Launch of Industry Super Australia’s Policy Platform

Posted: Tuesday 02 June, 2015

Speech by the Hon. Peter Collins AM QC, Chair of Industry Super Australia at the Launch of ISA’s Policy Platform.

Thursday 3 October 2013.

You would all be aware by now that ISN is changing its name today. To better reflect our future direction, while maintaining the brand that we’ve built, Industry Super Network will now be known as Industry Super Australia.

With superannuation savings at $1.6 trillion and industry super representing 5 million members in that system, Industry Super Australia is a name that better reflects our scale and our role.

It’s a name that is going to take us into the future, and a future in which super takes its place among those institutions that are at the heart of our national identity.

What’s been achieved through the creation of superannuation in this country is nothing short of revolutionary.

In just under three decades, the way that Australians live in retirement has been changed, and changed forever.

The Super Guarantee has contributed to a retirement savings sector that in about two decades will overtake the banking sector.

The creation of industry funds has provided a safe place for people’s super savings… where they don’t pay commissions and where no financial institutions taking a cut along the way. It’s a fundamental difference and one that we should never forget.

Just 30 years ago industry funds didn’t exist. (Ian Silk, welcome)

Some of us in this room have children this age, 30 or so years, and it’s remarkable to conceive of the pool of wealth that has been created in just one young lifetime.

The agreement between the Keating government, the ACTU and employers to create a system of compulsory employer contributions is one of the most far sighted public policy decisions taken since Federation, and I acknowledge – I think he’s absent today – the architect of that agreement, Garry Weaven.

Today, superannuation enjoys bipartisan success. The 11 years of the Howard Government did not see the achievements of industry funds reduced by one iota.

And Industry Funds – created by the ACTU during the Hawke Labor Government – are an outstanding model of consensus between employers and employees, whose representatives come together on matters that have at their heart, the principle of the members’ best interest. It’s a simple binding principle.

If you look at what has happened since – I think it’s fair to say that Industry Super has if anything over-delivered.

Industry super funds have gone from strength to strength. Total savings are now worth $270 billion.

The recent release of APRA data on the performance of super sectors in the last financial year showed that ISFs performed more strongly than any other sector.

In fact in the last year, Industry Funds, measured by market share, grew more strongly than SMSFs – which have been the stand out performer over the last five years.

As the sector has grown, industry funds have led advocacy across the system on reforms like FOFA and banning of commissions, allowing funds to provide simple and affordable advice, fairer taxes and an increase in the Super Guarantee; and fairer financial markets

We’re very proud of that achievement

As a director for HostPlus over the past seven years I’ve seen first hand the strengths of the representative trustee model.

And look, there are still people out there who harbor outdated, and clearly ideologically driven, views about the industrial environment in this country.

But these days I believe pragmatism and genuine cooperation trumps confrontation. It’s interesting, statistics on industrial disputes over the last couple of decades…let’s just have a look at those for a second.. the benefits are not simply financial benefits.

While these sort of statistics are often either completely neglected or sometimes distorted to suit different agendas, the fact is that days lost to industrial disputes are significantly lower than they used to be.

Between 1997 and 2002 the number of days lost was consistently over 300,000 days per year. In the year to June this year, there were just over 200,000 days lost. So the level of industrial disputation has come down quite significantly over a very, very short time, oddly enough the same time that industry super funds have existed. And I think there’s a binding influence that we have provided in the economy and we will provide in the future.

I don’t believe it’s a coincidence that representative trustee super boards have demonstrated just how well employers and employee representatives can work together. It’s not an accident.

Employer and employee representatives take their responsibilities to members very seriously and act with the utmost diligence, in members’ interests.

They bring to the super sector and fund boards diversity and a good dose of ‘common sense’ to critically assess mainstream finance and investment management advice.

The model is a unique part of our system that provides diversity to a sector which would otherwise be potentially subject to greater systemic risk.

In the ultimate test, it is a structure that, on pure numbers, delivers the strongest net returns to those members.

I wanted to briefly touch on what I see as another priority for Industry Super Australia. We are now at a size – the 4th largest super system in the world, envy of the world, worlds best practice where we must give consideration to greater international engagement and investment.

According to APRA, some 60 -65% of assets are currently invested in Australia (equities, bonds, cash, infrastrucutre and so on). By 2020  the system is forecast to reach $3.7 trillion. As funds grow, there is no doubt that the amount invested overseas will grow, even if the percentage of the portfolio in offshore assets remains constant.

One of the drivers for our sector is to consider the merits of copying the internationally renowned collective that we have in Australia with other long term, like-minded institutional investors globally.

It could provide natural counterparties to certain transaction and could help contribute as a stronger voice in relevant policy areas.  Cooperation on public policy may be particularly important as Australia’s financial services policy is, like all major economies, increasingly influenced by international institutions.

Such a global collective would have many potential benefits, including improved efficiency and benefits from scale.

While our super system helps build a stronger Australian economy, there is no reason why, given its size, we can’t do more to bring the best of overseas opportunities back home.

With the national retirement savings pool at $1.6 trillion, our super has now reached the point where savings exceed annual GDP.

It’s fair to say we’ve reached critical mass.  We’re on the radar screen.

Industry funds have been in place since the start of this system – so we’ve helped make it what it is, and we will be a significant player in its next evolution.

The Funds themselves have now reached a scale where they will be more influential in big decisions about the Australian economy – investment in financial markets, and the shape of the super system.

The sheer size of our super system is itself a game changer: it means it can now operate as an alternate source of capital for the economy and financial markets. This presents new possibilities and opportunities.

Infrastructure investment is something that John Brumby will talk about shortly. But there are arguably other areas of the economy where superannuation could play a greater role, such as private equity.  The size and potential of the system brings us to a point now where we need to take stock and think about the next evolution.

If the GFC taught us one thing it’s that superannuation should have an obligation to be more than just a passenger in the system.

Our members’ savings should not be at the whim of what happens in financial markets. I would argue that super has an obligation to members to be more influential in the big decisions in the economy and the environment that affects members’ savings.

Our members would expect us to be concerned about practices that expose their savings to unnecessary risk.

In the next phase of super’s story, we have to take a more active role in the economy.

We have the potential to grow the value of members savings through not just the investment choices we make but the way in which we influence decisions about the economy and markets to get them performing better – to get savings to grow even more.

With the investment boom from mining winding down, plateauing, now is the time to be thinking about how we can better connect the pool of national savings in the form of super to the next wave of economic growth.

Industry funds have been pioneers in funding Australia’s economy in infrastructure and other investments, and not just through making funds available to help build the nation, but through the structure of direct investment, without intermediation through banks or through markets, with all the associated short-termism, volatility and speculation.

As super steps forward to fund the economy, industry funds need to continue to innovate and create structures that deliver for members and the country.

It is this vision that I believe we have to advocate in the proposed financial systems review.

A vision of industry super that plays a proactive role on economic and financial policy which really sits with our size and what is at stake for members, and an industry super that continues to innovate new structures and methods where we work together to deliver more for members.

Another area of our focus for will be the efficiency of the finance sector. As super funds invest through the financial system on behalf of members, we have a very strong interest in ensuring that the system is as fair and efficient as possible.

We will continue to argue for changes where unnecessary costs are added to the system (for example through High Frequency Trading).

We will have more to say about the role of the finance system to transform savings into capital – and how it can be doing more to build the economy and drive prosperity.

Our superannuation system has been more successful than anyone, anyone could have imagined even its architects when it was created.

We’ve established a system of generational equity – without super, those retiring today would have to be fully taxpayer funded through the aged pension.

But we must confront the reality of what will happen in the future if the system is not adequately funded today, and that’s something that John’s going to speak about briefly.

Industry super has grown the system and helped make it a lot fairer than what we had 20 years. In conclusion I just want to say now is the time for us to look over the horizon – Wallis 2, a new Government… we need to look at our size relative to the banks, and whether superannuation is just seen as some sort of adjunct to banking. I would say the opposite. It’s now time for super to stand on its own, proudly on its own and recognise the achievement of the last few decades.