Friday, March 6, 2015

Fund boss says bank pressure on business to switch default superannuation funds is widespread

The head of an industry superannuation fund says the unlawful practice of banks using special inducements to win default superannuation accounts from business is widespread.

Andrew Proebstl, chief executive of LegalSuper, says employers who take inducements from banks in return for switching a fund should be forced to disclose any special deals given that the compulsory superannuation of their staff is exposed.

Earlier this week, AM reported that businesses are regularly offered lower interest rates, banks fees, corporate hospitality and Ipads to switch to a bank-run default superannuation fund which manages the 9.25 percent employer contribution.

Mr Proebstl, who oversees the management of compulsory superannuation for 40 percent of the legal profession, says some employers succumb to the pressure to ensure that don't miss out on business opportunities with banks and insurance companies.

"It is fairly predominant and there are employers who may have commercial business that they conduct with particular financial institutions that offer superannuation funds. They make the decision that by choosing that financial institution's default fund, they may more favourably position themselves to have commercial dealing with that financial institution," Mr Proebstl said.

However, Mr Proebstl said employers had a responsibility to disclose any special deals with banks to staff to avoid real or perceived conflicts of interest.

"Essentially the superannuation savings involved are the savings of the employees, they're not an asset of the employer in any way. The employer would need to be very careful if they were in these sort of circumstances, that they had due process around their selection and decision making processes," Mr Proebstl said.

"If there are circumstances where there is even the smallest potential for some form of conflict of interest, an employer should be obliged to disclose the nature of any commercial arrangement or relationship they have with a super fund they're doing business with."

Mr Proebstl said while employees have a right to know how their superannuation is being managed, they might not be comfortable challenging the decision of their employer to appoint a particular default superannuation fund.

"They basically prefer to have harmony with their employer and would prefer to not do something that might be interpreted by an employer as questioning the decision they've taken," Mr Proebstl said.

The banking regulator APRA and the corporate watchdog ASIC are investigating the claims made by Industry Super Australia in a survey of small and medium businesses.

But Mr Proebstl agrees that while regulators need to enforce the law, the methods used by banks and insurance companies could make the allegations of unlawful activity difficult to prove.

"I think one of the challenges is that many of the dealings are very translucent so it's very difficult to pin particular instances of where this has happened," Mr Proebstl said.

"Ultimately, it really can only be addressed by an increase in disclosure requirements around these arrangements so that members can be fully informed."

Thursday, March 5, 2015

Aldi posing real long term threat to Coles and Woolworths, Moody's warns

The rise of the cut-price supermarket chain Aldi is posing a long term challenge to to the traditional retail giants of Woolworth and Coles, according to credit ratings agency Moody's.

While Moody's says Aldi's penetration into the supermarket sector has been at the expense of independent retailers and Metcash IGA, the habits of traditional grocery shoppers are changing.

Moody's vice president and senior analyst Ian Chitterer says the "increasing acceptance of Australian consumers" and Aldi's "aggressive expansion plans" are a long term threat to the duopoly of Woolworths and Coles.

"In such an environment and based on international experience with the growth of discounters, we expect the market shares and margins of Woolworths and Coles to come under pressure over time," Mr Chitterer said in a note to investors.

But Mr Chitterer signalled the rise of Aldi would be gradual and that the Woolworths and Coles dominance was not in immediate danger of being toppled.

"It is important to note that the credit quality of the Big Two - which together account for 60% of Australia's grocery market by value - is supported by strong margins, healthy cash flows and ongoing cost reductions," Mr Chitterer says.

"Accordingly, we do not expect their credit quality to be materially impacted by competition from Aldi over the next 12-18 months".

Aldi's credit status is unrated by Moody's while Coles and Woolworths are both rated as A3 stable.

The long term reality check for Woolworths and Coles comes in a Moody's report released today on the challenges for the two supermarket giants.

The report says that since launching in Australia in 2001, Aldi's has opened 360 stories and now has an 8% share of Australia's grocery market with sales reaching more than $5 billion in 2014.

Moody's now forecasts that Aldi's stores will grow 5 to 6% per annum over the next five years which is double its expectations for Woolworths and Coles.

Just last week as it surprised the market by downgrading its full year profit forecast, Woolworths chief executive Grant O'Brien said the retailer is working to counter the competition and that customers are shopping around for bargains more than ever.

"They've certainly been more value conscious than they've been and that's a continuation of the trend we've been seeing," Mr O'Brien told analysts.

"So smaller baskets more often and that's aligned with modern busy lifestyles."

No rubber stamp from ACCC on postage price increase; regulator to consider Australian Post universal service obligations

The Australian Competition & Consumer Commission says it could take six to nine months to consider Australia Post's plans to increase the cost of a basic postage stamp.

The ACCC chairman Rod Sims told AM the regulator will need to undertake wide consultation to determine the fairness of increasing the stamp price from 70 cents to one dollar.

"The tricky bit is the cost allocation. Usually the cost systems that companies have don't provide the sort of cost allocation. So we need to understand what the efficent cost of a standard letter service is," Mr Sims said.

"Consumers have a right to a particular service at a price that's fair and reasonable so we need to assess what that fair and reasonable price is.

"We'll need to consult with particular users to get their input as well. These things always take time."

Mr Sims said the regulator is yet to formally hear from Australia Post since federal cabinet approved the proposed reforms earlier this week, but confirmed informal discussions had recently taken place with Australia Post chief executive Ahmed Fahour.

Australia Post wants to implement wide reforms to it's business that would include a two-speed postage service for its loss making letter deliveries business so it can focus on the lucrative opportunities in freigh and parcel deliveries.

The ACCC will also examine Australia Post's universal service obligations part of the review given a charter to provide a postal service at an affordable price that meets social and commercial needs of the community.

"Of course, technology has changed but you've got to look after those people who, for one reason or another, whether they be businesses or households still want to send letters. So there is a clear case for having a regulated price on that standard service," Mr Sims said.

"All part of the logic of having the regular service must meet certain universal service obligations and having to work out the efficient costs of that versus the premium service is what we'll be wrestling with."

Mr Sims said the ACCC would examine the proposed postage stamp increase in the same way it consider increases for other utilities like gas, electricity and water.

"I think you just can't take that service away. You've got to keep providing it, certainly for the foreseeable future. The question is what price people should pay.  But I think having that universal obligation makes a lot of sense."