Industrial Relations Changes and Superannuation

The Workplace Relations Amendment (Work Choices) (Consequential Amendments) Regulations 2006 (No 1) makes amendments consequent on the passage of the Work Choices Act to 56 separate laws. With the exception of those relating to superannuation, the amendments appear to be wording and numbering changes ensuring consistency with the Work Choices Act but not otherwise having any significant effect.

Superannuation Guarantee (Administration) Act 1992

Amendments to the SG Act have the following effects in relation to employers which are “constitutional corporations” (note: there is no change to the obligations for unincorporated employers making super payments under state awards or agreements)

In the explanatory memorandum the Government noted that “the purpose of these amendments is to ensure that these employers ( that are constitutional corporations and who make superannuation guarantee contributions) are not required to make superannuation guarantee contributions to a fund specified in the state law as well as an employee’s chosen fund.”

• From the commencement of Work Choices, super contributions made by an employer under a preserved state agreement (PSA) or a notional agreement preserving state awards (NAPSA) satisfy the choice of fund requirements; that is, the employer is not required to offer choice but must allow employees to choose a fund if they request this in writing;
• Super contributions made under a NAPSA satisfy the choice of fund requirements only until 1 July 2006;
• From 1 July 2006 employers paying super under a NAPSA must offer choice and give a choice form to new employees, to any employee requesting choice and where the employer changes the default fund to which it contributes. The employer is not otherwise required to give a choice form to existing employees.
• Employers are not required to give a choice form to existing employees following the termination of a workplace agreement which provides for payment of super into a specific fund except to new employees, to any employee requesting choice and where the employer changes the default fund to which it currently contributes. This will also apply to employers paying super under a federal award from 30 June 2008 when these provisions will cease to operate.
• Employers bound by preserved state awards or agreements in Western Australia are not required to offer choice forms to employees if they have complied with the choice of fund notification provisions applying under state legislation.

These amendments should be seen together with the provisions in the Work Choices Act which mean that new awards will not be able to include superannuation provisions, and these provisions in existing awards will not apply to new employers. Workplace agreements made under the Work Choices Act will continue to override choice of fund as is the case with certified agreements and AWAs under the previous legislation.

Super Cadets: beginning of a new era

The Super Cadets program is designed to identify and develop trained employees specifically for the not for profit superannuation sector who will be equipped to meet the ongoing challenges facing the industry.

The Super Cadets program is coordinated by the Conference of Major Superannuation Funds (CMSF) and is jointly supported by the Australian Council of Trade Unions (ACTU) and the Australian Industry Group (AiG).

Monday 30 January 2006 marked the first day of the twelve-month cadetship program for twenty-seven new recruits to the not for profit superannuation sector.
 
Representing nineteen industry and public sector funds, and related organisations in the network, these cadets have been selected from amongst hundred of applicants to participate the 2006 Super Cadets program.
 
Super Cadets orientation week was an opportunity for the new cadets to come together and hear from key stakeholders in the not for profit super network and undertake introductory training in the history of superannuation, the differences between for profit and not for profit super funds, choice of fund and communications.
 
Guest speakers at orientation week included Mavis Robertson (CMSF), Garry Weaven (IFS), Sandy Grant (Cbus Superannuation Fund ), Greg Combet (ACTU) and Grahame Willis (AiG).
 
In April, the cadets will be attending CMSF 2006 on the Gold Coast, where they will have the opportunity to meet key figures in the superannuation industry and further develop their appreciation of the network they are now a part of.
 
If you’ll be attending the conference in April, keep an eye out for the 2006 Super Cadets.

News from around the funds

STA/ARF Merger

The process of merging STA and ARF has continued with the funds releasing a joint media statement on 14 February 2006.

That statement announced the new board, the Chair and CEO/Deputy CEO of the new fund with both STA and ARF providing information to members on their websites. When fully operational from July 1 2006 the new fund will have over 1 million members and $18 billion in assets under management.

SuperNews understands that the merged new fund has selected its new custodian and is finalising the new insurance arrangements for members that will come into effect in the second half of 2006.

APRA and Board Performance Reviews

In 2005 one of the superannuation Boards to which the ACTU nominates member directors, commissioned a Review of Board Performance by an external consultant. The Review incorporated peer review assessments by the directors, and was initiated for the purpose of identifying where Board process and performance could be improved.

In the fifteen years since its inception this superannuation fund has consistently recorded excellent performance against all relevant criteria.

Subsequently, arising out of the fund’s application for an RSE licence, APRA used its access powers to obtain a copy of the Review (including the performance reviews of individual directors), purportedly for the purposes of risk-rating the fund and / or determining the fitness and propriety of directors.

The Review in question was not instigated for either purpose.

APRA has indicated that while it will not require Boards ‘as a matter of course’ to make available to APRA the results of board performance assessments, it will seek to access such reports in particular cases where it considers this to be ‘relevant’ to its on-going supervisory dealings with institutions.

Should the stance taken by APRA on this issue lead to reluctance by superannuation Boards to conduct their own comprehensive reviews in future – as well may be expected - the superannuation industry will be the poorer for it.

2005 Voting outcomes at company AGM’s

2005 was another active year of proxy voting at company AGM’s in Australia. Shareholders holding an average of almost 48% of the issued capital of companies submitted proxy-voting instructions for the top ASX 200 companies during 2005. This compares to 35% to 40%, which was the norm in the late 1990’s.

Participation rates for voting were highest for director-related resolutions. This was also the first time that shareholders could exercise a non-binding vote on company remuneration reports, a practice operational in the UK since 2002 and established in Australia as a result of the CLERP 9 Reforms.

From information collected by ACSI and ISS Proxy Australia it appears that 134 remuneration reports were put to a vote (amongst the top 200) with 5.22% having more than 20% of votes cast against the recommendation. In some cases, such as the Billa Bong International Remuneration Report almost 100% of cast votes supported the remuneration report. In the case of Novogen Ltd a resounding 69.3% against vote was recorded on that company’s remuneration report.

The most controversial topic of the 2005 proxy voting season appears to have been the granting of equity incentives to executive directors. Out of a total of 96 resolutions proposed, more than 27% received against votes of more than 20%.

It is still too early to assess the impact of non-binding votes on executive remuneration. However, some of the encouraging feedback from ACSI clients has been on how directors and fund staff have moved significantly up the learning curve of assessing executive remuneration.

Responsible investment issues

Mercer Investment Consulting has just released its survey results on how investment managers around the world are thinking about environmental, social and corporate government issues (ESG). The focus of the survey was how these ESG issues would impact on investment performance and client demand for responsible investment products and services.

The survey covered 157 investment managers with almost $A25 trillion in funds under management. Nine of the investment managers were Australian based including some of the larger groups such as AMP and Perpetual. As the survey concluded:

“Almost two-thirds of investment managers globally (65%) believe the effects of globalisation are material to mainstream asset performance, while a similar proportion (62%) think corporate governance is a relevant issue.... Environmental issues like climate change feature less prominently now (15%) but are tipped to grow in consideration within 5 years.”

The most significant difference between the responses of the Australian investment managers and their global counterparts concerned the issues of terrorism and employee relations. While 67% of Australian managers felt terrorism was relevant for consideration in mainstream investment analysis the average for all respondents was 41%. Nearly half the Australian Managers said that employee relations was relevant for consideration in mainstream investment analysis while the average for all respondents was 23%.

However, there remains a large gap between the proportion of managers who think ESG issues are or will become material to investment performance and the proportion who, in response to client demand are integrating ESG into their investment appraisal and decision making frameworks.

As a survey of U.S. institutional investors noted recently, 75% thought ESG issues were material to investment performance; but only 14% had assessed whether their external investment managers incorporate ESG into their investment decision making and only 31% flagged their intention to do so in the future.

The Mercer survey is timely as Australia’s Senate inquiry into corporate social responsibility draws to a close. In that inquiry the role of company directors taking ESG issues into account is the main focus of attention. However, as the World Economic Forum’s report on responsible investment has pointed out there are constraints all through the investment value chain when it comes to mainstreaming ESG issues, particularly the need for more informed and demanding institutional investors.

There are some encouraging signs that industry funds are taking ESG issues on board. Discussions within the funds and IFM on reputational risk are a good example, with several funds indicating that for both existing and new investments they want the potential of reputational risk to become more central in investment analysis, particularly for unlisted investments. The press release and full results of the Mercer Investment Consulting survey are available on Mercer’s website at www.merceric.com.

May 2006 Budget and Super

The Standing Committee of Economics, Finance and Public Administration has concluded its public hearings into improving the superannuation savings of people under age 40. However, its report will not be tabled in Parliament prior to the May 9 budget. It remains to be seen whether the much publicised recommendations by Nick Minchin to abolish the super tax on contributions is taken up.

While only time will tell what the Committee will recommend the Treasurer shouldn’t wait for at least one of the likely recommendations.

At the very least, he should abolish the super earnings threshold whereby employers paying an employee less than $450 a month ($1350 quarter) don’t have to pay the employee any superannuation.

While more than 90% of all employees get super, almost 50% of those earning less than $200 a week in their main job are not paid super. In addition, many other part time and casual workers get no super in their second job because of the earnings threshold. More than 800,000 Australian employees miss out on being paid super and the earnings threshold is the main reason.

The time has come to abolish this inequity.

To avoid the cost and complexity of multiple small fund balances for low paid employees, payments could be made to a single Government Fund as in Finland. These would be invested by the Future Fund. Employees would be free to move their one Government account to the private sector account of their choice when their earnings or Fund account rises above an established threshold. It’s a win-win situation for everyone.




This newsletter provides an overview of current issues only and readers should seek their own advice in deciding if the legislation is relevant to them and what action they may need to take.