Retirees the losers in super money grab

WHO ever said altruism was dead?

After being battered by angry clients and various government inquiries for the past year, the superannuation industry has decided to become what's known in the public relations game as ''proactive''.

It hasn't had an an easy time of it recently. Poor performances from fund managers, lurid tales of dodgy advice from financial planners such as Storm and accusations of collusion with the big banks.

As a result, many retirees have been left with a sour taste and not much else.

The future holds even more challenges with the industry in the throes of the biggest shake-up since compulsory superannuation was introduced. Within the next two years, hidden fees and commissions - a defining feature of the industry - will be banned.

And so it was at the weekend that the Investment and Financial Services Association unveiled the findings of its latest survey into the nation's retirement savings.

The bad news? We are about $695 billion in the red. The even worse news? It's only going to deteriorate. Break that down into averages and each of us is about $73,000 short of what we need to enjoy a decent retirement.

Luckily, the association had a solution: the compulsory superannuation contribution from employers should be raised from 9 per cent to 12 per cent, just as Paul Keating had advocated when he established the system.

As an exercise in spin it was brilliant, successfully deflecting attention away from the main issue using a legitimate argument.

A deficit certainly exists in the retirement savings pool, and there is no doubt that unless action is taken that shortfall will have to be funded by taxpayers via social security payments. But raising the superannuation levy is just one component to any solution. The main problem with our superannuation industry, which has accumulated more than $1 trillion in savings, is that a very large part of that industry - the part run by the so-called professionals - does not perform for the benefit of its clients and shows little inclination to do so.

That huge pool of cash is a honey pot into which vast armies of consultants, advisers, brokers, managers and corporations constantly dip their fingers.

While the retail end of the industry has largely relied on commissions, at the top end of the industry - the wholesale end - fees are skimmed off the top, not for performance, but merely as a percentage of funds under management. The more money in your fund, the bigger your management fee.

So while clients are exposed to market volatility, the manager never incurs a loss. It is just that the size of the fee changes.

That same model is being proposed at the retail end - a percentage skim for the funds under management. What do you reckon would happen if the super levy was raised to 12 per cent? You guessed it. The amount of money under management would swell and that would boost management fees.

IFSA is a lobby group that serves the interests of what now is known as the ''wealth management'' industry, which these days is dominated by the big four banks.

All have huge insurance, super and funds management operations. All sell their own superannuation products. All have vast networks of financial planners who work for them.

It is a hugely lucrative business and one of the best opportunities for earnings growth for the banks. Westpac owns BT. The Commonwealth owns Colonial. National Australia Bank owns MLC.

Unfortunately, the funds operated by the big institutions rank well down the ladder when it comes to delivering for their clients.

In a survey by the Australian Prudential Regulatory Authority last year, the list of the top-performing superannuation funds over the previous five years was dominated by not-for-profit funds; those run by trade unions, employer groups and in-house corporate funds. Not one professionally managed fund appeared in the top 40.

Industry funds and not-for-profit funds in general consistently have outperformed the professionally managed funds for decades.

It is estimated Australians lose $13 million a day through excessive commissions and fees on their superannuation, which results in underperformance. On scale alone, the big banks and other professional organisations should be trouncing the amateurs.

IFSA's argument that we should raise the super levy holds some water and as a public relations stunt it certainly struck a rich seam in national newspapers on Sunday night. But it is difficult to not question its motives.

Perhaps the national savings pool would be best served by the superannuation industry concentrating on performance, rather than profit.