fatvegan

I've started a superannuation subject this semester, and it's really good. It's made me think about it again, and the lecturer is great, and it's going to help me understand it better because superannuation is very confusing.

I might have ranted a while back about the conflict on interest with superannuation funds that have both shareholders and members. So I could give money to a super fund to manage and give back to me when I retire, or I could buy shares in that fund and get some of the "profits" it makes. One of the issues there is that's very hard to decide who should get the money. At the end of each period, you have to decide how much of your extra wealth you'll give to to the shareholders as dividends and how much you'll give the members as super growth. The less assertive the fund members are, the more likely the shareholders are to get a "bountiful" share.

However, one of the key arguments for shareholdership is the improvement in accountability. A company that is owned and badly run by one person can continue to be badly run forever. But a company with shareholders that is badly run will get taken over by someone else. This paper I was reading was talking about how super funds that do a bad job are eventually taken over. But the average length of time it took in their sample was 16 years.

That struck me as odd. But I think the explanation is that for super funds there isn't a very strong correlation between performance (as in the success at managing the money) and profit (what goes to the managers and shareholders). And that relates back to the fact that good performance can always be translated into bad performance with good profits if the managers decide they want it that way. A fund that makes a lot of money could make the managers and shareholders very wealthy, but still look like a terrible fund. So "terrible fund" doesn't necessarily mean "fund that will be taken over and run by someone better". Which is unlike most industries, where being listed and being crap means you're bound to be taken over.

So shareholdership doesn't offer any solace to fund members who are trapped in a fund, either because the law won't let them move, or high fees won't let them move, or lack of financial knowledges means that don't know how to move. Being publically owned does offer some protection against socially important companies (like superannuation and milk) being run into the ground, but not against those companies taking passive customers for a ride.

As soon as shareholders complain about anything, all management has to do to assure their employment is to transfer a little more of their growth to shareholders. In fact, I can't see any reason why there wouldn't be a negative correlation between members satisfaction and shareholder satisfaction.

I think my point is that privatising social security is a tricky thing. I agree with it, because I think the market will probably do a better job than the government. But having non-passive members is important, and I suspect will always be important. And also the government shouldn't assume that the rigour of the capital market will make up for the lack of rigour in the market for frightened, financially-illiterate superannuants. So it's important to make sure it's easy to switch between funds, and let folk like unions have input and give advice on good funds.

I also wonder if there is a role for superannuation brokers who sit in the middle and shift money between super funds on mass. It's a bit silly that when members realise their fund has gone to the dogs, all of them have to write letters and move their money somewhere else. It probably should be almost as easy as selling shares. You can just tell your broker to keep you up to date, and hopefully there are strict regulations on commissions and giving out crap advice.

What amuses me a little is that even though I'm fascinated by superannuation, and whinge about the problems and inequities, I have my superannuation in four different places, and don't really know how to move it.