Time to keep track of what the boss and the banks want to do with your super

Medianet Release 2 March 2015:

BANKS OFFER INCENTIVES TO EMPLOYERS TO GAIN ACCESS TO EMPLOYEE SUPER

New research indicates that banks appear to be offering business bundling deals to employers, which could result in employees being switched into superannuation funds irrespective of the impact on their net returns and long term retirement savings.

A survey of 550 small and medium businesses conducted by UMR has produced some deeply concerning findings:

* 26% of employers surveyed said that a major bank had approached them about transferring their employees’ default superannuation to the bank’s own retail super fund in the last year.

* Just under half those approached say their bank offered them benefits to change funds.

* The most common offers made by the banks involved a direct benefit to the business rather than employees, such as discounts on business banking and insurance products. Some employers report being offered tickets to sporting events.

* 33% of employers offered benefits say they were persuaded to switch to a super fund promoted by their bank, and many more (57%) report that they are still considering switching.

* Two banks in particular appear to be the most active in approaching employers about switching default super fund arrangements and recommending their own fund.

“UMR’s employer survey gives rise to serious questions about the banks’ behaviour. It appears they are approaching employers and offering deals to bundle business banking services with employee default superannuation,” said David Whiteley, Chief Executive of Industry Super Australia.

"This could result in employees’ super contributions being paid into bank-owned super funds, which have on average historically produced lower net returns to their members.”

Were this the case, employees could retire with lower savings or feel compelled to commit more of their wages to super, or work longer, perhaps past 70, before they achieve a sufficient level of retirement income.

“In the best interests’ of employees, the law should be changed to prohibit a bank-owned super fund from providing default super services where it is also the provider of business banking services to the employer,“ said Mr. Whiteley.

“The research also reinforces the need for Australia’s super system to provide employers with a strong safety net of high performing funds to choose from, which have been assessed for quality by the Fair Work Commission. For the vast majority of Australians who leave it to their employer choose a fund for them, this process promotes consumer confidence in the system which safeguards Australia's retirement savings.

“However, the banks are lobbying the government to scrap the safety net. This would suit their vertically integrated business model and reduce competition by creating barriers to entry for super funds not owned by the banks,” he said. 

“It would also remove consumer protection for around eight million Australians who don’t choose their own super fund. Last year the banks unsuccessfully tried to remove consumer protections for Australians needing financial advice, now they are attempting to do the same with superannuation.

“Encouragingly, the research also found that most employers want to do the right thing by their employees,” said Mr. Whiteley.

“Fees and returns rank first and second as their most important considerations when selecting a default superannuation fund for their workers.”

Get the full report here.