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Super scams flush billions from retirement savings

Jo-anne Schofield

by Jo-anne Schofield

28 Apr 05:35am

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Filed under: Retirement, Savings, Superannuation

36 comments

Forty billion dollars gone; four million Australians out of pocket; fees charged for services that are never delivered. It’s the biggest scam you’ve never heard of, and there’s a very real chance you’re a victim.

How many of these are you missing out on?

Indeed, according to the results of a groundbreaking research project last month, a series of questionable practices in Australia’s superannuation industry are gouging close to $80,000 from the retirement savings of many average income earners.

Most worryingly, the same report warned that without immediate, decisive action to fix these serious problems $120 billion more could be siphoned off in the next decade alone.

The Supernomics report, commissioned by the Industry Super Network, has found that more than four million workers who are members of retail super funds are paying hundreds of dollars a year for financial advice that they have not received.

Even more alarmingly, it found that typically the more you pay in fees and commissions, the less you will probably get, with the average results showing that for every percent extra paid, customers lost almost 1.5 percent in net returns.

Since 1996, more than $40 billion has been silently milked from the nation’s retirement savings, while the poor performance of these funds has cost customers a further $50 billion.

The retail super funds, owned by the big banks and insurance companies, have successfully exploited that fact that most people find the system too hard to understand, so neither realise they are being ripped off, nor make the move to a better performing product.

Supernomics has also revealed that many workers experience ‘choice overload’, where they are unable to make decisions because of the complexity of products and pricing.

It is imperative that government act immediately to introduce laws to require financial planners to act in their clients’ best interests. The announcement on Monday that a “best interest” test would be legislated for in mid 2012 means several more billion dollars will be lost before this problem is finally fixed.  Currently, there is nothing illegal about a financial planner knowingly recommending a high fee, poor performing super fund that pays them ongoing commissions, when there are many super funds on offer with lower fees and sustained better performance results.

These incentive payments have a large and negative impact on retirement savings, with a typical trailing commission of just half a percent reducing super accumulations by around 10 percent over a 40 year working life.

The research also reveals that this is a choice most financial planners make. Despite non-profit industry super funds outperforming for-profit retail funds in nine out of the last ten years, financial planning dealerships rarely allow their planners to recommend industry super funds because they don’t pay commissions.

Many retail super funds also engage in ‘flipping’, where workers are moved from relatively cost effective corporate master trusts into high cost personal super products when an employee changes jobs.

The tangible impact of this extreme corporate greed is not only the fact that individuals are robbed of their hard earned money, saved for retirement, but that taxpayers will need to fill the breach and provide greater support to our aging population.

Industry super funds believe there is a simple solution that will deal with both the causes and effects of this market failure. Creating a “super safety net” that prohibits commissions, requires financial advisers to act in their client’s best interests, improved access to simple, easy to understand financial advice and a strong default system with objective criteria implemented through modern awards.

With a major review into the superannuation industry on foot headed by Jeremy Cooper, the Government still has another opportunity to immediately fix the chronic market failures in the superannuation sector, and the problem of disengaged workers who find the system too complicated, to make sure we can protect the nation’s retirement pool.

The Australian Government has a moral obligation to act, and act decisively, because failure to do so will continue to put the retirement nest eggs of working Australians and our pool of national savings at stake.

Most commented

36 comments

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    • elop says:

      06:21am | 28/04/10

      Oh please, and the members of industry funds know that they are paying (or were) for sponsorship of sporting teams (what benefit is that to members) and for a political lobby group called ISN?

      Reply

    • Akemd says:

      07:26am | 28/04/10

      I’ve given up on Super. The companies just think it’s their money to rort as they please. It’s just another scam to screw the workers with support from Labor and the Liberals.

      Reply

    • Anti Major Mistake Man says:

      09:34am | 28/04/10

      @ Akmed, spot on mate. The other major problem with all super funds is they never “invest” in anything that might be worthwhile or provide for the future.

      Like a “real, snowy mountains” infrastructure project. They just gamble it on the stock market, making more bonuses for “wall street” international banksters.

      Another issue is, if they are owning a small fortune in shares on the Australian stock market? Then why can’t an employee of an Australian company have shares to the value of their super funds placed in their own name, so that they can attend “general meetings” & vote against senior management, board, etc, over paying themselves?

      Regards former snag & swinging voter.

    • B says:

      11:09am | 28/04/10

      Why can’t they be owned in your name? For a million different reasons. The amount you actually own varies everyday depending on the market. Also if you owned them, you could ‘cash them in’ and then the preservation rules in superannuation are pointless.

    • Anti Major Mistake Man. says:

      12:27pm | 28/04/10

      @ B, RuBBish.

      1, The value of “blue chip” shares does not change that much, daily, furthermore once bought when the market price is lower, they can be held, rather than traded constantly by “Alleged Super Funds”.

      2, Rather than 100% of an employee’s fund value being expressed in their employer’s shares it could be 90% or 80%, like when a bank lends to a certain % of the property valuation.

      3, Just because the shares have the employees name on them does not automatically mean that they can sell them off, if the super fund is holding the certificates, or have some kind of legal hold, like a lien or mortgage over them so that they are held “in the employees name” for their retirement.

    • Arnold says:

      01:16pm | 28/04/10

      You’ve given up on Super?  Why?  You do realise that superannuation is the most tax effective method on investing in Australia, right?  People over 60 can receive income tax free, whilst they are still working, if they are utilising their superannuation correctly.

      You sound like someone who has never sought the advice of a financial planner.  Why don’t you start up your own self managed super fund?  You can then invest in whatever listed companies you want to, or even use the money to buy an investment property, or art (in limited circumstances).

      Anti Major Mistake Man, through self managed super funds you can also turn up at AGM’s and have your vote count if you want to.  Also, in regards to your comment about investing in worthwhile projects for the future (Snowy Mountains), you can count me out.  These projects pay no monetary returns, and I really don’t fancy the prospect of relying on a government pension when I am older because if this because my super is returning 0%.  Besides, my taxes are supposed to fund those projects.  I shouldn’t have to pay twice because governments cannot allocate resources correctly. 

      B, the amount of shares you own everyday does not change, the value of them does in accordance with daily fluctuations.  Retail funds (the ones that pay those nasty commissions) have to record these daily fluctuations so their investors can see them.  You know who doesn’t have to show the daily movements in their investments?  Industry funds.  Some of their property investments are not revalued for years.  Why are they allowed this concession?  Well, I’m sure you can figure it out.

      Oh, and has anyone here asked themselves why retail funds don’t show 20 or 30 year projections on their TV advertising?  I’ll tell you why, because they aren’t allowed to.  The government does not allow retail funds to advertise 20 and 30 year projections, because investment markets have been, and always will be, volatile.  Industry funds get an exemption for this because, well, you all know why.

      In response to the article, commissions are not always a bad thing.  They were a way to pay for financial advice for those that couldn’t afford it (e.g. people wanting financial advice with little disposable income because they may have a mortgage).  These people will now have to fund it another way.  How much impact do you think an extra $3,000 paid off of a mortgage each year has on accruing interest?  Sure, there are those that are not receiving any value from their financial adviser, but as B said in a later post, whose fault is this?

      PS.  B, I found your little “trap” set in a later post hilarious.  Great work.

    • B says:

      08:52am | 28/04/10

      Jo-anne, how much did the Industry Funds (run by unions) pay you to write this article? I guess its not surprising that you are entrenched in the union culture. No conflict of interest warning?  If Industry Funds are run only to benefit its members then how do they sponsor the Melbourne Storm and other events and such? And what do you think their advertising budget is to continually run those ads you see on TV everyday? They are not cheap!

      Firstly you don’t know anything about investing in general if you think that every investment decision should be made on past performance! It’s that type of stupid thinking that lead to the collapse of Storm Financial where they justified gearing their clients massively due to the ridiculous and unsustainable gains in the previous few years.

      Hey Jo-anne, have you ever sold a house or bought a car? Did you know that the person that sold your house or sold you a car got paid a commission? That’s how they feed their family. I wish the anti union movement ran the same type of advertising campaign. “Do you see $20 per fortnight getting goughed from your pay each week to pay those dirty union rats at the top? etc. etc.”

      Oh so much more to add…to come later possibly.

      Reply

    • BigBob says:

      04:34pm | 28/04/10

      B it has taken me sometime to get back to you because I work!! I am 52 years old and A boilermaker I have I was apprenticed in 1974 and came out of my apprenticeship in in 1978 I joined AMWU in 1977 before my apprenticeship had finished. I have been a tradesman for 32 years and paid Union Fees for 33 years. I don’t know where you get the $10.00 a week from I am qualified and pay less than $8.00 a week The union has helped me many times over the years, I have had a few serious work accidents and I needed their help and advice. The union won’t come round and find you, if your in trouble you need to give them a ring and state your problem clearly. I have a taxation accountant and claim my fees back on tax. You were not forced to join a union, and why you kept paying for 4 years when you were not happy is mind boggling!!
      Perhaps you might want to look closely at yourself for an explanation

    • B says:

      08:53am | 28/04/10

      Ps. I paid my union fees for 4 years when I worked at woolies. What did I get for it? Nothing! Did I ever get a union official come to me and give me advice? Hell no!

      Reply

    • BigBob says:

      09:10am | 28/04/10

      Did you ever ask for help or advice B? I seriously doubt it. The Union is there to help, but if you have no problems to converse with them its very hard for them to work out exactly how to advise you. I definatly won’t put my family at risk by voting for Abbott, I have done the protest march thing and to my mind that should be an end to it. If all those Aussies on the streets didn’t give Abbott the hint to let Workchoices go, nothing will!!

    • John A Neve says:

      09:19am | 28/04/10

      B,
      Tell us, did you ever contact the union and ask for advice?
      More to the point, tell us, why did you join the union in the first place?

    • Eric says:

      09:31am | 28/04/10

      Unions are pretty useless. The fees would be better invested in super, or in beer.

    • Bluecollarworker says:

      09:38am | 28/04/10

      If you were in the SDA (The Shop Assistants Union) your union fees were tax deductable. No one would have forced you to join, . Unions have more than one member, they cannot help you unless you let them know what help you need, then if your query is just they will represent you. But if you had been in the Union , you would already know that.

    • B says:

      10:20am | 28/04/10

      Haha, BigBob and Bluecollarworker, you just fell into the most obvious trap that I set. That’s exactly the same as commissions that are paid to financial planners and Jo-anne reckons the clients are getting no advice in return! Go and contact your financial planner and say you need advice, and I’m sure they will be more than happy to help you. You guys don’t see the similarity?

    • Tails says:

      11:20am | 28/04/10

      Hahahaha. P’wned! Nice 1 B.

    • Sean says:

      12:37pm | 28/04/10

      Nice one B

    • Udbud says:

      08:55am | 28/04/10

      ISN is simply a political lobby organisation who spend most of their time telling porky self interested pies in Canberra.

      Retail funds offer some of the cheapest products on the market - see AMP and BT.

      The Supernomics paper is absolute rubbish. You have just repeated all of the flawed claims without any analysis at all. Some journalism.

      Reply

    • Steph says:

      12:44pm | 28/04/10

      I have worked in super for quite a while now. Our disclaimer is typically that past performance is no indicator of future performance. But the thing I have seen over the past 20 years is that, irrespective of fund performance, retail funds charge a fortune. Any investment returns you get as a result of excelent management and wise choices are inevitably eaten up by adviser’s fees and other fund charges that industry funds do not charge. I should know, I work for a retail fund.

    • No snake oil please says:

      09:25am | 29/04/10

      @ Steph.If you have worked in the Super Industry for so long can you explain why I should pay trailing commissions to sales reps when he sold the product once,most of these alleged advisors are not Qualified nor do they hold degrees in Economics or similar,a minimum I would have thought seeing that they are portrayed as at the coalface of investment.

    • gerard says:

      09:25am | 28/04/10

      “fees charged for services that are never delivered.” ... sounds like union dues.

      Reply

    • Pete says:

      09:37am | 28/04/10

      @gerard you forgot the unions easily smashing Howard in the last election with their monies.. Value (and entertainment) for money I’d say! I’d bet money the unions could smash Abbott too… Just Sayin (And before you accuse me of being a Rudd-lover I’m a cheesed off ex card carrying Liberal in small business!)

    • gerard says:

      10:36am | 28/04/10

      What ever gets you off, Pete. I assume Kevin Rudd has put your small business back on its feet? We card carrying union leaders are greatful to all the gullible fools who ensured our pre-selection and current ministerial salaries.

    • pete3 says:

      01:38pm | 28/04/10

      @gerard How are going again Mr Liberal Staffer… ? no I did it tough in the last 18 months Gerard unlike some of you Free Market loving Liberal member,  Government employed closet socialists!

    • gerard says:

      04:13pm | 28/04/10

      Pete, you sure know how to hurt a guy (“Liberal staffer?”).

      Seriously, what did Howard do (or not do) to your business to fill you with such bile? I could not stand the man when he was Fraser’s Treasurer but thought he was pretty much middle of the road as PM. If you look at the SPC events where workers by-passed unions to save their jobs and their town, the principle is not a lot different to WorkCover. I did not like Howard’s pork barrelling in the end. But come on, did Howard send you broke or was it just rotten luck in a harsh environment?

    • Pkelly says:

      09:47am | 28/04/10

      Another banking scam. Aka white collar crime. Thanks Howard and Rudd.

      Reply

    • Sean says:

      10:12am | 28/04/10

      So Jo-anne no disclosure that you are part of a union sponsored group sprouting Industry Super Fund propaganda? No mention of the IPA report which shows how industry super funds don’t have the same level of disclosure as retail funds? As this report states “Industry funds have spun off a web of interlocking companies and trusts that undertake much of superannuation administration and management” including through Industry Super Holdings Pty Ltd and Members Equity Bank (one of your organisations ‘major sponsors’)
      The Punch should be ashamed of this article and its bias.

      Reply

    • Freddie says:

      10:40am | 28/04/10

      I need oxygen Sean. Or are you the real Sean?

    • Cath says:

      12:45pm | 28/04/10

      Dear Sean, if you had bothered to read Jo-anne’s bio, on this very website, then you would see that it discloses her previous work and organisational involvement.

      Now I await the disclosure of your related interests….

    • Bernie says:

      01:42pm | 28/04/10

      Thanks Cath, I had a chance to check your heroine’s credentials and agree with Sean. Australia doesn’t need this union propaganda spewing robot (from NSW Department of Premier and Cabinet’s Public Sector Workforce Office enough said about failure). Her type has had 15 years and destroyed NSW. Enough is enough.

    • Sean says:

      01:44pm | 28/04/10

      Perhaps Cath you should read things more closely. I obviously looked at her bio in order to find out where she worked. That bio did not disclose that Catalyst Australia is largely union sponsored.

      Not that I need to disclose but I am a fee for service financial adviser who has recommended that clients stay in industry funds. Of course I advise them that it is not as cheap as they make out and the various inter related entites and lack of disclosure make it difficult for me to ‘know my product’ as easily as retail funds. Also I advise that that a lot of industry funds now charge for advice, just like I do.

    • James says:

      11:55am | 28/04/10

      What percentage of Industry Fund members’ super is directed towards “private equity”? What is this “private equity”? How are these “private equity” holdings disclosed to members? Are they disclosed at all? I find it utterly extraordinary that industry super funds have the hide to get on TV and in other forms of media and accuse retail super funds of conflicts of interest.

      When this comes out, that is when a journalist grows some marbles and decides to properly investigate it, it will be the greatest scandal of them all.

      Reply

    • Andrew says:

      01:33pm | 28/04/10

      Four words, Self Managed Super Funds. Its your money, you decide. Government makes it very hard because the big fundies hate the idea of “amateurs” running their own money and doing just as well.

      SMSF’s are the fastest growing sector of the Super industry its just a pity you need about $300K plus to make it practicable.

      Reply

    • Daniel says:

      09:06pm | 28/04/10

      I never see $100 as ATM dont give them out.

      Reply

    • danny says:

      03:30pm | 29/04/10

      Jo-anne, the ” Supernomics research” you refer to was commissioned(pardon the pun) by none other than ISN and spewed into the market by their mouthpiece, David Whitley.

      The IPA research referred to by Sean was done by the institute of public affairs to serve no industry motive (however I do ackowledge their close association with the right). This paper does not defend retail or self managed superannuation, all it does is highlight the deficiencies in the disclosure process for industry funds. I suggest you have a good read and add some balance to your vitriole. BTW in the interests of disclosure I am a fee for service financial planner, have lots of clients for whom industry funds are a great option and use them where appropriate.
      They are not however the best vehicle for all superannuants for a range of different reasons. In fact ISN executives would agree that Industry funds are not always the best alternative otherwise they would not be running their own Self managed funds. Ask some of them if youl ike at the next union gabfest.
      While we are on union reps, have a look at how many executives in ISN and directors/trustees of industry funds are ex union officials and executives. Mr whitely springs to mind. Is it a case of salaries that were once paid by compulsory union dues are now paid by compulsory superannuation contributions?

      Reply

    • Ben says:

      12:38pm | 08/08/12

      Jo-Anne is an ex Union employee. Suprise suprise that she advocates dumbing down good financial advice becaus ethe union isn’t capable of advice and even rund ads on television where young people say Oh i don’t have to worry . What a load of cobblers

      Reply
 
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