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ACTU Superannuation enews March 2009
Friday, 27 March 2009
 I am pleased to bring you the March 09 edition of “ACTU Superannuation enews”. As previous readers will recall, “ACTU Super News” is intended to keep union appointed trustees fully informed about ACTU policy on the broad spectrum of social and economic issues which effect or are affected by superannuation. We also want to hear your views on these issues and encourage you to email responses to super@actu.asn.au and to ensure that we have your current email address.
Cath Bowtell, Editor
KEY TOPICS
A commentary on issues of significance which have attracted attention recently, or which are likely to do so shortly, and on which the ACTU has a clear view.
Award Modernisation / default funds
The issue of default status in awards continues to attract some political attention, primarily due to the campaign by the Investment and Financial Services Association (IFSA) and the Financial Planners Association (FPA) to have default status removed from awards.
In their submission to the Senate inquiry into the Fair Work Bill and before the AIRC, these organisations have lobbied for the abolition of superannuation as an award matter, or alternatively for enterprise flexibility arrangements to enable the default fund to be chosen at the enterprise level.
Despite these representations, the AIRC has inserted a standard superannuation clause in each modern award. The ACTU has advocated that the modernisation process should, in the absence of a contrary position from the parties to the award, preserve the status quo in respect to fund coverage. This has largely been the approach of the AIRC:
• Some funds have obtained expanded scope to be nominated as the default fund, by virtue of being named in awards that cover a broader occupation or industry than the predecessor awards;
• Some funds have expanded geographic scope to be nominated as the default fund. The final version of the priority awards included a number of state based-funds that had been omitted from the draft awards. These funds will now enjoy default status outside their traditional geographic boundary;
• Some funds have retained default status with their existing employers, but will not be able to be nominated as the default fund for new employers in that funds traditional area of operation.
This is because not every fund that was named in a NAPSA or federal award has been named in the modern awards. A savings clause was added to the final awards that include, as a default fund, any fund to which the employer was contributing for the benefit of employees on 12 September 2008 as a default fund. This will preserve those funds’ status as default fund for existing employers, but not with new employers in that industry or occupation. [Note that it is not clear that the AIRC can, by use of this savings clause, also validate the use of funds that were not named in the predecessor awards or NAPSAs].
Download a list of specific default funds named in the awards and/or to make a comment please email super@actu.asn.au
Henry Review of the Australian Taxation System
The Henry review of the Australian Taxation System has been asked to bring forward its report on retirement incomes to coincide with the government’s review of aged pensions. The ACTU, along with the AiGroup, participated in a steering committee to develop the AIST/ISN submission to the Henry review. The recommendations in the submission include the following:
• The desirability of defining an‘adequate retirement income’
• Increase contributions
• Tax breaks on super contributions for low income earners
• An increase in the base rate of the Age pension
• Banning commission-based selling of retirement saving and annuities products
• Government to offer life-time annuities
• $1500 baby bonus superannuation contributions
• Review of $450 monthly income threshold for super contributions
The ACTU appeared before the Henry Review. In our submission we focused on the need for progressive tax on super contributions and other measures that will assist people on low incomes. We seek your active participation in this debate – forward your comments on these and other matters you believe are relevant to super@actu.asn.au.
ASIC Consultation – Projections and Calculators
In late 2008 ASIC sought the views of industry participants on a proposal that each year members receive an estimate from their fund of what their retirement benefit may be. ASIC also sought input into how such projections of end benefits should be calculated and whether funds should be required to provide interactive calculators to enable members to do their own projections.
Industry super funds, through the Industry Super Network and the Australian Institute of Superannuation Trustees made a submission in which –
• Mandated annual retirement benefit projections were supported
• Those projections were to reflect the members individual situation (age, contribution level, current account balance, certain parameters set by the relevant regulatory authority [notably the rates of inflation and wage growth to be applied] and key elements of the particular fund/investment option the member is in [level of fees and charges, investment returns expected as set out in the PDS]).
• The provision of interactive calculators was to be optional and driven by market forces, but where calculators are provided the same rules as for projections must apply.
The traditional commercial sector also made a submission. It called for standardization expense and investment earnings rates to be utilized. This, of course, would mean that the highest cost/lowest performing fund would produce the same projected retirement benefit as the lowest cost/highest performing fund.
No prizes for guessing which of the two extremes is the traditional commercial sectors natural habitat. Of course, it is more difficult to produce tailored projections, but they are also much more informative. Who needs to know what end benefit they would receive out of a theoretical fund they cannot join?
Lost Member / Clearing House
One of the problems bedevilling super is the number of lost member accounts – according to the statistics available the average Australian worker has more than three super fund accounts.
Now, it is true that some people choose to have more than one account for a variety of good reasons, and that choice should remain for them. The truth, however, is that most “lost” accounts are small and created for workers who have been with an employer (and therefore a particular fund) for only a short period of time.
These accounts add to the total cost of running our super system and therefore result in the total of benefits paid to workers being reduced – not an outcome we can support.
A related but separate problem is the fact that member fund choice can result in employers being required to forward contributions to many funds. This is obviously more expensive and time consuming than if they only had to communicate with one fund.
We are in continuing dialogue with the Ministers office about these issues. Your views are sought – forward them to super@actu.asn.au.
Ratings Agencies / League Tables
A number of organisations have taken upon themselves the task of producing league tables of super fund performance. The perceived issues with this set-up include –
• The appalling track record of ratings agencies in the finance sector – notably the AAA ratings given to mortgage packages in recent years.
• The different methodologies they adopt, which produces different outcomes from what appears to be the same data.
• The risk of biased outcomes based on the demands of the other lines of business they run.
• The short-term, headline grabbing nature of the tables – the emphasis on one month not 5 year returns.
Minister Sherry has responded by prompting APRA to produce a league table which will hopefully be free of these issues, and APRA is currently seeking responses from the industry to a format they have suggested.
We will be arguing that the same broad principles are supported in respect of a retirement benefit projection should apply – that is, to be relevant to members the league table must show the rankings of funds and options available for the public to buy, not some average or theoretical fund available to no-one.
Again, tell us what you think by emailing us at super@actu.asn.au.
Temporary Residents Superannuation Acts Proclaimed
On 19 December, 2008 Senator Nick Sherry, Minister for Superannuation and Corporate Law, announced the proclamation dates for commencement of the Temporary Residents’ Superannuation Legislation Amendment Act 2008 and the Superannuation (Departing Australia Superannuation payments Tax) Amendment Act 2008.
The Temporary Residents’ Superannuation Legislation Amendment Act 2008 establishes the broad framework to enable unclaimed superannuation of temporary residents who have departed Australia to be paid to the ATO. This Act commenced on 18 December 2008. The ATO is expected to issue the first notices under the new legislation to superannuation funds in February 2009 with the first payment of the unclaimed superannuation of temporary residents expected in April 2009.
The Superannuation (Departing Australia Superannuation Payments Tax) Amendment Act 2008 increases the rate of tax payable on departing Australia superannuation payments from 30 per cent to 35 per cent in most cases. These changes will apply to payment applications made on or after 1 April 2009.
Regulations have also been made to support the implementation of the temporary residents’ superannuation measure. The regulations amend existing regulations, the Superannuation Industry (Supervision) Regulations in particular, to ensure that the rules that apply to superannuation funds when making benefit payments are consistent with, and support, the new temporary residents’ measure.
Further amending regulations will be made in early 2009 to replicate the changes in respect of Retirement Savings Accounts.
NETWORK NEWS
A view from one of the entities established by the Industry Super movement in events currently important to it.
AIST
The Australian Institute of Superannuation Trustees (AIST) is a national not for profit organisation whose mission is to promote and protect the interests of Australia’s $450 billion not-for-profit superannuation sector.
AIST’s membership includes the trustee directors and staff of industry, corporate and public-sector funds who manage superannuation on behalf of nearly two-thirds of the Australian workforce. As one of the principal advocates for the not-for-profit superannuation sector, AIST plays a key role in policy development and industry research.
In 2008, AIST completed more than a dozen submissions to the Federal Government on a diverse range of issues including emissions trading, the Henry Tax Review and temporary residents’ superannuation.
AIST provides a range of professional development courses both accredited and non- accredited including RG146, Diploma of Financial Services, Certificate in Foundations of Trustee Governance, Introduction and Advanced Investment courses. We also supply member-support and compliance services.
Each year, AIST hosts the Conference of Major Superannuation Funds (CMSF), The Australian Super Investment Conference (ASI) and numerous other industry conferences and events.
For further information visit www.aist.asn.au or phone (03) 8677 3800.
EDITORS NOTE: the ACTU works closely with AIST in the preparation of submissions to Government.
COMPLIANCE CORNER
A list of matters that have arisen since our last publication to which we would expect your fund to have alerted you.
ASIC Relief on super guidance
ASIC has offered Funds some relief from the licensing provisions to enable funds to provide limited guidance to member’s switching queries. ASIC will provide this relief by way of a no-action position for any contraventions of the licensing rules and advice obligations in particular the requirement to hold an AFSL and compliance with training of representatives, ensuring advice is personally suitable and providing written statements of advice.
The relief is provided on the conditions that the trustee does not make any express recommendations to acquire or dispose of a financial product or to change their investment options or contribution levels and make appropriate disclosure ie if they do no hold a licence, statements have been prepared without taking their circumstances into account and that the Trustee may have an interest in the member maintaining their status quo. The Trustee must also keep a record of statements made in reliance on this no action position. For funds to avail themselves of this relief they must make application to ASIC.
Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Bill 2008
The bill has passed through parliament and will enable same-sex couples to be able to leave their superannuation to their partners or children upon death.
Anti-Money Laundering / Counter Terrorism Financing Program update
From 12 December 2008 Funds are required to monitor and maintain a proper understanding of its customers and their transactions. The systems, policies and procedures that the reporting entity develops to meet ongoing customer due diligence (OCDD) must be clearly documented in a Fund’s AML/CTF Program. There are three components of OCCD:
• Know Your Client information
• A transaction monitoring program; and
• An enhanced customer due diligence (ECDD) program
Funds are required to lodge a compliance report with AUSTRAC by 31 March 2009 for the reporting period 1 January 2008 to 31 December 2008.
• Short Selling Bill Passed
• Corporations Amendment (Short Selling) Bill 2008UTH was passed through parliament in December
Thanks to Angela Thurstans of Cbus for her input to this item.
Super Activist Talk Back
Compulsory Superannuation is a Social Good so let the “Not-for-Profits” Look After It.
by Tim Kennedy
Our universal and compulsory superannuation system should not be a vehicle for the wealth management industry to have a guaranteed income source from which to profit. Such profits come directly at the expense of working people who need every advantage to create retirement savings and dignity in retirement.
Universal and compulsory superannuation contributions for Australian workers are one of the most significant achievements of the Hawke-Keating governments. An example of good social policy intersecting with good economic policy, this reform provides a savings pool for Australians as well as dignity in retirement for Australian workers.
But this excellent reform is missing one final component. Universal and compulsory superannuation contributions should only be contributed to and managed by not-for-profit funds which are run to benefit members only. Such funds are best represented by the Industry Fund model.
This reform is important because the universal and compulsory nature of superannuation should have only one objective – the provision of the best retirement income stream for workers as possible. Such a legislative reform would not only complete a great social policy project, it would give the policy an internal consistency where the purpose of providing retirement savings for Australian workers is not diluted by unnecessary profiteering. The performance and record of industry funds adds weight to the need for this reform.
Industry Funds have outperformed profit motivated master trusts in good and bad years. Chant West calculates that traditionally industry funds have outperformed master trusts by between 1.5% and 2.0%.
As recent global events have shown, the irrational belief in free market ideology has proven to be a failure for millions of people. The removal of profit driven master trusts and the like would ensure that the cost of managing and growing workers’ superannuation savings are minimized. In these times of significant negative returns, the Government is looking for ways to minimize the amount of hands dipping into workers savings. This proposal addresses this concern and creates a sound structure for our retirement income policy into the future.
Tim Kennedy biography
Tim Kennedy was born and raised in North East Victoria. He lived in Springhurst, Corryong and Wodonga before leaving for Melbourne to commence studies at Monash University. He completed a B.A. (Hons) and a M.A. (International Relations) at Monash University, and a LLB (Hons) at La Trobe University.
Tim commenced working with the National Union of Workers as an Industrial Officer in 1995. He has subsequently worked as both an Organiser and Industrial Officer for both the National Office and Victorian Branch of the Union. During this time he was responsible for industrial advocacy in industrial tribunals, dealing with industrial disputes, unfair terminations and matters involving bargaining, organising and industrial action.
In November 2003 Tim became the Assistant National Secretary of the National Union of Workers. Tim also represents the Union as a Board Member of LUCRF Super, the NUW’s industry superannuation fund. He currently sits on both the Audit and Compliance Committee and Investment Committee of LUCRF Super. He also represents the Union as a Board Member of Union Aid Abroad – APHEDA, the overseas foreign aid arm of the Union Movement. Tim is admitted to practice as a Barrister and Solicitor of the Supreme Court of Victoria.
Comments on Ian Court contribution in Super News October 2008
“Think distribution, Ian. High income contributors get a motza tax break already, low paid get diddlysquat. Cap lump sums on $, not %. Contributions tax? Cutting 15% to 10% leaves the top end fire-hose on full, for a trickle out at the bottom. A phased in extra 6% employer contribution is a good idea.”
Grant Belchamber
To have your say on Tim’s policy position forward your comments to super@actu.asn.au
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