the hugely successful industry super model.

Murray says if super fees do not come down significantly by 2020, super funds should have to compete through tenders for the right to manage workers' super.

The battleground in super is over who provides the "default" investment option for those employees who do not choose who manages their super.

Most people do not choose who manages their super. As things stand, an industry fund is usually specified as the default-option provider in industrial awards. In some awards employees have no choice, with their super required to go to the specified industry fund.

Under competitive tenders, funds offered by the "retail" sector, those run by the banks and AMP, could become the default fund provider for workers covered by an industrial agreement.

In a fair fight, industry funds could be expected to attract new members from retail funds. After all, they have outperformed their for-profit rivals. They have a good story to tell.

But in such a competitive environment, industry funds would have to at least increase their advertising spending just to retain members and the benefits of economies of scale.  

The result of Murray's vision for super could be a marketing-spending arms race, in which for-profits are stronger. The main reason for the good returns of industry funds is their low costs, which produce higher net returns for members.

Large financial institutions, as well as outspending any other sector of the Australian economy on advertising and marketing, also control the vast majority of financial planners.

Distribution of their financial products, including their super funds, is guaranteed, otherwise why hire planners?

As for workplace super, every employer has a relationship with a bank. At the moment, a café owner will probably have an industry fund as his or her default fund provider under an industrial award.

That suits the small employees who are in the same industry, covered by the one fund as the default provider.

Murray also wants to shake up the governance of super funds. He recommends that there be a majority of independent directors on the board of corporate trustees of "public" offer superannuation funds, including an independent chair. Industry funds have equal representation of employees (from a union or unions) and the larger employers.

Part of Murray's justification for independent board members is that they are public offer and so are therefore no longer just representing the interests of workers from one sector.

It is true that large industry funds are open now to anyone, rather than restricted to employees from a particular occupation or sector. However, in reality, most industry funds still have members who work in a particular industry, such as hospitality.  

Another probably reason that industry funds perform well for their members, in addition to their low costs, is that their directors have first-hand knowledge of the industry. "Independent" directors would certainly command much higher pay that the often paltry compensation of industry fund board members.

The higher pay would be handed on to industry fund members. Board members of industry funds understand the industry and often have a good understanding of the needs of ordinary wage earners, who generally do not take that much interest in their super.

Murray's call for more competition sounds appealing. But the problem of high fees lies with the retail sector, not the industry fund sector.

All default funds must have a MySuper tick, which means, among other things, that the default fund does not pay commissions to financial planners. That has led to retail super fees coming down, but MySuper does not come into full effect until mid-2017, so retail fees will come down further.

It is the low-cost, not-for-profit industry fund model that sets the benchmark for the entire industry. Murray has shown though his other recommendations that he is independently minded and not afraid to take on the big banks.

But, of course, the privileged position of the union movement within industry funds is politically charged. Murray's superannuation recommendations should be evaluated by the only yardstick that matters: what is best for ordinary workers and their retirement savings.

The effect of the recommendations would very likely be negative for the retirement savings of millions of ordinary workers.


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