This week the Australian Government's Productivity Commission released its draft report assessing the "efficiency and competitiveness of Australia's superannuation system". Predictably the report found that the system was actually "not so super", and reading through the 571 pages of the full report, Hedge Clippings decided that (purely for expediency as you would understand) the overview, just 65 pages long, was likely to be more our speed.

Taking expediency even further, it was judged that the best way to look at even the draft report was to skip to page 56 under the heading "OVERALL ASSESSMENT". Expediency aside, we would have to say both versions were excellent, and it was almost impossible to fault either the logic, findings or recommendations contained therein.

First and foremost in the recommendations was the removal of "unintended multiple accounts (and the duplicate insurance that goes with them), which the commission estimated would save members collectively about $2.6 billion a year. In addition, if members in underperforming MySuper accounts had instead been moved to the median of the top 10 performing MySuper products, they would collectively have gained an additional $1.3 billion a year".

That's nearly $4 billion a year, probably on behalf of the lowest value accounts, and therefore on behalf of the neediest in the community, which could collectively be added to their retirement benefits. Multiplying that by a 40-year working life makes a mouth-watering $160 billion.

Not surprisingly the Productivity Commission came to the conclusion that "the superannuation system has not kept pace with the needs of members".

What was an outstanding and forward thinking concept introduced by Paul Keating way back in 1983, (allegedly with much input from Garry Weaven, the founding executive chair of industry fund services in the early nineties, and who still wields significant influence in the industry superannuation sector) not only has the system not kept pace with the needs of members, successive governments haven't been able to help themselves and have complicated it disastrously.

Without running through all the findings and recommendations, (again in the interest of expediency), the Productivity Commission's draft report also covered fees (higher than those in other OECD countries), transparency (poor), disclosure (sub-par), performance (mixed, with underperformers particularly prevalent in the retail sector), competition (inadequate),  policy (changes required), default fund selections (unhealthy), erosion of member balances (no comment required), and governance (stronger rules needed).  

We could go on, but that would prevent readers having the enjoyment of thumbing through either report themselves. However, one recommendation, which copped some flak from the industry fund sector, (unreasonably, but given self-interest, not surprisingly), was the call for 30% of each industry fund's board to be made up of independent directors.

The industry funds' position would seem undefendable, apart from the difficulty of finding sufficient appropriately qualified independent candidates. After all, if it is appropriate for the board of an ASX listed company, the majority of which are smaller and have fewer shareholders than industry funds have members, to have 30% independent directors, why not industry super funds?

What's good for the goose, should be good for the gander.

Over the past couple of months Hedge Clippings has been overwhelmed by revelations of gross misconduct evident at a number of levels of banks and AMP in the areas of financial planning and advice. The Hayne Royal Commission became a cross between reality TV, a soap opera, and a big end of town version of Judge Judy.

This week's episode, focusing on banks lending to small businesses, and their subsequent treatment of the borrower and their unfortunate guarantors when the proverbial hits the fan, has been dull by comparison.  It has been no less shocking, but dull, probably because there haven't been too many surprises. Banks only lend when the borrower can provide adequate security, and when it's time to pay the piper, it's the lender that calls the tune.

There's an inherent conflict here. Small business borrowers constantly complain that it's hard to get a business loan, even with the security of a home as collateral, often owned by some unfortunate relative. Banks argue that they aren't there for the benefit of the borrower, and have been driving hard bargains when things turn turtle since Shylock was a boy. Hence the term "getting their pound of flesh."

The issue is to what lengths should a bank go to in getting a guarantee, and how, or from whom in the first place. Once again it is in the area of what is "acceptable conduct" from a supposedly reputable business that the banks appear to have failed the test. No one disputes the banks' basic business obligation to take appropriate measures to protect the money they lend, but it comes down to what is considered appropriate.

Once again the pressure to perform, particularly to meet sales and lending targets, leads to unfortunate outcomes where the bank is rarely the loser at the end of the day. Until the government of the day announces a Royal Commission…