In a speech to the HR Nicholls Society yesterday, Paul Fletcher MP, Federal Member for Bradfield, heavily criticised the governance and operation of Australian industry funds.
Fletcher accused the current model for industry and public sector funds, of “advancing Union power and influence”.
A main concern for the MP, was the failure of funds to meet the sole purpose test, due to the representation of Union members on the fund boards.
Under the so-called ‘equal representation’ model, mandated by the Superannuation Industry Supervision Act, up to half of the directors of an industry fund are typically appointed by a union.
Fletcher said that he analysed 74 funds’ annual reports, and that of 551 directors, 171 (31%) were appointed by unions. Of the 10 biggest funds, Fletcher said there were 112 directors in total, “of which eight were independent, and 48 union appointed directors”.
“Very few of them make any effort to appoint people with expertise in superannuation; or to appoint a representative selection of members of the superannuation fund – as opposed to members of the union.”
A conflict of interest then arises between a director’s duty to members of the super fund, and their interest in advancing the position of their union, said Fletcher, citing examples of CBUS, TWUSuper and the Health Services Union. He said that there was a systemic risk of super funds being “crossinfected” by the corruption at a union.
“This is precisely the sort of risk, I would suggest, that the governance reforms recommended by the Cooper Review would help to address. Unfortunately, as I have mentioned, Bill Shorten ignored the recommendations. He did offer the comment, following the Fair Work Australia report into the HSU scandal, that he was ‘appalled’.”
The Review concluded that the equal representation system “no longer seems to achieve its original stated objective”, and that the system leaves significant groups unrepresented, including those who are retired and receiving benefits payments from the fund.
“I think it is very problematic indeed that we have a system under which employees are forced, by law, to take a portion of their remuneration in the form of superannuation contributions, and yet we have not taken steps to derisk the governance of the vehicles into which that money is put,” said Fletcher.
The speech came on the same day as the Coalition released its Policy to Boost Productivity and Reduce Regulation. The policy announces amendments to FoFA, including:
Complete removal of Opt-in
Simplifying and streamlining the annual FDS requirements
Improving the Best Interest Duty
Providing certainty around the provision and availability of scaled advice
Refining the ban of commissions on risk insurance inside super
Sydney adviser receives permanent ban
Five former Trio directors admit failure
Greater disclosure expected from platforms