Super satisfaction

Superannuation expert Shauna Ferris.

Since 1 July, five million Australians have been able – for the first time ever – to choose where to put their superannuation contributions.

Senior Lecturer in the Department of Actuarial Studies, Shauna Ferris, is an expert on superannuation. She says the new ‘choice of fund’ legislation does not apply to people who are covered by state awards and enterprise agreements which specify a particular fund.

Others will now be able to choose where their superannuation contributions go, and Ferris says industry and retail funds will be keen to attract new investors, while small self-managed super funds are also expected to grow.

Surveys have found that fees are higher for the retail funds, partly because they market themselves through financial advisers who receive commissions. The retail funds argue that fees are justified because they offer a more flexible product, with more investment choices.

While small self-managed super funds will appeal to those who like the idea of controlling their own savings, Ferris says they can involve administrative costs which are higher than the retail funds’ fees.

Ferris says it will be interesting to note, some months on, how many people make a change in their fund, and how satisfied those who move are.

The early days of super – employers and unions

Ferris says that before 1986, superannuation was voluntary, and employers could decide whether to make any contributions at all. They decided the rules of the fund, including the rate of contribution, the level of benefits, and the appointment of the trustees who controlled the investments.

Then unions began to take an interest in super. Their view was that all workers should receive contributions, as a right. Unions set up their own funds for each industry, and by 1992 most awards had been changed to include a super contribution of three per cent of wages.

Many employers strenuously objected to this. They preferred the money to go into their own corporate funds, or into those run by life insurance companies, called retail funds, open to members of the public. Disputes were resolved by arbitration. Industry funds now control about 14 per cent of the market. The Retail Employees Superannuation Trust, for instance, is the largest fund in Australia, with more than 1.4 million members and more than $6 billion in assets.

Governments become involved

In 1992, the federal Labor government introduced the Superannuation Guarantee Charge making superannuation compulsory for most employees. The current level of contribution is nine per cent per annum.

The Liberal Opposition was strongly opposed to both award superannuation and the Superannuation Guarantee Charge, as well as unions running super funds. Since 1996, when the Howard government gained power, it has attempted to remove super from industrial award agreements, and has been working towards the present choice. The Democrats repeatedly blocked these moves in the Senate.

Others have also lobbied strongly for the change, including the powerful retail funds, which now have about one-third of the Australian market. They have told CEOs that they can provide super administration services more cheaply than company funds, so it is likely that some company funds will close down and transfer their members to retail or industry funds. The superannuation market also includes public sector funds which handle the super of public servants, and self-managed funds often set up by high-income self-employed businessmen and professionals.

For futher information, contact Shauna Ferris at shauna.ferris@efs.mq.edu.au or see the Department of Actuarial Studies website at www.acst.mq.edu.au