ACTU Superannuation Trustees Network Newsletter No.25 July / August 2004

EDITOR: Linda Rubinstein
Fax: 03 96634051
Email: lindaru@actu.asn.au

Union Super Power

The ACTU is holding a one day conference about campaigning and bargaining around super.

The conference will be held in Sydney on 14 September and repeated in Melbourne on 21 September.

Speakers and panel discussions will cover topics including:

• Where are we now?
• Building up workers’ super
• Building the industry funds
• Union super power at work
• Workers’ capital - is it working?
• Charting a new path for corporate campaigning

The conference is designed for elected union officials, organisers, industrial officers and union super trustees.

For more information and registration contact sav@actu.asn.au

Union Members Care About Super

In preparation for the Union Super Power conference the ACTU’s Member Connect conducted a telephone poll of union branch secretaries about attitudes to super.

A majority of those polled said their members were very concerned about whether they would have enough to retire on, with another 39% saying members were somewhat concerned. Only 4% said members were not concerned.

While most of those polled thought their organisers had high or medium understanding of issues such as the difference between for-profit and not-for-profit funds and the effect of fees and charges on members’ super, there was a substantial number describing organiser understanding as “low”.

Understanding of the role of awards and agreements in super, and of the operation of salary sacrifice was relatively high.

Not surprisingly, given its recent passage, 40% said their organisers had low understanding of the choice legislation.

62% of the unions said they had campaigned for increased super contributions, with 64% claiming increased employer contributions and 32% a mix of employer and employee contributions.

44% thought members would bargain for increased super, with a third saying they would not and a quarter responding “don’t know”.

Industry Funds Outperform Again

Although final figures are not yet available, it seems that industry funds have brought in very solid performance for the 2003-4 financial year, well into double digits.

Figure It Out, Alison

ALP Financial Services spokesman Stephen Conroy recently quoted from an article by Alan Kohler which tells the hypothetical story of a young woman named Alison going to see a financial planner to choose a fund.

“At the end of a spirited, persuasive pitch [the planner] solemnly intoned: ‘I must inform you, Alison, that the fee charged by the fund is 2.2% per annum, including an ongoing commission to me of 0.6%.’

“’Gee,’ said Alison. ‘That doesn’t sound much.’

“’Well, Alison,’ replies the planner, ‘You’re right - it doesn’t sound much. But under the regulations duly passed in 2004 I must also inform you that if you contribute 9% of your salary to the fund until age 65, and your salary increases by 5% per annum, and the fund earns a gross investment return of 8% per annum’ (by this time Alison's eyes are quite glazed) ‘the total amount you will have paid in fees by the time you retire is $535,812, including $90,089 to me as your adviser. This represents an average of $992 per month during your working life including $172 a month to me.’

While some fees are unavoidable, Labor’s commitment to ban entry and exit fees and commissions on compulsory SG contributions will significantly boost retirement savings for people like Alison.

Choice Of Fund

After eight years of talking about it, the Democrats passed the Government’s choice of superannuation fund legislation during the last frantic week of the parliamentary session.

The legislation passed following agreement with the Government to treat all “dependency” relationships, including same-sex relationships, on an equitable basis for superannuation purposes.

While ASFA and the Consumers Association raised serious concerns about the Government’s disclosure model for fees and charges, it has apparently satisfied the Democrats.

Choice of fund will begin on 1 July 2005. From that date, employers will be required to give employees a form on which they can indicate their chosen fund.
Choice will not apply to members of some public sector and defined benefit funds, and to those whose fund is specified in a state award, certified agreement or AWA.

If the employee does not make a choice the award-specified fund will apply or, if there is no applicable award, the employer can choose the fund, as is currently the case.

The legislation specifically prohibits funds and their associates (like banks) from offering inducements to employers on condition they sign up employees to their fund.

The passage of the choice legislation highlights the importance of unions including the appropriate superannuation fund in certified agreements by 1 July next year.

Superannuation Guarantee Earnings Bases

Following the Treasurer’s announcement earlier in the year that the exemption for pre-19991 SG earnings bases would be removed by 2010, Parliament has legislated for this to occur in 2008, reflecting another Government agreement with the Democrats.

The ACTU and a number of unions, particularly the mining division of the CFMEU, have campaigned for this change, as there are cases where employees are not receiving the full SG due to the definition of “ordinary time earnings” in applicable awards, agreements, superannuation trust deeds or legislation being inferior to that in the SG legislation.

The campaign for immediate change will continue, with hopes that Labor will agree to this should it be elected.

Talking About Super

The new financial services licensing regime makes superannuation funds liable for their representatives who give financial advice without having met required training, disclosure and conduct standards.

Who Are Fund Representatives?

A union official who is a director of a superannuation fund trustee is automatically a fund representative. In some circumstances, a union official or delegate who is not a trustee might be taken to be acting on behalf of a fund: for instance, if the official or delegate is a member of a union which is a sponsoring organisation of the fund and is actively seeking to persuade individual employees to leave or place their superannuation with that particular fund.

What Is Financial Advice?

First of all, a union official or delegate is not giving financial advice when engaged in collective negotiations about the superannuation fund to apply to employees generally. Arguing for an industry fund to be specified in a certified agreement or for the employer's corporate fund to be outsourced to an industry fund is not giving financial advice.

Financial advice is a statement or opinion intended to influence a person to make a decision in relation to a financial product. Advice can only be given when the recipient has a discretion or choice about the financial product they will use.

Should union officials and delegates give financial advice?

Unless they have received some training, it is best for union organisers and delegates not to give financial advice.

This does not mean, however, that officials and delegates cannot talk about industry funds. It just means that they should stick to the facts, rather than give opinions and recommendations.

Union officials and delegates can:

• Give factual details of industry fund administration fees, insurance costs and investment returns;

• Describe features of industry funds such as member investment choice and access to home loans;

• Tell members that many funds run by banks and insurance companies charge commissions, and some do this every year;

• Give comparative figures for different funds reported by industry surveys.

Union officials and delegates who might be seen as representing a fund and have not received some training should avoid:

• Giving their opinion about whether any fund is better than any other;

• Telling members their retirement benefits are likely to be better in an industry fund with lower fees and thereby seeming to endorse that fund.

If this type of general advice is needed it can be provided by the relevant superannuation fund and their representatives who can provide financial product advice.

Union officials and delegates should never give individual advice to individual members about what they, as individuals, should do in relation to their superannuation.

2004 Super Budget Measures

The ACTU put its concerns about the Government’s expansion of the co-contribution and decrease in the surcharge to the Senate Economics Committee inquiry last month.

The ACTU is strongly opposed to reducing super tax for the highest paid employees, but not for most workers.

While the expanded surcharge will support more employees making voluntary contributions, the reality is that the scheme is likely to be most attractive to those earning low incomes but who are members of relatively high income families.

The legislation has gone through Parliament, with the Government agreeing with the Democrats to reduce the surcharge to 10% rather than the original proposal of 7½% by 2005/6.

Who Gets The Co-Contribution

The Federal Government has recently extended its co-contribution, so that workers who make super contributions from their after-tax incomes of up to $1000 in a financial year will receive a matching contribution into their superannuation accounts.

Workers on incomes up to $28,000 pa receive 150 per cent of their contribution; that is, if they contribute $1000 they will receive a co-contribution of $1500. The co-contribution begins to phase down by 5 cents for every $1 of income over $28,000 and ceases to apply once incomes reach $58,000. An employee earning $35,000 pa, for instance, would receive $1150 for a $1000 contribution, an employee on $45,000 would receive $650 and an employee on $55,000 would receive $150.

The ACTU believes that the co-contribution applies to employees making after-tax compulsory contributions, whether to defined benefit or accumulation funds.

MEAA Move For EGM Moves Fairfax

When Fairfax announced it would be making up to 45 senior journalists redundant, MEAA members (many of them shareholders) began to collect signatures for an EGM.

The purpose was to consider resolutions calling upon directors to protect the quality and credibility of the newspapers and the long term value of the company rather than implement cost cutting.

Before the meeting was called, however, agreement was reached that there would be no compulsory redundancies.

TUC Marches For Pensions

The British TUC’s Pay Up for Pensions campaign went on the march in London last month in support of its demand for compulsory employer pension contributions.

With no compulsory scheme, and employers abandoning their defined benefit funds, fewer than half of workers under 30 have started contributing to a pension.

Consultant Conflict

The US Securities and Exchange Commission is considering regulating to prevent asset consultants from taking benefits, directly or indirectly, from fund managers.

Asset consultants advise funds on manager selection, a process which should require total independence.

The SEC is concerned that some consultants receive inflated fees for conference registrations, research services sold to managers, performance reports, training courses, participation in data bases and the like.

The AFL-CIO’s Center for Working Capital suggests that trustees ask detailed questions of consultants about their links with managers.