ASIC probe into firms’ super deals

The Australian 12:00am December 31, 2018

Michael Roddan

EXCLUSIVE  The corporate watchdog will launch an unprecedented investigation into deals between ­employers and the superannuation funds into which they tip more than $50 billion of their workers’ savings each year.

The Australian Securities & Investments Commission probe comes after the Hayne royal ­commission into the banking ­industry and financial services highlighted how companies shunted employees into fund managers that had failed to act in the best interests of savers.

The deals between employers and super funds are often brokered through enterprise bargaining agreements or by special contracts struck between company management and retail superannuation providers.

Under the current default fund system, employers select funds to receive the savings of the 80 per cent of employees who fail to nominate their own nest-egg manager when starting a job.

A 2012 review of the super system by the Productivity Commission found bosses could be enticed to sign over workers’ savings in return for special deals on financial products and accounting services.

Jeremy Cooper’s review of the super system two years earlier also warned against retail funds providing “bundled services” to employers in exchange for superannuation assets.

ASIC is preparing to ramp up its surveillance of the scandal-­riddled super sector, following the appointment of new commissioner Danielle Press, a former chief executive of the $14bn Equip Super fund.

“We’ve got to look at the role of employers in the default system and how they are making their ­decisions on what funds are their default funds,” Ms Press told The Australian in her first interview as ASIC commissioner.

“At the end of the day, consumers are disengaged. There’s no obligation on employers to make that default choice in the best interest of their employees.”

Industry super fund ­Hostplus had to defend spending $260,000 of its members’ money on wining and dining 120 chief executives and employer representatives at the Australian Open tennis tournament, when it appeared at the royal commission.

Despite the fund being the best performing trustee in the country, Hostplus chief executive David Elia said he needed to schmooze bosses because he feared they would take away default super contracts if they were not ­entertained.

AMP, which was revealed to be one of the worst-performing super fund managers in Australia, was recently stripped of its right to manage the savings of workers at Australia Post and employees of the Anglican Diocese of Sydney, including school teachers, in contracts that were worth a combined $500 million.

Before the royal commission, AMP managed about $32bn in corporate super mandates but this is expected to shrink as more companies withdraw workers’ savings from the ­troubled company. ASIC’s newly appointed deputy chairwoman Karen Chester, the architect of the watchdog’s 2015 capability review, has also flagged a tougher regulatory ­approach in the super sector after recently completing a landmark inquiry into the industry as deputy chair of the Productivity Commission. Former UniSuper chief risk and legal officer Sean Hughes has also been appointed to the regulator.

Ms Press has had experience ­in attempting to convince employers to sign up to her fund, which has been one of the top 10 performing funds since the global ­financial crisis.

She has also had experience in attempting to merge with funds that were too small to deliver optimal outcomes for members.

Equip Super was involved in a number of attempted mergers, including with Energy Super, a tie-up that was investigated by the royal commission, and Vision Super. Both failed over disputes on who would sit on the merged entity’s board.

The failure of ASIC and its sister regulator the Australian ­Prudential Regulation Authority to police mergers that were ­scuppered, despite a tie-up being in the best interests of members, was identified by the Productivity Commission as an area for ­improvement.

However, ASIC’s hands are largely tied until parliament passes laws attaching civil penalties to section 912A of the Corporations Act, which requires that financial services be provided honestly, ­efficiently and fairly. Despite ASIC waiting four years for the tougher regime, legislation has been stalled by a Labor referral to a Senate committee. The failure of parliament to pass the legislation also means there is still no penalty attached to fund directors failing to act in members’ best interests.

ASIC is also drilling into super funds and other financial companies with poor dispute resolution systems. The regulator has found up to half of complainants drop out of a dispute process because of the difficulty of dealing with a company.