The founder and leader of the world’s largest investment firm has thrown his weight behind employers playing a larger role in retirement; at the same time, ASIC has questioned the deals companies are doing with retail funds.
In his annual missive to chief executives worldwide, released this week, BlackRock chair and chief executive Laurence Fink has called on companies to lead the way on retirement.
“Retirement…is an area where companies must re-establish their traditional leadership role,” Fink said in his missive.
He said workers were “unprepared” for the global shift from defined-benefit to defined-contribution schemes, whereby the onus for expertise will shift from employers to employees.
“This lack of preparedness for retirement is fuelling enormous anxiety and fear, undermining productivity in the workplace and amplifying populism in the political sphere,” Fink continued.
BlackRock head of Australasia, Dominik Rohe, said people don’t understand super when they’re given control of it but added that firms could help with this.
“There is an educational piece required, where we need to work as an industry and as fiduciaries to bring good education to members,” Rohe said.
In his letter, Fink explained how global trends such as stagnant wages and the effect of technology on jobs had fuelled anger and fear, manifesting in nationalism and xenophobia.
“The world’s leading democracies have descended into wrenching political dysfunction,” Fink stated. “In response, companies must embrace a greater responsibility to help workers navigate retirement, lending their expertise and capacity for innovation to solve this immense global challenge.”
Easier said than done
Fink’s exhortations for employers to show a steady hand in stewarding superannuation come amidst increased scrutiny from the regulator on deals between employers and retail super funds.
A Productivity Commission report into superannuation released in December last year noted that one of the main drivers of “subpar outcomes” for employees was the way default super funds were tied to employers.
“Employers are not always well placed to navigate this maze and make decisions on behalf of their workers,” the report stated.
The chances of an employer allocating the most appropriate default fund to their employees is “hostage to constraints on employers’ time, expertise and even goodwill”, the report stated, suggesting that more nefarious motivations were often at play.
“There is evidence that some funds offer benefits to influence employers’ choices – a problem that is both hard to observe and to regulate,” it stated.
The PC’s suggestion that employers were knowingly placing default superannuation contributions into underperforming funds was furthered by new ASIC commissioner Danielle Press, who announced in December that the regulator would launch an investigation into the relationship between funds and employers.
The probe, which also draws from revelations in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s interim report, will focus on the practice of employers placing employees in poorly performing super funds in exchange for bundled services.
“We’ve got to look at the role of employers in the default system and how they are making their decisions on what funds are their default funds,” Press told The Australian in December. “There’s no obligation on employers to make that default choice in the best interest of their employees.”
BlackRock’s Rohe agreed that this was the antithesis of what his boss, Fink, was calling for in his annual letter. The next generation to retire, he said, wouldn’t be forgiving of employers that didn’t treat their superannuation with socially responsible governance and oversight.
“Corporations have a responsibility to employees and their clients and unless they can fulfil that purpose meaningfully – beyond a marketing catchphrase – it won’t work anymore,” Rohe said. “The younger generation really watches [how] leaders or companies advertise themselves and how they run the business. And if that doesn’t match…companies will have a hard time.”