In the latest issue: choice bill misses mark, how much is enough, members sue prison fund, TWU puts heat on Boral, more evidence about master trusts, Members Equity a workers’ bank plus more.
Choice Bill Misses Mark
The future of the Government’s choice of fund legislation remains
uncertain after all members of the Senate Superannuation Committee agreed that
the current Bill is unsatisfactory.
In a report released last month, the
Committee raised a number of issues which it said should be addressed:
charges, with members having the ability to compare the effect of different
funds’ fees on their final benefit.
would substantially reduce this problem.
around $50,000 from the date of employment.
fully funded and the employer is contributing more than the 9% SG.
level and nature of employer fines.
All Senators supported the
provision in the Bill for agreements to override choice.
Committee Differences
While all Committee members recommended these issues for examination by the
Government, only the Coalition members supported passage of the Bill.
The
ALP and the Democrats, in separate minority reports, demanded significant
changes to the Bill, in particular providing equal treatment for same sex
couples in allocation of death benefits and comprehensible and standardised
disclosure of fees and charges.
Labor went further in also recommending
changes in line with Nick Sherry’s recent paper:
administration costs.
cheaper insurance or banking.
How Much Is Enough?
Around 70-80% of pre-retirement earnings is generally estimated to be an
appropriate target for retirement incomes, with recognition that this might need
to be increased for low income retirees and capped for those on higher
incomes.
A recent roundtable organised by the Senate Superannuation
Committee found a high degree of consensus on this view of adequacy.
The
key differences revolved around whether or not the existing system would deliver
this objective and, if not, how it could be achieved.
An Institute of
Actuaries analysis of different modelling approaches adopted by Treasury and by
ASFA concluded that a person on average weekly ordinary time earnings would
receive 60% of pre-retirement earnings after 30 years employment, taking into
account the age pension and the SG.
Missing out
There was also general agreement that the people who had least hope of
achieving adequate retirement incomes were baby boomers, most of whom had only
now reached 9% super, and women, as a result of broken working lives and
frequent periods of part-time employment.
It was also noted, however,
that Australian workers, in common with most of the OECD, are retiring later,
which would add to their super savings.
Tax
Change to the tax system is an obvious way in which Government could
contribute to increasing retirement incomes.
Removal or reduction of
taxes on contributions and earnings, with the emphasis placed on taxing final
benefits would be more rational, and also ensure that taxes fell more heavily on
those most able to pay.
ACOSS pointed out that superannuation equity
could be assisted by a shift in the balance of current taxation, given that half
the total value of the $5b pa cost of super tax concessions goes to the one
sixth of employees on $50,000 or above, and one third goes to the top tenth of
employees on $60,000 or above.
In its submission to the Senate Committee
ACOSS proposes a new model for super tax:
abolish the contributions tax and the surcharge, but not the tax on
earnings.
contributions, and capped at a dollar amount.
a rebate up to the cap.
Members Sue Prison Fund
SPSF (Victorian public sector union) members, with the support of the union,
are suing the Corrections Corporation of Australia Superannuation Fund for
losses caused by its disastrous investment policy.
From 1995, the fund
shifted the bulk of its assets from a pooled investment into direct property,
including premises occupied by the employer.
Following the loss of a
number of prison management contracts by the employer, retrenched employees
claimed benefits from the fund, requiring sale of property at a significant
loss.
The SPSF claims that fund members lost millions of dollars which
would have accrued if the fund had remained invested in balanced
funds.
The case is proceeding in the Federal Court.
TWU Puts Heat On Boral
TWU members employed by Boral bought company shares to enable them to ask
questions at the October AGM.
The owner drivers were outraged by the
company’s decision to terminate 30 drivers without any redundancy pay, and
its refusal to negotiate a redundancy agreement for all drivers employed by
Boral, whether employees or contractors.
The drivers are part of the
Boral Shareholder Alliance, which is concerned about the long-term effects of
the company’s cost-cutting, aimed at boosting short-term profit and the
share price.
Environmental issues have also attracted shareholder
interest, including the impact of concrete dust exposure on workers and the
community, the need to clean up contaminated sites, and whether provision has
been made for costs associated with green and development issues.
Significant shareholder opposition, including from institutions, was
also expressed at the 700,000 share options package approved by the meeting for
Boral CEO Rod Pearse.
A particular criticism from C+Bus was that half of
the options would be granted if the company met the average performance standard
of its peers – a fairly low hurdle.
Reflecting general levels of concern
with shareholder remuneration, Garry Weaven from IFS commented that: “The
most significant thing that a board could do to add to shareholder value would
be to get rid of the CEO”
More Evidence About Master Trusts
Every survey of superannuation fund fees and charges has found that retail
master trusts average at least twice the costs of industry, public sector and
corporate funds.
In a submission to the Senate Super Committee’s
inquiry into retirement incomes, financial planner Ross Christie estimated that
over 40 years, assuming $40,000 salary, 3% inflation, 4% salary growth, SG
contributions and a 6.25% after-tax crediting rate, an industry fund member
paying $1 per week administration and 0.45% investment charges would be $239,079
better off in retirement than a member of a retail fund paying 2.24%, including
a trail commission of 0.88%.
The way in which the master trusts operate
has been described with admirable honesty by Tom Collins, an experienced
financial planner and a consultant to the industry, in a recent issue of
Money Management.
In his article, Collins calls on the financial
services industry to “get its act together and act efficiently and
prudently or wait for the draconian hand of regulation.”
He is
particularly critical of the commission-based remuneration system for financial
planners, which encourages churning.
“So if you don’t move
the client’s money there is no implementation – so no reward is
earned.”
Collins recognises that commission-based remuneration
means that ongoing client payments for financial planning services are not
visible.
“No confronting invoices for the client, which would be
the case if the client stayed in their existing government/corporate/industry
fund.”
He then points out that the financial planning industry
has become bigger and more profitable largely because of the compulsory
SG.
“The industry would be a mere shadow of itself without the
SG.”
Collins’ comments offer strong evidence in favour of
Labor’s policy to prohibit excessive fees, including commissions, on SG
contributions.
Members’ Equity – A Workers’ Bank
The ACTU has had a longstanding commitment to the development of low cost,
high quality financial products to meet the needs of working people.
In
1994, the ACTU initiated Super Member Home Loans, initially run by National
Mutual (now AXA) and consistently the best home loan product
available.
SMHL, together with a business loans product, have been
heavily promoted by unions and industry superannuation funds, and is now
operated by Members’ Equity (ME), 50% of which is owned by over 40
superannuation funds, with the other 50% owned by AXA.
ME now has a
banking licence and has launched credit card and savings products, acknowledged
as the best on the market.
AXA has recently offered to sell its 50% share
in ME, giving superannuation funds the opportunity to become sole owners of a
bank with the potential to develop into a diversified financial institution
operating as a partner to industry superannuation funds.
For
information about ME products call 1300 654 990 or
www.membersequity.com.au
Unions Accuses RACV Of Misuse Of Super Fund
Millions of dollars of RACV workers’ super savings have been used to
fund redundancy packages, according to the AMWU.
The union claims that
trustees of the RACV corporate fund agreed to a request from management to make
the surplus available to the company.
The RACV is refusing to give
workers access to a letter from APRA which the union believes states that the
payments from the fund to the company are illegal and improper.
In a
circular to employees, the RACV states that it has acted within the law, and
that the super fund paid augmented superannuation benefits to employees who
participated in a voluntary departure program.
Following a union
demonstration outside the RACV AGM, the Finance Sector Union has joined the
campaign.
AIST Handbook Great Trustee Tool
The Australian Institute of Superannuation Trustees has produced the
4th edition of A Practical Handbook for Superannuation
Trustees.
This loose leaf guide covers issues with which trustees
must be familiar – the law, administration and investment.
Each section
has been prepared by experts eg equitable duties, the scope of regulation,
discrimination issues, insurance, claims, tax and many others.
The
handbook, which will be updated regularly, is provided free to AIST members,
and can also be purchased from AIST tel: 03 9923 7122 or email: info@aist.asn.au
Union Slams Telstra AGM
Avoidance of criticism and examination was the main agenda item for the
Telstra AGM, according to the CEPU.
Questions and discussion were
scheduled after the election of directors, ensuring that their re-election went
smoothly.
Even then, lunch took place during the meeting, ensuring that
most shareholders were outside during discussion of key issues, such as the
desperate need for more capital investment, particularly in the cable network,
and the restoration of staff numbers, with 45,000 jobs lost since
1996.
Given the disappointing share price, discussion might have been
expected about significant write-offs due to failed overseas investments, but
these were barely mentioned.
Any difficult questions were not answered,
but deferred to private discussions between the questioner and
management.
The manoeuvring would seem to be unnecessary, given the
Government’s 50% ownership, and the high institutional support for
management – no doubt because of hopes of further
privatisation.
Nevertheless, Len Cooper, vice president of the
union’s communications division, who regularly stands for election to the
Telstra board, received almost 162 million proxy votes.
MPs Asked To Find Lost Members
The Australian Preservation Fund has written to all federal members of
parliament telling them the number of lost super money accounts in the postcodes
covered by their electorates.
Lost super money is held for people who
can’t be contacted by their super fund.
While millions of dollars
of lost super was reunited with their owners during the recent Unclaimed Super
Recovery Campaign, there is still $6b unclaimed.
It is estimated that
one in three Australians has lost super – a guide to claiming it can be found
on www.apf.net.au
Man Bites Dog
Actually, it didn’t. But even more newsworthy, the first employer to
compensate employees who lost pension savings as a result of company collapse
has pledged $25m of his own money to Global Crossing workers. Gary Winnick, the
chairman of the bankrupt telecommunications group, had made $512m over three
years, mainly by selling his company shares before the
bankruptcy.
Winnick has promised to compensate workers who were hurt by
the collapse because their pension fund was heavily invested in Global Crossing
shares.
Engagement=Performance
The $150b California Public Employees Retirement System has found that its
policy of engagement with companies to promote better corporate governance has
resulted in stronger performance by those companies.
A study of 62
companies, reported in the ASFA magazine Superfunds, found that they had
outperformed their index by 23% in the five year period of active dialogue with
the fund, compared to an 89% underperformance by the same companies prior to the
engagement by CalPERS.
Companies Commit To Better Labour Standards
More US companies have agreed to third-party monitoring of their
international labour practices in response to pressure from their own
shareholders.
“During the 1990s, shareholder activists had only sporadic
victories in persuading companies to adopt more stringent codes and monitoring
systems,” said Peter DeSimone, a senior analyst with the Investor Responsibility
Research Center and author of Shareholder Initiatives Against Sweatshops
“But beginning in 2000, shareholder proponents have persuaded a growing
number of companies each year to either commit to third-party monitoring or to
significantly beef up their codes of conduct.”
In 2000, New York City
pension funds withdrew shareholder proposals after two companies—Nautica
and Polo Ralph Lauren—agreed to revise their codes to bring them in line
with the ILO’s core conventions and to implement third-party monitoring systems.
In 2001, New York City pension funds and the LongView Collective
Investment Fund received similar commitments from Abercrombie & Fitch,
Hasbro, Jones Apparel and May Department Stores.
Similar results are
emerging in 2002, with eight withdrawal agreements already struck by New York
City and other lead proponents.
A comparison of corporate codes of
conduct in 1997 and 2001 provides additional evidence that companies receiving
shareholder proposals on global labour standards have responded by strengthening
their codes. Nine of the 27 companies receiving such shareholder resolutions in
2001—General Electric, Home Depot, Kellogg, Kmart, Nordstrom, Philip
Morris, Sears Roebuck, Unocal and Wal-Mart—also provided IRRC with their
codes of conduct in 1997. Then, none of the nine companies had policies on
freedom of association or collective bargaining—two of the ILO’s core
labour conventions. Today, five of the nine have a policy on freedom of
association, and three have a policy on collective bargaining
rights.
IRRC observed similar improvements in minimum age, forced labour,
discrimination, worker health and safety and working
hours.
http://www.ircc.com
Look For The Union Label – And Run The Other
Way
The difficulties caused by market declines for underfunded defined benefit
funds around the world is of serious concern.
It has been estimated that
the pension funding gap in the US automotive industry will reach $30b this
year.
Due to quirks in pension accounting, companies were previously able
to increase their earnings as a result of gains in pension assets during the
share boom.
In a highly contentious analyst’s report issued last month,
Morgan Stanley Equity Research North America warned against investing in
companies with a unionised workforce.
The key reason given was the need
to avoid the “plagues” of defined benefit pension liabilities and
post retirement health benefits, which the analyst believes are found
predominantly in industries with “outsized” union
representation.
The report has been slammed by AFL-CIO President John
Sweeney, calling it an attack on all union members, their employers and their
benefit funds. Sweeney pointed out that these pension funds provide much of the
capital on which the markets rely, and reminded Morgan Stanley of the collapse
of anti-union companies like Enron, Tyco and WorldCom – which the analysts
failed to foresee.
In a later note, Morgan Stanley has attempted to
qualify and clarify its position stating that unionisation cannot be identified
as the cause of stock underperformance in these “old economy”
companies, and acknowledging that industries such as airlines, automobiles and
railroads are tough businesses.
Funds Sue Over Share Price
A US corporate governance activist, together with corporate lawyers are
planning court actions on behalf of pension funds against companies which they
believe haven’t paid enough attention to shareholders and whose share
price has dropped.
They hope that the courts will order improved
corporate governance, as well as award damages.
Early targets for the
action include Sprint, Quest and AT&T.
Financial
Times
ACTU SUPER goes to member representatives on
superannuation fund boards and other interested individuals. We are reliant on
unions providing up-to-date information about the trustees of their
members’ funds. Please email details to sav@actu.asn.au
EDITOR: Linda
Rubinstein fax: 03 96634051 email: lindaru@actu.asn.au
