Hospitality packages present an opportunity to “get star struck with VIP on-court seating”, according to the Australian Open website, while “superboxes” include private seating and staff to serve food and drink. Employers are key to the flow of new and ongoing super business.
They nominate which super funds receive contributions from employees who do not choose their own fund.
The flow of this so-called default money into Hostplus is considerable because it operates in the hospitality and tourism space, where there are lots of young workers who are apathetic about where their retirement savings sit.
Section 68A of the Superannuation Industry Supervision Act prevents funds offering benefits to employers on the condition that their employees will join a fund.
In evidence to the royal commission, Hostplus argued its actions did not contravene the act because the hospitality was not offered on a conditional basis.
The commission heard that Hostplus spent $260,000 to entertain 120 chief executives at the tennis last year. Chief executive David Elia said entertaining bosses was a necessary evil and, in the case of the Australian Open, absolutely met the best interests test.
Growth was essential for keeping returns high and costs down, he argued. “Unashamedly we utilise entertainment, corporate hospitality in order to strengthen the relationships we have with our employers,” Mr Elia said. “I wish I didn’t have to do it. The reality is it is a very competitive landscape we are dealing with.”
Hostplus has a rapidly expanding membership base which now exceeds 1 million and often features among the industry’s top performers. More than 155,000 employers use Hostplus.
Lawyers assisting the royal commission did not recommend that Hostplus be found to have engaged in misconduct but posed the public policy question: should the law be rewritten to prohibit inducements of any type?
The regulators say some strengthening is warranted.
The Productivity Commission is also worried. “Some employer inducements reflect unhealthy competition in the default segment,” it said in its final report, published last Wednesday.
“For as long as employers remain involved in default selection, fund trustees should be obliged to ensure that inducements are not offered in the first place.
“Funds should not feel a need to offer hospitality to prevent employers from making poor fund choices.”
The PC has recommended stripping employers of their involvement in choosing default funds. Instead, an expert panel would select a top 10 shortlist.
“The only wholly effective way of dealing with employer inducements – and principal-agent issues involving employers more generally – is to remove employers from the process of selecting super products for employees,” the report said.
During 2017, the Australian Securities and Investments Commission surveyed 46 funds about whether they had provided benefits to employers responsible for making default fund choices.
A quarter said they had provided free tickets to sporting events or corporate hospitality. But legislative protections are already in place and ASIC has found no evidence of breaches, the PC report said.