Investing your superannuation ethically

Many teachers don't know where there superannuation dollars are invested, writes SUE SIMPSON.

Have you ever wondered where at least nine per cent of your salary is invested? Would you like to have your superannuation investments working towards making the world a better place? The Federation's September Council became aware that many teachers do not know where their money is invested. Many would like to have the choice to invest in so-called ethical or sustainable investments. Australian workers through their superannuation funds own investments in shares, the property market, infrastructure and fixed interest of more than $912 billion. Superannuation funds have more money than governments to invest. Some workers invest more than the minimum through salary sacrifice and personal contributions. Federal Treasurer Peter Costello's 2006 Budget provided further tax incentives for workers to invest in superannuation. Federation supports the NSW public sector unions' claim to increase the minimum amount invested in superannuation from 9 per cent to 15 per cent of salary as a means of increasing teachers' retirement income. As funds stand to get even more income, they are looking for new areas of investment.

The majority of teachers and those who make salary sacrifice contributions are members of First State Super, an accumulation scheme. Market returns on the $11 billion under management determine retirement income. There are no specific ethical investment options. This does not mean that funds are not currently invested in well managed and economically sound projects. There is no specific 'screening' to ensure ethical investment occurs.

Australia lags behind the United States and Canada in the proportion of funds that are "ethically" invested. Under ethical investments, fund managers screen companies on a range of factors such as corporate governance (how they are run) and an assessment of the environmental and social impact of their business and workplace practices. September Council called on "the union movement's representatives to pursue sustainable and socially responsible investment options in the state and industry superannuation funds to which our members contribute".

In the absence of specific ethical investment options, there can be a values gap between what we believe in and what our money is supporting. How many of us deplore CEOs enjoying performance bonuses when their workers have lost their jobs? Many teachers are against Howard's WorkChoices legislation, the privatisation of public assets and the withdrawal of government funding of infrastructure through public private partnerships. Yet some of our superannuation money at any one time is or has been invested in companies with questionable business and labour practices: Rupert Murdoch's News Corporation, the big banks, BHP Billiton and James Hardie Industries. Superannuation funds invest or have invested in companies that have benefited from the privatisation of public assets as well as invest in public private partnership projects such as the Cross City Tunnel.

Compulsory occupational superannuation has fundamentally changed the relationship between workers and capital. Workers are now major owners of capital and so have economic power. Before the introduction of compulsory superannuation under the Keating Labor Government most workers invested only their labour in big business and the financial sector. Most workers had little, if any personal investments beyond possibly their own home. When they reached retirement, they and their spouses expected a small government pension, which was the same for males and females. Only full time permanent, usually male public servants and full time permanent teachers contributed to defined benefit superannuation schemes. Under these schemes such as the State Superannuation Scheme retirees were assured a guaranteed pension based on final salary and years of contribution. Retirees did not have to worry that poor investment decisions and a falling sharemarket might reduce their income. The government rather than the teacher bore the risk.

Whilst accumulation funds have disadvantages compared to the old defined benefit funds, industry accumulation funds have advantages over the big financial institution funds. Industry funds are "not for profit", low fee and pay no commissions to financial advisers. Compulsory contributions assure a flow of funds. They embrace democratic principles with trustee boards consisting of equal numbers of employee and employer representatives appointing investment advisers and fund managers and generally overseeing all aspects of fund management. All board trustees are required to act in the best interests of all the members as they seek to maximise benefits for members.

Currently Australian Council of Superannuation Investors (ACSI) is promoting corporate activism through conducting research for superannuation trustees on topics such as executive pay, ethical practice and corporate governance in Australia's top companies. Their research suggests that companies with good governance and strong shareholder accountability generally achieved superior performance in the short and long terms. ACSI is also encouraging superannuation trustees to get their fund managers to be more active in ensuring companies are accountable to their shareholders. ACSI provides a voting alert service in which it recommends whether executive remuneration packages at the annual general meetings of Australia's top companies should be approved or rejected. Just this year it received a superannuation industry award for coordinating the support of Australian and international pension funds in successfully challenging Rupert Murdoch's News Corporation's attempts to reduce shareholder scrutiny.

Ethical investment options together with funds working together to be more active in monitoring the corporate world are necessary complements to the other work we do to make the world a better place.

Sue Simpson is a Federation Vice President and a former director of industry superannuation fund EdSuper. This article is based on her report to September Council. Federation does not provide financial advice. Members are advised to consult a qualified financial adviser regarding their individual circumstances.

For further information

October 2006 contents