LEON DELANEY:
Earlier in the program, I was talking about the situation where people who are retrenched might suddenly find themselves paying higher fees on their superannuation through no choice of their own.
It is my pleasure to welcome the federal Minister for Superannuation, Senator Nick Sherry. Good morning.
NICK SHERRY:
Good morning, Leon.
LEON DELANEY:
How are you today?
NICK SHERRY:
Very well, thank you.
LEON DELANEY:
That's the way. It does seem to be a bit rude to people who have suffered the indignity of being retrenched from their position, and what's happening with their superannuation may not be the thought uppermost in their mind at their time, to discover that they've been shifted from one fund to another simply because of their change of employment circumstances and, subsequently, pay higher fees. That does seem unfair doesn't it?
NICK SHERRY:
Well, it is unfair and, indeed, it's unconscionable and is outrageous. What happens, as I understand, is that some retail funds enter into an agreement with an employer to become the default fund. In superannuation, many individuals - in fact, the majority - don't select a fund, so there's a default fund, because the money has to go somewhere. And some retail funds might charge a fee of one per cent, say, when the person's an employee of that employer. And then when they are retrenched or move jobs, the account balance is shifted to another section, and the fee is doubled in many cases.
Now, this is an outrageous practice. It's been kept secret. I'm very pleased to see now that it's being exposed, because, as I understand it, there would be hundreds of thousands of Australians who are - if they're retrenched, for example, not only have they lost their job, their superannuation fees could double as well.
LEON DELANEY:
And it's virtually done without their knowledge, although there may be disclosure in the documentation somewhere. Apparently, in one case, the fine print was buried on page 19. And really, in the real world, nobody reads through all that, because it's just too hard.
NICK SHERRY:
Well, that's exactly right. I mean - you see, these are individuals in a compulsory system, I might say, who don't make a decision because they find super very complex and hard to understand. So it's claimed, falsely in my view, that these individuals are protected by giving them a 50 to 100 page disclosure document, and in the fine print on page 40 or 50, it says their fees will double if they do nothing. And, of course, the majority of people don't make an active decision. And, effectively, without their consent and knowledge, effective knowledge, their super account balance is shifted and the fees double. And, of course, the impact of this on the retirement savings of this particular group of workers, is that their savings can be reduced by tens of thousands of dollars by the time they get to retirement.
Now, this has been a secret. It's never been reported in the prudential regulator, APRA, who publish data on superannuation fees. This information has not been provided to the regulator. How many of these secret deals are going on? How many employees are affected? How many retail funds are doing this? So I've said to the regulator, find out who's doing this. How many hundreds of thousands of people are seeing their fees doubled, particularly when they become unemployed. And then the Government will be acting. This is a - this is yet another bad practice in the superannuation industry.
LEON DELANEY:
If I'm signed up to a fund operating by a financial institution, which might be described as a wholesale fund, because it's been negotiated with my corporate employer, and as a result of that I get a discounted fee. Then, obviously, that works to everybody's benefit. But if I lose my job, and then I have my superannuation money shifted from that particular fund to a different retail fund operated by the same financial institution, even without me necessarily knowing it's happened, and then I get stung the extra money, I would suggest that that's unfair for the simple reason that they wouldn't even have me as a customer if I hadn't been part of that company in the first place.
NICK SHERRY:
Well, that's spot on, Leon. It is unconscionable behaviour. And, in fact, there's the same investment option, the level of service doesn't change. Nothing changes other than the worker loses their job and their fees are doubled because they've lost their job.
It's the same superannuation fund structure in the retail sector where this happens. So it is unconscionable behaviour. I've asked the regulator to give me a report on how many firms are doing this, how many retail funds are doing this, and the estimated number of people affected. And I understand it will be literally in the hundreds of thousands. This practice has been kept secret for too long. And then, we will act to stop this sort of bad behaviour.
LEON DELANEY:
Can you change the law so that, as part of superannuation choice, I am automatically entitled to remain in the fund I signed up to if I choose?
NICK SHERRY:
Well, that's certainly one legal option. But I make it very clear, this Labor Government is going to stamp out this unconscionable practice. When we've got the report on the details of who is doing this - as I say, it's been kept secret until now - we'll then work out the most effective way to change the law to put a stop to this, sort of, bad behaviour.
And, I might say, this is an essential renovation that needs to be carried out of our superannuation system. There are other contentious practices around fees in superannuation that do hurt the retirement savings of Australians, and we intend to carry out a renovation of the - of these - the way the system's operating and, in particular, some of these very bad fee practices which are clearly not in the best interests of the member. That's what's important in a compulsory superannuation system, what is in the best interests of the member, not anyone else.
LEON DELANEY:
Yes. Despite the fact that superannuation has taken something of a hammering as a result of the global financial crisis, it still remains a critical component in our retirement planning as a community, and, ultimately, must be seen as part of the solution to the ageing population and the pension crisis, mustn't it?
NICK SHERRY:
Well, exactly Leon. I mean, superannuation is an add on for most people to the age pension, and that's why it's important to protect Australians from fee gouging practices that - it sounds - well one, two per cent, no big deal. That's what some people think. But one per cent year, after year, after year compounds and reduces your final retirement income by tens of thousands of dollars, which means you've got less to live on in retirement. And I think this sort of practice, particularly in the current circumstances where we're seeing negative rates of return in the short term is unconscionable. It's done without their knowledge or consent, at a time when, in many cases, their superannuation account is going backwards, and this is just appalling behaviour and we are going to act to put a stop to it.
LEON DELANEY:
Thank you very much for your time today.
NICK SHERRY:
Thank you, Leon.
LEON DELANEY:
Nick Sherry, the federal Minister for Superannuation.