ACTU Superannuation Trustees Network Newsletter No.24 May/June 2004

Editor: Linda Rubinstein
Fax: 03 96634051
Email: lindaru@actu.asn.au

Master Trusts Fight To Keep Place In The Sun

Unions were amazed when IFSA (Insurance and Financial Services Association) turned up at an Industrial Relations Commission hearing of applications to make a number of federal awards apply on a common rule basis in Victoria. The Kennett government abolished Victorian awards in 1993.

Now the law has been changed to allow for federal awards to apply, extending entitlements to penalty rates, overtime pay and annual leave loading to the one third of workers in the state who do not currently have them.

IFSA came to the hearing representing the banks and insurance companies which are the major providers of master trusts, including AXA, AMP and Westpac.

The master trusts are opposing the spread of federal award superannuation provisions which generally require contributions to be made to industry funds.

IFSA will be asking the Commission to exempt the superannuation clauses from the common rule application on the grounds that it would be harmful to their members’ businesses if super contributions shifted to award-specified funds.

Industry Funds Forum is also appearing in the case, and is likely to argue that industry funds, with their lower fees and charges, are in the interests of employees.

Unions want Victorian workers to be able to have their super in not-for-profit industry funds which produce significantly better returns than their private rivals and will not agree to have super left out of awards.

Unions are also asking why companies whose funds management businesses seek investment mandates from industry funds feel they can interfere in industrial proceedings in defence of their master trusts.

It is expected that some funds will raise this issue with their funds managers. Discussions between the parties and conciliation in the Commission is continuing.

Union Super Power

Conference advance notice

The ACTU is holding a one day conference and strategy workshop designed for union officers to assist in developing campaigning and bargaining around superannuation.

The conference will be held in Sydney on Thursday 2 September and repeated in Melbourne on Friday 3 September.

Issues to be covered by the conference include:

• What to tell members about super
• Building up workers’ super
• Bargaining for super
• Workers’ capital - is it working?
• Campaigning for corporate governance

Detailed information, including venue details and program will be sent out when available.

Limited Win In “SG For All” Campaign

First the good news: the Treasurer has announced that the government will remove the exemption for pre-1991 earnings bases for calculation of SG.

The effect of the exemption is that many thousands of workers, mainly coal miners, Qld nurses and some corporate fund members (such as Ramset Fasteners in Victoria, which does not pay super on shift penalties) do not receive the SG on their full ordinary time earnings, costing them thousands of dollars in super.

Now the bad news: unions have campaigned for ending the exemption for years, and all political parties on the Senate Super Committee recommended the change in 1996.

In spite of this, Mr Costello announced that the exemption would remain until 1 July 2010 - a very long wait for workers who have been missing out for years already, and a huge windfall for employers who have been able to avoid paying the whole SG.

ACTU president Sharan Burrow and CFMEU (Mining) president Tony Maher have met with the Assistant Treasurer, Senator Helen Coonan, to press for immediate removal of the exemption.

They also met with ALP superannuation spokesperson Nick Sherry to urge Labor to agree to legislate immediately should it win government.

Combet Talks Infrastructure

from speech to ASFA 9 March 2004

Another crucial area related to super requiring attention by Government is encouragement of investment in the nation’s infrastructure.

It is widely recognised that alternative assets have contributed to fund returns. Recently a number of industry funds decided to invest in a social infrastructure fund, comprising the Spencer St railway station in Melbourne, and a number of schools and a water treatment plant in NSW. You may have heard that this decision created a bit of heartburn in the union movement, understandably given our long standing concerns abut privatisation and PPPs.

That’s not surprising, given the history of this kind of project in reducing employment and employment conditions, as well as the quality and extent of services to the community.

We also want to see governments get value for money – which is questionable in some PPPs, where costs can be higher and governments left with the risk, as with electricity in WA and transport in Victoria.

The refusal of governments to borrow capital, even though it has been clearly demonstrated, most recently by the Allen Consulting Group, as being the most efficient capital raising mechanism, highlights the need for a more active debate about infrastructure development – a more coherent look at the role of public and private investment.

In particular, with Government debt at very low levels, I can’t see why a market for bonds which finance infrastructure cannot be considered.

Having said that, and stressed that the ACTU would prefer to see infrastructure financed through debt capital raising by governments, I don’t believe that this means that super funds should turn their backs on equity finance of public infrastructure, as through the DAF/ABN AMRO fund.

As a STA trustee, I look forward to when we will be able to invest in public housing, important not only to assist those in need, but also, by adding to supply, assisting in reining back galloping prices.

However, I would hope that the funds will find ways of investing in the future that will address the concerns I have outlined, and ensure best value for taxpayers as well as reasonable returns for fund members.

The anticipated consolidation of IFS and Members Equity could be an opportunity for direct investment, whether through underwriting funds’ purchase of government bonds or by originating debt and equity financing of PPPs at lower cost to governments than is currently available.

CFMEU Wins Super Boost

More than 600 collective agreements covering Qld building workers have provision for increasing super contributions to 15% by July 2005.

The agreements require employers to pay $97 per week from 2003, rising to $125 by 2005, with employees contributing $9 per week in 2003, $18 in 2004 and $27 in 2005.

Unions Fight Surcharge

Unions with members affected by the superannuation surcharge are fighting back.

Airline pilots, aircraft engineers, flight attendants, doctors and maritime officers founded the Society of Superannuants (SOS) in 2001 to lobby against the unfair operation of the 15% surcharge for members of defined benefit funds.

SOS says that in the private sector the tax can exceed 15%, and that members of different ages, but with an identical adjusted taxable income, can pay different amounts of surcharge tax.

In addition, based purely on gender, women can pay more than men.

SOS is assisting a legal challenge to the surcharge based, in part, on a claim that surcharge tax returns calculated using collective fund based averaging assumptions are excessive because they do not take into account the individuals’ personal circumstances.

SOS has been heartened by a recent decision of the Superannuation Complaints Tribunal that a fund member’s surcharge had not been calculated in accordance with the legislation and must be redone.

The decision has huge cost implications for all defined benefit funds, and SOS is confident that it will lead to abolition of the surcharge.

While not opposing the surcharge in principle, because it is directed towards high income earners, the ACTU has argued for a fairer collection method.

Concerns With Safety Guidelines

The ACTU is still concerned that the new licensing regime for super funds, will operate unfairly for not-for-profit funds.

Although the legislation does not require trustee companies to meet capital adequacy requirements (which would impose a heavy burden on sponsoring unions and employer organisations) it appears from the APRA guidelines that sponsors might have to come up with several million dollars for the trustee company to hold.

It is clearly absurd to expect these organisations to come up with this kind of money, particularly as there is no evidence that this would assist in minimising any kind of risk for members of funds which often have assets of several billion dollars.

Union View Wins Support At Safeway

from AAP 6 May 2004

Attempts to dismiss concerns about corporate governance at Safeway Inc in the US failed when two influential advisory firms recommended that CEO and board chair Steve Burd be removed from the board, although not necessarily from his job.

The advisers cite Safeway’s poor performance and board cronyism resulting in lack of oversight of management as reasons for the decision, which includes recommendations to vote against re-election of a number of directors.
The company is reported to have tried to head off the revolt by offering to bring in new independent directors.

Unions welcomed the campaign for change although a three and a half month strike of workers from the Southern California grocery division has been settled.

US Paranoia About Unions

from Financial Times 4 May 2004

The fur is flying over a proposal by the US Securities and Exchange Commission to allow shareholders to nominate company directors on the management's slate.

The plan, on which the SEC will decide soon, has become the most controversial it has ever proposed.

It is almost unanimously supported by labour and state pension funds and unanimously opposed by business groups.

The Business Roundtable is quick to point out that the proposal originated with the American State, County and Municipal Employees' Association, a union body that has used its small $600m pension fund to put forward two dozen shareholder proposals in the past year.

Business groups believe that the rule might become a Trojan horse for funds to force labour-friendly candidates on to company boards.

Mr Castellani said: "This will provide an opportunity for special interest groups such as unions to hijack corporate agendas. [The funds are] wrapping themselves in the cloak of good corporate governance to gain power and influence. They will come out after a while with their real demands."

Alan Hevesi, the head of New York state's pension fund, disputes the theory. He said recently: "We want these companies to succeed, we want them to perform, we want them to make money. We are capitalists in the ultimate sense of the word, the American sense of the word."

Rich Ferlauto, AFSCME pension investment policy director, said: "We want more shareholder-friendly directors, whether they are labour-friendly or not.

"State pension funds lost 15 per cent of their assets in the past few years, with companies like Enron and WorldCom. It's no wonder they are paying more attention to their investments."

From The UK’s TUC

A recent email alerted us to some interesting material about long-term investing.

The UK’s activist Universities Superannuation Scheme ran a competition with investment consultants Hewitt Bacon & Woodrow last year asking fund managers and other interested parties to come up with ideas for longer-term mandates. You can find lots of information on the competition entries on the USS website.

Having Their Cake: How the City and Big Bosses are Consuming UK Business is a critique of the relationship between the capital markets and British businesses.