Taking back control of our super
From Schwartz Media, I’m Ruby Jones, this is 7am.
The global economic downturn is straining our financial system, and it’s hitting our superannuation funds.
But is the way we’ve structured our two-trillion dollar super industry... making things worse?
Today, Richard Dennis on the secrets of our superannuation.. and how we could take back control.
Archival tape -- news reports:
“The coronavirus spreading across the globe has a new victim, the share market…”
“It's the worst drop in one day since the 1987 crash…”
“Superannuation and pension funds globally are not immune from this fall…”
All right. Richard, most Australians who've been looking at their superannuation statements over the past few weeks would be seeing a big drop in their balance. Why is that happening and what will the consequences be?
Why is that happening? Because a year ago and a month ago, when people were valuing things like shares in the Commonwealth Bank or shares in Qantas or shares in any of the companies you've heard of, they weren't factoring in government policy designed to shut down 20 percent of the economy and all of all of the tourism industry.
Richard Dennis is the chief economist at The Australia Institute. He wrote about Australia’s superannuation system for the current issue of The Monthly.
So share prices have fallen around the world because profits are expected to fall in all those companies around the world. And that's having a huge impact on the people's balances that they've put aside in their superannuation.
What is that impact exactly? How much has the balance of people’s superannuation accounts dropped by?
We'll look at probably around 20 percent. It depends on exactly what companies that you are invested in that your trustees had invested in on your behalf. And it depends on which kind of option you'd picked, like what your exposure was to cash, what your exposure was to shares. But Most people probably just have no idea because while we're all forced to put 9.5 percent of our income into super every week, most of us really don't have any idea what's done with that money.
Right… Most Australians leave these decisions to our super funds. So who is making those decisions about how our money is invested?
Look, most superannuation funds are governed by a group of trustees. They're a bit like a board of directors, but their obligations are even more clear that those trustees have to act in the best interests of members like you and me. And they basically hold our money in trust and they have to put our interests first. How they do and what decisions they make, how they go about making them, however, is incredibly opaque.
So what do we know about the kinds of decisions they're making on our behalf? I mean, how would we find out?
Well, let's think about the kind of decisions. Each of the biggest 20 superannuation funds in Australia allocates far more money than Gina Rinehart or any of the billionaires you've heard of. The trustees of our super funds wield far more power than those famous billionaires.
And if you were to ring your super fund and say, "Can you tell me exactly what companies you've invested in and could you tell me how you voted on all of the resolutions that were put to the last general meetings of those companies, could you just please tell me that?" Most super funds in Australia will just give you a flat, "No".
How do they decide what companies to invest in? How do they decide what companies or industries not to invest in? How did they vote on our behalf, on everything from how many women are on the boards of these companies and how much the CEO is paid to whether or not those companies should do a lot more to tackle climate change. We just don't know!
We’ve been paying compulsory superannuation to these companies for a few decades now. As we’ve been doing that, how big have these companies become?
Well, once upon a time, super funds were far smaller than they are today, and they owned a tiny percentage of any of the companies they invested in now. So, yes, I go back 20 years. You had funds that were five or $10 billion and maybe they owned one per cent of the companies that we've heard of. But these days, we've got funds like Australian Super worth a hundred fifty billion dollars.
And, if they wanted to buy 10, 20, 30, 100 percent of an enormous Australian company, they could. So 20 years ago, it kind of didn't matter how the trustees of our super funds voted on things like what the CEO should be paid.
And 20 years ago, it didn't really matter how our trustees voted on things like whether companies should disclose their climate risks because they used to be small shareholders.
But after decades of forcing us all to put nine and a half percent of our income every week into super, these funds are now enormous and the way they cast their votes is decisive.
So how much do these super funds control in total?
Well, around 2 trillion dollars. Two thousand billion dollars. Between us, If we wanted to, us ordinary Australians could go and buy all of the shares in all of the companies on the Australian Stock Exchange.
We’ll be right back.
Richard, we’re talking about the trillions of dollars controlled by superannuation funds. What kind of influence does that amount of money give them over our economy?
Well, there are only two answers. Not much or we don't know because again, the super funds won't tell us how they behave behind closed doors. They won't tell us exactly how they vote on these important motions.
Let me give you an example. Rupert Murdoch and his family own around 39 percent of NewsCorp. They don't own all of it. They don't even own half of it. But everybody takes for granted. The Murdochs have enormous control over the behavior of NewsCorp.
Again, even though they don't even own half of it, but people don't think in the same breath, how come our super funds can't wield the same influence as Rupert Murdoch or Gina Rinehart or these people. So the reality is and it's a bit of a sad reality. It doesn't look like the super funds vote in a lot of these important ballots for who should be on the board or whether the company should stop donating to political parties? They just sit out these votes and say, oh, that's not really an issue for us, Well, it's hard to imagine Rupert Murdoch sitting out a vote like that.
So if we wanted to change the system so that we had more of a say in how our super is invested, where would you start?
So if we want to have a lot more say in how our trustees make our decisions on our behalf, I think there's a really obvious solution and that's to close the distance between our money and our mouths. I think there should be direct elections for at least a third of the trustees that are on our super funds. So the industry funds at the moment usually have half of their trustees appointed by unions and half appointed by employer groups.
The federal government already said they want to change that. The federal government says a third of trustees should be, quote, independent. Well, why not let the members decide who those independent trustees are?
Why don't we let the people whose money it is have a say about who can speak on behalf of their money? The American Revolution was fought over the idea there should be no taxation without representation. Why shouldn't the people whose money gets put in the super every week have a big say in how those how their funds and their share is being managed on their behalf.
Is that something that you think could actually happen?
Of course it could. It's literally a stroke of a pen away. And again, the federal government already agrees that we need to have independent trustees. It's just at the moment, people think independent means drawn from the club of people that usually work in big business.
And, you know, that's fine. But it's our money. It's our two trillion dollars. And, you know, big picture. Anyone who says there's nothing we can do to change the way big business operates in Australia is just ignoring how our superannuation funds operate and how big they are.
Together, our funds own the big businesses that we complain about all the time. And you know, it's a great trick to tell Australia's people that the way two trillion dollars worth of investments is managed is boring. It's actually really important and potentially really interesting And I think The easy way to get people to engage in that would be to give them a vote.
And of course, some people won't vote because they don't care. And that's all right. But those people who do care can have a say in how. how can you argue with the fact that people should be entitled to have a say about how their money's managed?
Richard, thanks so much for talking to me today.
Also in the news:
Chief Medical Officer Brendan Murphy has retracted an earlier claim that staff from a Tasmanian hospital attended an "illegal dinner party", which had been flagged as a potential source of Covid-19 transmissions in the state.
The Police are still investigating the alleged party on grounds of contravention of social-distancing rules, and noted that Brendan Murphy was simply commenting on a rumor.
George Pell is being investigated by Victoria Police over a new allegation of child sexual abuse, regarding an incident in the 1970s, when Pell was a priest in the Victorian town of Ballarat.
A string of civil claims from alleged abuse survivors and their families have been expected against the cardinal and the Catholic church since Pell’s acquittal last Tuesday.
And in the US... President Donald Trump has used a press briefing to air a video criticising the media’s coverage of the Covid-19 crisis.
Trump also accused state governors of failing to do enough to respond to the pandemic.
Cable networks CNN and MSNBC cut away from the briefing during Trump’s tirade while Fox News continued to air it uninterrupted.
I’m Ruby Jones, this is 7am. See ya tomorrow.
The global economic downturn is straining our financial system, and it’s hitting our superannuation funds. But is the way we’ve structured our $2 trillion super industry making things worse? Today, Richard Dennis on the secrets of our superannuation and how we could take back control.
Guest: Chief economist at the Australia Institute Richard Denniss.
7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Atticus Bastow, and Michelle Macklem. Elle Marsh is our features and field producer, in a position supported by the Judith Neilson Institute for Journalism and Ideas. Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief. Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio. New episodes of 7am are released every weekday morning. Make sure you don’t miss out by subscribing on your favourite podcast app. I’m Ruby Jones, see you next week.