Membership of large, well-resourced superannuation funds has its advantages, writes Mike Taylor.
It is no secret that when an employee departs a major company with its own ‘corporate’ superannuation fund they are often (but not always) rolled into another complying superannuation fund by their employer and may, thereafter, find themselves paying higher fees and charges.
The higher fees and charges are not, as some imply, the product of a conspiracy hatched by the big banks.
Rather, the higher costs are a reflection of the benefits delivered by large funds in the form of low cost group insurance premiums and administration charges. Quite simply, membership of large, well-resourced funds has its advantages.
There is nothing new about departing employees finding themselves in a higher superannuation cost environment.
Notwithstanding some recent daily newspaper headlines, rolling over (rather than the somewhat pejorative ‘flipping’) has been a part of the superannuation regulatory landscape for decades.
That more employees have found themselves being rolled out of their existing superannuation arrangements at the height of a global financial crisis is hardly a shock. Many employers have gone broke and many others have reduced the size of their workforce.
Did those employers have an obligation to inform their employees that their superannuation arrangements would be subject to change?
Definitely. Is an employer facing financial hardship or ruin likely to go to great lengths to ensure the best super outcome for these departing employees? Most unlikely.
It follows that if employees facing job changes or redundancy want their superannuation placed in the fund that best suits their needs rather than the default option defined by their employer, they need to engage themselves in the process and make a choice.
The Industry Super Network (ISN) last week sought to make much ado about breathless daily newspaper headlines, implying some sort of financial services conspiracy was responsible for around 200,000 people finding themselves worse off after being rolled/flipped out of a superannuation fund.
Indeed, the ISN’s usual spokesman, David Whiteley, used the newspaper reports to claim the Federal Government should “ban the phenomenon of flipping”.
In circumstances where much of the information that made up the daily newspaper report appeared to have originated within the industry superannuation fund movement, some might consider Whiteley’s comments to be somewhat disingenuous.
According to Whiteley, “retail super funds are taking advantage of low consumer engagement”.
The same, of course, could be said of Whiteley in circumstances where any objective observer of the Australian superannuation industry would understand that consumers need to be just as cautious about rolling their funds into an industry superannuation fund.
Whiteley and the Australian Prudential Regulation Authority (APRA) would be less than honest if they suggested that industry funds had been immune from the global financial crisis or that some were not going to perform at levels well below those indicated by past performance data.
Indeed, if workers being rolled out of a superannuation fund were to do their homework on some industry funds, they might find reason to be concerned about their exposures to unlisted assets and the impact of those exposures on future crediting rates.
They might consider that while some industry fund members may be exiting in good shape, they risk rolling into trouble.
Given that the daily newspaper reports based many of their conclusions on documentation generated by APRA, it might have been expected that the regulator would seek to clarify the situation.
Failure to do so carries with it the danger of perpetuating a half-truth in the minds of consumers.
