Think twice before investing in your pink slip

Let's have a look at how super funds are spending your money, writes Steve Blizard.

One of the crucial centrepieces of superannuation in Australia is the Sole Purpose Test.

The tax man has defined this as the requirement of trustees to maintain their funds at all times for the sole purpose of providing retirement benefits for their members, or their dependants if a member should die.

The pivotal 1995 “Swiss Chalet” case highlighted where fund assets included shares in a single private company whose only assets were “playing shares” in a golf club, a Swiss chalet, and a beachside property in Victoria.

Due to the personal use of these assets within the fund, the Administrative Appeals Tribunal ruled that the fund had failed the Sole Purpose Test.

Such failure can be serious.  

Any trustee in breach of the test risks loss of the fund’s valuable tax concessions or prosecution for failing to obey the law.

In light of that landmark decision and such severe penalties, it is not surprising that the senior executives, not the actual trustees of Australia’s 25 biggest Industry Super Funds, attended a private dinner hosted by the Prime Minister Kevin Rudd to discuss tactics to counter the mining industry’s current nationwide advertising campaign combating the 40 percent super profits tax.

According to one senior government source there would be no objection to the super industry launching a campaign to counter the mining industry’s advertisements.

Interestingly, straight after sun up the next day, Industry Super Fund Network Chief, David Whiteley, called on the miners to can their campaign against the Government’s new 40 percent mining tax.

Mr Whiteley’s ploy of acting as an informal lobbyist for a Government cause has not gone unnoticed.

Daily Business Spectator commentator, Karen Maley, has written: “It’s already obvious that there’s been a worrying shift in how the bosses, and the trustees, of the big industry super funds see their role.

”Instead of being focused purely on looking after their members’ interests – by boosting investment returns, and keeping a tight lid on costs – they’re now acting more like the directors of a company. 

“We’re seeing the ludicrous situation where industry super funds are spending millions of dollars on television ads in a bid to attract new members, and forking out huge amounts on sporting sponsorships. 

“It’s impossible to see how sponsoring a football team in any way helps boost the retirement incomes for the fund’s members. On the contrary, this wasteful spending can only be lead to lower returns, and shrunken nest-eggs for the fund’s members.”

Sponsoring football teams or, for that matter, sponsoring or supporting Government political campaigns is six to one, half a dozen to the other.   

Precisely how the $19 Billion Industry Funds Holding Group spent $202 million is not known.  

And the reason for that is simple, because its latest Annual Report, covering the 12 months to June 2009, only tells us that the $202 million was outlaid on “total operating expenses”.

If Mr Whiteley’s loyal backing of the Rudd Government’s 40 percent mining tax campaign succeeds and that leads to mine closures we’d see the strange situation of the Industry super fund’s members bankrolling job cutbacks.

Little wonder then that the latest figures show that increasing numbers of investors when doing their sums choose to establish their own family Self-managed super and pension funds.

Steve Blizard is an authorized representative of Roxburgh Securities.

Comments

[Grantley]

1.

Thankyou Steve for a insightful article.
As one who has had a Self Managed Fund for sometime I am acutely aware of the rules and have no sympathy for anyone who tries to step outside those same rules.

I also have a family member based overseas in a hedge fund so much of what you are saying is not new news.

Similarly, I echo your concerns about these large Super Funds who advertise and enter into expensive sponsorship arrangements....why? they have a captive market, so what is the motivation behind sponsoring a football club for goodness sakes??!!

Thanks for the article. Much appreciated.

[Ben]

2.

Why does Industry Super Network executive manager David Whiteley remind me of a snake in the grass?

[TerjeP]

3.

Presumably the super funds are excited about a possible increase in the superannuation contributions the government has proposed. .

[Blake Rasmussen]

4.

Steve, you hit the nail on the head with your comment that the sponsoring of football teams by superannuation funds is inconsistent with the idea of maximising retirement savings. Obviously, when a super fund outlays money on football team sponsorships, this money never produces returns for the fund's members and thus reduces the amount that they come to receive when they hang up their boots. I believe that super funds should be banned from engaging in activities that reduce the members' account balances unnecessarily, like stupid football sponsorships. Smart investors in my opinion stay away from funds which use football teams to try to attract new members as funds doing this take their members' money away.