Australia’s superannuation - DNA and transparency

Where are the economies of scale going? It's impossible to tell. Financial statements of funds are published by APRA. But, these "transparencies" enable no insight into who receives what, why and the results. A shroud is wrapped around the financial dealings of trustees. In this Obedian age it is only the unaware who would be happy to have the fate of their money so hidden. If merely one-fiftieth of 1% of the assets held by either the trustees of industry funds or retail funds is misallocated that amounts to a hundred million dollars annually, in each.

That trustees can be happy in this position, where their probity is left to speculation and innuendo, while daily we read of entrusted individuals having idiosyncratic ideas about what constitutes honesty, is itself sick. The trustees' stance against transparency is no accident. Nothing dopey is going on here. Trustees of public funds have rejected calls for greater transparency, and the government has stood by them. The "best" in funds' transparency has recently taken a leap forward with the exposure of (gulp) salaries of trustees and senior staff – a fraction of the story.

Keating A Dupe?

What, really, were Paul Keating and Bill Kelty working towards when stitching up compulsory super in the 1980s? Were they thinking in sympathy as is commonly assumed? A case can be made that Keating was duped by his mate Kelty, in the creation of Australia's super. Keating says that, in 1983:

I wanted unions to enjoy a structural or ongoing benefit in recognition of their years of wage responsibility. Bill Kelty and I were both of a mind to add the layer of private retirement incomes to the industrial agenda as part of an expanded social wage.

Therefore:

...as Treasurer I introduced the Occupational Superannuation Standards Act 1987,... The Act also included a requirement for:...greater member involvement in the control of superannuation funds

There it is. Keating felt obligated to Kelty for "wage responsibility" and Kelty extracted a monumental quid pro quo. Today, it is plain that this "greater member involvement" translated into union control of the trustee boards of super funds. The unions were thrown a solid gold lifeline. Kelty did not just stumble upon what has been the best growth area imaginable, creating and controlling a perennial steam of regular savings forced from Australians, with a veneer of accountability and transparency. Unions had experience with running super funds and were aware of the operations, and the possibilities. The Australian Council of Trade Unions (ACTU), in its December 1990 Bulletin, claimed: "by early next century the assets of superannuation funds will have grown to an amount approximately equal to the entire market capitalisation of the stock market." Kelty understood the scale of the money, its growth, and how access to capital empowers. It is logical that Kelty saw the super deal long-sightedly, as enabling a more refined avenue to influence, and an antidote to decline.

Equally it may be that Keating was not privy to this dimension. Keating, early on, showed no sense that a union-based finance industry, underwritten by working Australians, would be an important result of the cherished Accord initiative. But that could be too generous an assessment of Keating.

This is the genetic material of Australia's super; the stuff behind the Labor slogan "Super is in our DNA": a conjoining of two deficient chromosomes – one, the desperation of unions searching for a growth vehicle to avoid the last rites; the other, a government beholden to the unions sufficiently to accept blithely the unions' conditions on the design of this unique national venture.

The unions have purposefully built a new finance network around universal super. Industry super funds contract services, increasingly supplied by entities of their own creation, which they have capitalised, and are linked, more or less visibly, with unions – funds management, administration, asset consulting and, more recently, banking. Cross holdings can be identified, but the money flows are obscure even at the primary equity level.

What goes on at the next layer down, where service companies owned by funds also require services? Of course, entertaining anything but the highest probity is pure speculation, but it needn't be. Australians who pay the super charge have a right to sniff the air down there. And to be satisfied they know the extent to which the union movement benefits through equity, services, or whatever, in super. It is valid to require transparency on funds' service subsidiaries because at stake is money forced from individuals by government, and because trustees have sandbagged on transparency.

Now we can hazard a guess at why, on that gala night in Melbourne last year, everybody within the best of union and Labor circles celebrated Kelty; Paul Howes, especially. It is reported that the number of non-financial members in the AWU has increased four-fold under Howe's leadership. As Kelty noted, the unions prospects were dour over twenty five years ago. It has been all downhill since, with ever fewer paying unionists. Yet their leaders are partying. It looks like paid-up union members are now redundant. Unions no longer need much membership in order to prosper. Money has to be coming from somewhere else. It enables power to be applied from the top, to the issues which those at the top, like Howes, are interested in. Members even get in the way – wild-eyed, they threaten to take their super billions elsewhere, as in the Grocon dispute.

None of this is to say illegalities are afoot, but equally Australians in public super funds could be suffering damage systemically, and none the wiser.