In the latest issue: union busting via super, co-contributions won’t help low paid, super is an asset base for poor, complaints tribunal rules against rip-off, vote on fat cats pay, workers’ capital hits Davos plus more.
Shock News – Politician Tells Truth
Just in case you thought it was only the ACTU who couldn’t work out
what the Government was on about with its freedom of choice legislation,
here’s some comments from David Tollner MP, the newly elected Country
Liberal Party member for Solomon, in the NT.
In a speech last August to
the NT Industrial Relations Society, Tollner informed his
audience:
“…I must admit I have had a couple of surprises myself
since starting in this job.
“The other day I was at a backbench
briefing.
“The subject matter was superannuation – an area in which
I have some experience and I was paying attention.
“It was
suggested that the freedom of choice in superannuation funds to be offered to
employees through new legislation was, in part, a union busting
exercise.
“I said: ‘How does that
work?’
“I got referred up the line – to a senior
parliamentary colleague who maintains a strong anti-union stance on all
matters.
“He said he couldn’t tell me how that
works.
“The moral of the story is the sometimes the cause takes
precedence over reason.”
No super or tyres
Tollner contrasted the current situation with universal superannuation with
the past.
“I remember when I first started in the superannuation
game I visited an old man on one of the outstations. I said to him,
‘I’m here to give you some real good super’. He said to me,
‘What do I need super for? I got a brand new diesel.’ I then said,
‘No, no – I’m talking about your retirement,’ to which he
replied, ‘I told you it’s a brand new diesel, it will be another
20000 miles before I need to re-tyre.’
Industry funds
But things have moved on, says Tollner, with the introduction of unionists to
decision-making that was once an exclusive employer preserve. He praises the
role of industry funds, saying that:
“The superannuation industry
is rich in people whose background is about the defence of workers’ rights
but whose future is about maximising the return-on-investments for their fund
members……
“Early in the game several employer groups worked
furiously to persuade governments and private companies that employee
superannuation fund investments would increase the power of union bosses to use
the same stand-over tactics in investment as they once used on building
sites.
“Perhaps there are arguments to support that theory, but I
don’t know what they are.
“What I do know is that there are
now millions of Australians with superannuation who would be delighted to hear
that their fund has invested in the creation of national infrastructure, in
building transport links, a national gas grid, communications
technology.
“But dated attitudes prevail, politics is put ahead of
reason, private and public projects are deferred or abandoned for the lack of
investors when Australian owned super funds are brimming with
cash.”
We wonder how long it will be before David Tollner loses his
preparedness to tell it how it is, just like other Coalition MPs who know that
the choice legislation will increase cost and complexity, putting superannuation
decisions back with the employers and the banks.
Co-Contributions Won’t Help Low Paid
The Government’s co-contribution legislation is likely to pass, given
the lack of opposition in the Senate, although the Bill has been heavily
criticised by Labor, while the Democrats have proposed amendments to extend its
reach.
The ACTU argued strongly to the Senate Superannuation Committee
that matching voluntary contributions for workers earning up to $20,000pa
(tapering off at $32,500pa) would be taken up mainly in families where a high
earning member can afford to make contributions on behalf of a part-time spouse
or child.
One in three workers earning less than $20,000 don’t have
super at all, and only 8.6% of those who do make voluntary contributions. While
voluntary contributions rise to almost a quarter of workers earning between
$20,000 and $40,000, many of these contributions are compulsory requirements of
public and private sector defined benefit funds, with those workers unlikely to
be in a position to contribute more.
The ACTU also argued against
reducing the surcharge on high income earners on the grounds that this was
direct assistance to those who needed it least.
The Democrats’
announcement that they would support reduction of the surcharge from 15% to
12.75%, rather than the Government’s proposed 10.5%, with the
co-contribution extended to workers earning up $40,000, represents a significant
improvement, although it does not address the real issue, which is how to target
superannuation assistance to those who most need to save for their
retirement.
Labor’s plan to cut contribution tax for all workers is
a more practical and fairer way of adding to superannuation savings.
Choice On The Cheap
Labor Super Spokesperson Nick Sherry has extracted figures from the ATO
showing that the Government plans to spend less on consumer and business
education about choice than on improving the ATO’s internal administration $10m on choice, compared to $14.5 for ATO infrastructure.
Profitability Needs Exit And Entry Fee Ban
The Government has squibbed the key issue in its consultation paper on
portability of funds. Requiring funds to transfer money, if requested by a
member, is fair enough (so long as fund members are not disadvantaging
themselves as a result of brand advertising), but it’s downright dangerous
if exit and/or entry fees apply.
The result of this could be more
“churning”, already encouraged by commission-based financial
planners, so that the benefits go to providers of the products rather than to
members.
Labor’s plan to ban entry and exit fees and provide for
automatic consolidation of multiple accounts will help fund members rather than
retail master trust providers and their commission agents.
Complaints Tribunal Rules Against Rip-Off
A master trust provider will have to reconsider its decision not to reimburse
a member’s insurance, after a recent Superannuation Complaints Tribunal
decision.
The member had joined the master trust in May 1998 and rolled
out a year later. During this time, contributions made on his behalf totaled
$1,031, while insurance premiums of $1,011 were deducted from his
account.
The Tribunal found that the member had not been advised of the
cost or that it would be deducted from his account, or that he could opt out
with the employer’s consent.
Super = Asset Base For Poor
Super is the biggest asset for Australians, after their own homes, according
to the latest report from the National Centre for Social & Economic
Modelling, for the Financial Planning Association.
At $56,000, it makes
up 20% of the wealth of the average household, while at an average of $15,000,
it provides a key asset base for the poorest 20% of households.
More Super Traps
In the last issue of ACTU Super News we warned about employers who pay
SG on employees’ salary net of salary sacrifice contributions to
super.
Since then, we have received news of two more apparently lawful
scams.
JUST SUPER has contacted us about employers who use salary
sacrifice contributions to fund their SG obligations.
This means that
rather than merely paying the SG on the lower salary, as described in our last
issue, they treat the salary sacrifice as including the SG. Although this is
legal, employees in this situation would not know how their apparently voluntary
salary sacrifice arrangements are being used.
The Finance Sector Union
has written to all political parties about the practice of some employers,
including Suncorp Metway, the Bank of Queensland, ANZ and ING, of requiring
employees employed on common law contracts to absorb the recent 1% increase in
the SG. This works because the contract specifies a total salary package,
including superannuation. When the SG increased, the employers reduced the
salary component of the package by 1% and transferred this to super, meaning
that employees funded the SG increase, rather than the employer, as intended by
the law.
In one actual example, an employee on $50,354pa lost over $505pa
in gross salary.
Pressure On DB Schemes
With falling investment markets, employers are finding themselves having to
make significant contributions to their corporate defined benefit funds, many
for the first time after years of contribution holidays.
While DB schemes
are becoming less common, in part due to employer anxiety about future funding
liabilities, employees are increasingly understanding that these funds generally
operate on rules set by the employer, and that they are dependent on the
employer’s continuing financial health. The collapse of Ansett, with
around $200m underfunding of its super fund, illustrates this point.
Bad news for shareholders
The increase in corporate DB pension plan liabilities resulting from falling
markets is an enormous issue in countries where these funds are the norm.
In Japan, more than half of all DB funds have less than 90% of the funds
required to meet pension obligation.
A report by Dresdner Kleinwort
Wasserstein analysed the pension fund position of 47 bond-issuing companies,
finding that only six had fully funded pension schemes.
The report
concluded that large funding deficits could be a negative factor in credit
rating, particularly affecting German companies which are not required to hold
specific assets against pension obligations.
In the US, Wilshire
Associates has been reported in the Financial Times (10/9/02) as estimating that
the total value of US pension assets fell by 12% in 2001, with a likely total
underfunding of $100b by the end of 2002.
The huge Calpers fund is
considering whether to assess companies’ pension fund assumptions in their
investment decisions. This is because a number of companies, including Delta
Airlines, Ford and General Motors, have not stuck with high return assumptions
on their pension investments in spite of the sinking stock market. (from
Worker’ Capital News)
UK parallel
A similar shift is occurring in the UK, with employers abandoning DB schemes
and replacing them with accumulation schemes funded at a much lower
level.
UK employers are able to do this, because unlike Australia, there
is no mandatory regime of employer contributions to pension funds.
The
Trades Union Congress has launched an important policy paper, in which it calls
for introduction of compulsory contributions, funded one third by employees and
two thirds by employers.
The TUC estimates that a 4-6% contribution would
provide half-pay for workers on average earnings, while the low-paid would
receive a higher proportion which would bring them above the statutory pension
level. A 15% contribution level would mean that those on lower incomes could
maintain their standard of living in retirement, while those on average to
higher incomes would receive a lower income, but sufficient to protect them from
financial hardship.
Last month’s TUC conference voted to support
compulsory minimum contributions of at least 15%.
Interestingly, a recent
poll showed 81% support for compulsory employer contributions, and 75% saying it
was a medium or high priority for the country.
Vote On Fat Cats Pay
UK listed companies will be required to publish a report on directors’
pay and put this to their AGMs for a shareholder vote from 31 December
2002.
Companies will also be required to include a performance graph
showing how the company has performed against others in the
industry.
Although the vote is only advisory, the TUC expects that it
will give investors a focus if they are unhappy about excessive directors’ pay,
and will provide some opportunities for collective union organisation around
votes in some companies. (From the TUC’s member trustee news.)
Yet More Disclosure
The US Securities and Exchange Commission has approved proposals to force
mutual funds and other investment companies to disclose how they voted in
company shareholder proxy contests. The funds would also be required to publish
their guidelines for proxy voting. (from Workers’ Capital
News)
CSS/PSS Lead On Corporate Governance
The main commonwealth public sector super funds, CSS/PSS, are leading the
way in adopting a governance risk management strategy across their investment
portfolio. The strategy is to be implemented by Westpac Investment Management,
which has been appointed to “monitor potential environmental, social and
corporate governance risks to the long-term shareholder value of the PSS and CSS
Funds’ $3 billion of Australian equities investments”.
The
strategy, explained by member trustee Joy Palmer at the recent ACTU
Superannuation Forum, consists of a number of steps.
risks;
consideration;
resulting gaps in companies’ response;
implementation.
Workers’ Capital Hits Davos
The ICFTU (to which the ACTU is affiliated) reports that the World Economic
Forum (WEF), the world’s largest gathering of private corporations, has
agreed to devote a special session at its next meeting to workers’
capital.
The WEF annual meeting will be held in Davos, Switzerland in
January 2003.
The ICFTU believes that the session will provide a unique
opportunity for labour to promote its policies and priorities to major corporate
leaders on a range of issues while indicating the large shareholdings that
pension funds own in those corporations.
WEF membership comprises over a
thousand major companies. As major shareholders, workers have a legitimate
interest in the governance of those companies, their global labour practices,
the need to implement ILO labour conventions and to set up global agreements.
Unions will also argue that there is a need for the private sector, including
the leading investment managers and banks, to value the role of public services
in creating a social and economic framework in which they can operate and become
advocates for quality public services.
ACTU Superannuation Trustees Network Newsletter
ACTU Super Editor: Linda Rubinstein fax: 03 96634051 email:
lindaru@actu.asn.au
