Q. What do you get if you cross a compulsory contribution system with  unfettered private sector provision?

A. Australian Superannuation

So this should come as no surprise

A couple of enduring themes have emerged so far from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The main one is the flagrant disregard with which clients are held by the industry, manifested in the fee gouging that has become standard industry practice.

So egregious and widespread has this become, evidence has emerged that it has fostered a climate of “anything goes” where overcharging has morphed into systemic theft.

It is one thing for an industry to charge clients far too much for providing a service. It is quite another to deliberately charge enormous fees for delivering nothing at all.

A recent study by University of NSW economist Nicholas Morris estimated the financial industry had extracted around $700 billion in fees from the national savings pool since 1992, when compulsory superannuation was introduced.

Given the total pool is now worth just over $2.6 trillion, that’s an extraordinary proportion — almost a quarter.

nor this

The other great theme that has emerged is the unwillingness of regulators to enforce and uphold the law

No conflicts with UK mutuals?

Gregg McClymont, who has spent most of his time in parliament, working for a for-profit fund manager (Aberdeen Standard), has seen the error of his ways and gone to the bright side (People’s Pension) which is a not for profit master trust – owned by a not for profit insurer B&CE.

He could have chosen not for profit insurer Royal London, but his old nemesis Steve Webb is already there and drinking the Kool-Aid with Uncle Phil.

But being at People’s – allows Gregg to make hay (and the sun has shone a lot).

Gregg’s post conveniently ignores the conflict that Peoples Pension is owned by an insurer with an IGC, whose governance is by inference “conflicted”. It also ignores the fairly bland governance of Peoples Pension itself – can anyone even remember who the Chair of the Trustees is? Hint….

The Governance model at B&CE and People’s is ultra-low profile. Member participation on the Board is zero (either in terms of employers or employees)

The Board may be low-profile, but it has friends in all the right places , if these Trustees are challenging People’s Pension’s management team- then we have yet to see any signs of that challenge, the last three reports and accounts have been an unending paean of praise to the People’s Pension Management.

I see no conflicts!

It would be wrong to paint Britain’s mutual as a bunch of cronies, but we mustn’t accept the binary world of Gregg McClymont’s “not for profit -good , for profit bad”.

The Equitable Life was a mutual and so were most of the insurers which People’s competes against. While I agree that most of the IGCs are in the pocket of their insurers, I can’t see many trustee boards being  much better.

Most master trusts are owned by for-profit insurers (People’s excluded) and those that aren’t – are owned by consultants with their own conflicts to deal with. NEST is so compromised by its Government debt that it has no legs to stand on;  the concept of genuine mutuality on a pure “not for profit” basis is further compromised by the outrageous payments made to some senior executives.

I simply don’t buy the mutuality dividend – I see no mutual (without plenty of conflicts)!

Australian problems stem from ineffective regulation

The Australian superfund system is hopelessly mis-regulated. I put this down to David Harris who used to be an Australian Regulator but came over to the UK a few years ago, spending most of his time over here promoting Nick Sherry and other Governmental luminaries. David even won an AMP scholarship to do all this!

Clearly AMP wanted Harris out so they could pursue their dastardly behaviour and its taken them a Royal Commission to find AMP out.

Pampering these politicians and regulators with praise has been a big mistake.

While the Australian regulators have stood by, UK regulators have got to work,

• ensuring auto-enrolment compliance
• introducing default funds to workplace pensions
• capping the charges on workplace pensions
• ensuring hidden charges are flushed out
• banning commission and consultancy charging  from workplace pensions
• ensuring master trusts are properly capitalised
• establishing an independent system of governance for contact based plans.

Only one winner in the Pension Ashes – UK Umpires!

UK Umpires – the Pensions Regulator and the FCA have done well.

Australian umpires are rubbish – something we’ve known for some time

In 1999, Dan Scheiwe described the mismatch between the pensions system introduced by the Australian government and the associated system for regulating it and protecting members ’ interests.

He said that as a result of this mismatch, there is virtually no pressure to ensure that members derive optimum benefits from their pension funds. In 1999 he predicted that the present system would fail to adequately provide for most members ’ retirement.

He predicted that the result would be  the national government might still be called upon to significantly fund the retirement incomes of an ageing population.

Tie my Superfund down sport

We have a number of extremely well managed workplace pensions in the UK – including People’s Pension, NEST and Royal London (not for profit)  but also L&G, Aviva and Scottish Widows (for profit).

It doesn’t make much difference if you are profit or not for profit, what’s needed is effective management and good stewardship. We have good management and some stewardship.

The Australians have a hopeless superannuation system whose not for profit providers are only “good” by comparison with their “for profits” rivals.

The Australian political system is in its usual chaos. There is little likelihood that the Royal Commission will make much difference so long as the architects of Superannuation are off on celebratory world tours.

Australia’s best hope is to get Harris back and turn his formidable energy to sorting the mess out. Meanwhile the mutual mafia in the UK would best be sorting out their own stewardship and putting as much distance between them and Australia as possible!