The government’s attempts to incentivise mergers of under-performing super funds could backfire by giving the industry fund movement even more power.
The Your Future, Your Super (YFYS) laws are expected to drive a flurry of merger activity in the superannuation space as underperforming funds are snatched up by their larger, better brethren. This creates two outcomes at odds with each other: in seeking to limit the influence of already massive industry funds, the Morrison government has introduced legislation that will only make them bigger and more powerful.
In the last fortnight alone we’ve seen a slew of new mergers, including one that created Australia’s latest mega fund. Currently that’s got more to do with fee pressure than anything else, but if the YFYS reforms pass we’ll see that process accelerate from the speed of sound to the speed of light. Super funds are going to have a lot more money to throw around.
And as we well know, super fund money doesn’t just talk. It screams. Industry Super Australia’s (ISA) infamous fox and henhouse campaign still has Liberal MPs waking in a cold sweat, and there’s been much handwringing in recent times about the amount those funds spend on media. Attempts to limit that spending have so far been subverted by super fund chief executives insisting that it’s in their members’ best financial interests – a nebulous definition that creates a loophole you could sail a cruise ship through.
That’s likely why the YFYS reforms include a veto power over any investment or expenditure a super fund might make through a third party. While the majority of reforms are common sense, the veto power is a hilarious overreach, the sort of wildly bad idea that doesn’t even sound good on paper. For one, the lack of definition around what constitutes “unsuitable expenditure by trustees under any circumstance”. And checks and balances – what are those? The government will of course “consult” (with whom?) before making new regulations, which will be subject to parliamentary scrutiny, a forum in which they hold the (admittedly slim) majority.
Now, the “free market” hasn’t really been free since its inception. But enshrining the power to intervene in it – permanently – is the sort of thing you could reasonably call a “slippery slope”. Shadow finance minister Stephen Jones pointed out that any future Treasurer (i.e. himself or Andrew Leigh) would be able to use the power however they see fit, accurately noting that this should “send a shiver down the spine” of Australian business.
The ability to unilaterally intervene in investment decisions that otherwise meet the best financial interests duty included in the YFYS reforms means bigger government, regardless of who’s in charge. If Treasurer Josh Frydenberg is concerned about loopholes within the reforms that would allow funds to spend huge amounts on media campaigns, he should focus on closing them rather than handing himself – and his successors – draconian powers.
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