Australian Financial Review, 29 May 2018
Australia is witnessing the creation of our first 'Super PAC': superannuated unions.
In the United States, a ‘Super PAC’ is an aggregator of cash that makes maximum noise and ruckas for its donors whatever the cost to the nation. The unions now meet that classification.
Even though union representation has fallen to 15 per cent of the overall workforce and just over 10 per cent of the private sector, trade unions now sit on assets of more than $1.5 billion.
Cash flows from industry funds and their opaque related parties back to the union bosses: $60 million in the past ten years.
At the current growth rate, payments are on track to hit $22 million per year within the next decade. If you are a member of an industry superannuation fund, every cent of these payments is taken directly from your retirement savings.
Few people would be aware of two laws which empower these faceless union bosses: lax governance and restricted competition.
At a conference this past Sunday I gave a presentation explaining how the opaque relationship between industry superannuation funds and trade unions has built a war chest of considerable political influence.
In its report released today on the efficiency and competitiveness of the super sector, the Productivity Commission has called time on the cosy relationship between the industrial relations system and super funds.
There are two reforms which must be progressed within the life of this Parliament: the first is improving superannuation governance laws.
The Senate should immediately act in the national interest by passing a bill to require independent directors on all super fund boards.
The second is a sorely needed change to increase competitive tensions between funds.
This can be done after both the Royal Commission and Productivity Commission finished their work later this year.
The Royal Commission is yet to turn its blowtorch to the fraught governance arrangements and related party transactions at union super funds. When it does it would surely be interested in the almost $5 million in payments to unions from companies owned by Industry Super Holdings.
Often the largest payments to unions stem from opaque companies that sit under a wholly owned parent company called 'Industry Super Holdings' (ISH), such as Industry Fund Services and Industry Funds Management.
ISH has long been surrounded by controversy and is a blight on the record of its largest shareholder, the mammoth ACTU-run fund AustralianSuper.
Take, for example, the ISH owned Industry Fund Management's (IFM) failed investment in Pacific Hydro, which allegedly lost consumers $700 million in one transaction.
A detailed report into the failure allegedly was buried. Only snippets have ever been exposed, and that was by Chanticleer column in 2015:
"[The] review, code named Project Primavera, has not only been kept secret IFM Investors has gone to extraordinary lengths to keep it under wraps.
Any investors in the IFM Australia Infrastructure Fund or asset consultants wanted to look at the 200-page Project Primavera report must sign a confidentiality agreement."
No other compulsory product or service in Australia could justify such an opaque and arrogant approach.
Second, competition in super can only improve the troubled system.
Industrial laws ensure millions of consumers who do not choose their own superannuation fund are "defaulted" into union-controlled funds to the tune of $10 billion per year.
In calling for the Fair Work Commission to be stripped of its role selecting default funds, the PC has given a strong, evidence based policy basis for a major transformation of the superannuation sector.
Consumers are free to decide whether or not to personally join a union, and a record 85 per cent of Australians have decided not join one or support their anti-worker campaigns.
Most consumers would be unaware their retirement savings may be skimmed to help fund union operations and their political campaigns, run by the likes of the lawless Construction, Forestry, Maritime, Mining and Energy Union.
We must not forget CFMEU boss John Setka said last week:
"We get fantastic pay rises and good conditions for our members because we fight it outside the law. And if that sometimes brings us on the wrong side of a bad law – and there [are] bad laws – then so be it."
It is the hard-working non-unionised, law abiding workers who are automatically signed up to funds like CBUS that are helping contribute to the CFMEU's $15 million legal bill for breaking our laws. CBUS has actually paid $13 million of workers retirement savings to the CFMEU in recent years!
Nowhere else in the Australian economy has the legal framework and consumer protections been twisted so monstrously to separate Australians from their own savings. In doing so it has propped up the shrinking union movement and enable it to become such a formidable campaign force.
Foreshadowing the release of the PC report in a recent article Adele Ferguson was right to question how much longer the "super gravy train" of fees, related party transactions and sub-scale funds that erode consumers' balances, could keep running.
Proponents of the gravy train argue that payments to unions, are simply yhr product of innocent payment of directors fees from funds to the trade unions, on behalf of the union representative that sits on the board. This simply cannot be true. Large, one-off payments, are sometimes worth over $1 million at a time.
The Australian Finiancal Review reported the Productivity Commission's Deputy Chair Karen Chester on Monday saying that "if data is bad and you can't follow the money in terms of outcomes for members and related party transactions, it is warning bell number one."
The Senate needs no more evidence to pass the super governance bill and should do it urgently. Subsequently it should vote to increase competition once both the Royal Commission and PC have finished their important work. Workers are waiting for better value.