Australia’s $2.6 trillion superannuation industry is bracing for two weeks of damaging public hearings as data shows the number of disgruntled retirement savers has doubled over the last five years.
The Hayne royal commission will today turn its attention to 14 superannuation funds and the two regulators who oversee them as part of its expose of misconduct in the financial services sector and is expected to focus on uncompetitive deals, excessive spending and archaic back office systems.
Directors representing some of Australia’s biggest and well known industry super funds will appear with AustralianSuper, Host-Plus and CBUS appearing alongside retail super funds operated by the big four banks, AMP and IOOF.
First to appear will be NAB’s former executive general manager of wealth products, Paul Carter, and Nicole Smith, who previously chaired NULIS Nominees, the trustee for MLC’s super funds. She resigned in June.
There is speculation they will be quizzed about the customers who were charged hundreds of dollars in annual fees for financial advice they did not know they could opt out of. In late July MLC, which is NAB’s wealth management arm, announced it was refunding $67 million.
The inclusion of super in the royal commission’s terms of reference was contentious. Labor’s royal commission plans did not include super but the government wanted the inquiry to have the scope to examine union-affiliated industry super funds.
Industry funds are preparing to be grilled about marketing, governance and failed mergers. The commission may examine how members’ money has flowed from funds to their sponsoring unions. The Australian Electoral Commission says such payments have topped $50 million over the last decade.
The chief executive of Australia’s largest super fund, AustralianSuper, Ian Silk, is scheduled to appear.
Counsel assisting the royal commission is said to be drawing heavily on the Productivity Commission’s 570-page draft report on competition and efficiency in the super industry.
Bank-owned retail funds are poised to be quizzed about related-party deals, vertical integration and entrenched underperformance.
The propensity for retail funds to appoint service providers at uncompetitive rates leading to operational expenses that APRA found to be twice as high as industry funds will also be examined.
APRA also found there was more than 40,000 investment options within super with 98 per cent of these created by retail funds.
Data quality and back office systems are also expected to be scrutinised. Last week Productivity Commissioner deputy chairman Karen Chester said the difficulty some funds had in fulfilling basic data requests was eye-opening.
“The never-ending exercise of data extraction, and the insights we have gleaned from some funds in doing so, is in and of itself evidence” she said.
The highly-visible sponsorship of sporting codes by industry funds and the big costs they generate are also expected to form a key avenue of inquiry Commissioner Hayne explores, including whether superannuation funds have been deployed in the best interests of members.
Other than investment outcomes, fees and charges have a material affect on super balances. RMIT University associate professor Michael Rafferty estimates that excess fees and charges and underperformance in super costs members about $12 billion a year.
Professional financial standards organisation FINSIA called for funds to be more transparent and keep separate accounts for the management company and the trust with the marketing to be undertaken by the management company.
Smaller funds including Catholic Super and Energy Supply Industry Superannuation are also scheduled to appear and answer questions about why mergers set up to give them scale and help them deliver services at lower cost have failed.
Last year merger talks between the $7 billion Energy Super fund and $14 billion Equip Super broke down, reportedly under the influence of the Electrical Trades Union.
As funds prepare for the showdown, quarterly data shows the number of phone calls and emails received by the Superannuation Complaints Tribunal has risen from 11,441 in 2012/13 to 22,714 in 2017/18. Among the top gripes of members are fees, insurance complaints and delays in transfers.