8.3 What the case study showed

8.3.1Keeping low balance members in the fund

Hostplus submitted that there was no evidence that it had sought to keep low balance members in the fund, or engaged in any retention strategy, for the purpose of obtaining the tax benefit.[1] Mr Elia rejected the proposition that Hostplus was reliant on the premiums paid by inactive low balance members.[2]

The administration reserve was expected to reduce from $172 million, as at 30 June 2018, to $45 million, by 2022 to 2023, if insurance cover ceased because no contribution had been made in 13 months.[3] And the tax benefit accruing to the administration reserve was expected to reduce by approximately $14.5 million per year.[4] That amount is not insignificant. In those circumstances, it would not be surprising if Hostplus was, to at least some extent, reliant on the premiums paid by those members to operate the fund.

I accept that, as Hostplus submits, it is an ‘all profits to member’ superannuation fund, so any tax benefit it obtains accrues to the members as a whole.[5] Even in those circumstances, retention strategies that seek to preserve this position and that do not have adequate regard to the member’s circumstances or interests may be conduct that falls below community standards and expectations.

Mr Elia said that, since providing to the Commission the letters regarding permanent exclusion, Hostplus has developed processes and is undertaking to review those members who have been permanently excluded to ensure that permanent exclusion is in their best interests.[6] Hostplus also referred to this program of works in its submissions.[7]

8.3.2Conduct falling below community standards and expectations in relation to retention strategies

Counsel Assisting submitted that Hostplus’s conduct in sending the letters to inactive members fell below community standards and expectations, because the letters gave the impression that the member would lose their account balance to the ATO and did not explain the consequences of their choice.

Hostplus rejected that submission.[8] It submitted that the confusion said to arise from the letters was inherently improbable, and that there was no evidence that any Hostplus member was in fact confused or misled by the letters.[9]

In his evidence, Mr Elia said that ‘having looked at some of these particular statements [in the letters to members], there is no doubt in my mind that we could be a lot better at articulating the message’.[10] I agree. The letters sent by Hostplus did not give the member enough information to assist them to make an informed decision about whether to stay with the fund. This was particularly so in the case of the ‘Tick the Box Hit the Box Office’ marketing campaign, where members were offered the possibility of financial reward for staying with the fund, without any information about the consequence of their choice.

There was no evidence before the Commission about the particular circumstances of the members who received the letters, or who permanently excluded themselves. Considering the fund’s demographics, it is not unlikely some or many were young members who had possibly joined another superannuation fund by that time. I cannot say whether members who received the letters and decided to stay with the fund made an informed choice.

The retention communications in evidence may have departed from community standards and expectations. The community expects trustees to communicate to their members clearly and transparently and to be careful not to mislead. This is particularly so having regard to the high levels of disengagement on the part of members, which Mr Elia acknowledged was a likely trait of Hostplus’s members.[11]

8.3.3Consideration of section 68A

Section 68A was inserted into the SIS Act in 2004.[12] It was modelled on section 78 of the Retirement Savings Accounts Act 1997 (Cth), which was a provision inserted to ensure that employers were not influencing employees’ superannuation decisions.[13] Parliament saw the insertion of section 68A as an ‘important protection for employees’ used to help ‘get to a stage where it is employees who are making real decisions [about their superannuation] rather than their employers’.[14] The mischief Parliament was trying to address was ‘to ban payments to employers, which would include the socalled soft dollar arrangements,[15] in exchange for choosing their fund as the default fund’.[16]

Mr Elia said that the board had considered section 68A in the context of corporate hospitality expenses.[17] In general terms, that section prohibits a trustee or its associate from supplying or offering to supply goods or services on the condition that the person’s employees will be members of the fund.[18] The board’s view was that the offers were not made to employers ‘on a conditionality basis’.[19] Mr Elia did not agree that they could be characterised as ‘inducements’ to employers to remain with the fund.[20]

Mr Elia’s evidence suggested that, at least to some extent, employers are choosing a default fund based on relationships with executives and employees of superannuation funds and are influenced by inducements or experiences offered to them, including by way of corporate hospitality.[21] His evidence suggested that these offers were important to employers, and that performance of the fund, net benefits to members, and other product features are subsidiary considerations for employers in selecting a default fund.[22]

Mr Elia said that Hostplus offers things such as tickets to sporting events to employers to maintain and build its relationship with those employers.[23] Yet it is difficult to see that the conduct could breach section 68A given the specific wording that the offers be made on the condition that the employer will ensure their employees remain or become members of the fund.[24] The hospitality and other benefits provided were not offered or received on that condition.

The prohibition of conduct that may improperly influence decisions is not novel. In the context of elections, the law has long sought to prohibit expenditure on such things as food, drink and entertainment that is intended to influence the vote of an elector.[25] Provisions of that kind seek to prohibit conduct that is intended to influence or interfere with a decision in circumstances where the decision should be made free of such influence or interference. Legislation of this kind provides a much better model of regulation than the existing provisions of section 68A.

It is not right that an employer should choose a default fund for its employers because of benefits that the employer may personally enjoy, but which have nothing to do with the merits of the fund or what it has to offer their employees.

ASIC is the regulator responsible for the general administration of section 68A.[26] In its written submissions to the Commission, ASIC said that the Hostplus case study shows that section 68A as currently framed is ineffective: despite significant expenditure from fund assets for the benefit of employers, there was no breach of that section. ASIC identified the deficiency as the requirement that the inducement be ‘on the condition that’ the employees joined the fund.[27] I agree.

Section 68A(1) and (3) should be repealed and provisions made along the lines of the longestablished electoral law prohibitions against bribing electors. The redrawn provisions should hinge upon whether the conduct would induce, or could reasonably be expected to induce, a person’s choice of default fund for their employees who have made no choice of fund.


[1] Hostplus, Module 5 Case Study Submission, 3 [17].

[2] Transcript, David Elia, 14 August 2018, 4860.

[3] Transcript, David Elia, 14 August 2018, 4859; Exhibit 5.176, 27 July 2018, Extract from CEO Report to Board Meeting, 17.

[4] Transcript, David Elia, 14 August 2018, 485960; Exhibit 5.176, 27 July 2018, Extract from CEO Report to Board Meeting, 17.

[5] Hostplus, Module 5 Case Study Submission, 4 [21].

[6] Transcript, David Elia, 14 August 2018, 4856.

[7] Hostplus, Module 5 Case Study Submission, 3 [14].

[8] Hostplus, Module 5 Case Study Submission, 1 [5].

[9] Hostplus, Module 5 Case Study Submission, 2 [9].

[10] Transcript, David Elia, 14 August 2018, 4851.

[11] Transcript, David Elia, 14 August 2018, 4848.

[12] Senate, Hansard, 22 June 2004 at 24,540, 24,5512. It was introduced by the government as an amendment to the amending Bill, Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2003 (Cth), and described as thesocalled kickback amendment.

[13] Senate, Hansard, 22 June 2004 at 24,540, 24,553. It was concerned with eliminating third-line forcing: see Senate, Hansard, 25 March 1997 at 243940; Senate, Hansard, 12 May 1997 at 30801. Note the different nature of Retirement Savings Account (defined in Retirement Savings Account Act 1997 (Cth) s 8 as a superannuation product offered by an RSE licensee), in that they are products offered by banks outside any trustee relationship. See also Senate, Hansard, 24 March 1997 at 2193209 for debate about the Bill before the amendment inserting the equivalent of SIS Act s 68A.

[14] Senate, Hansard, 22 June 2004 at 24,554.

[15] Soft dollarpayments were those where inducements were used to incentivise someone: see Senate, Hansard, 22 June 2004 at 24,552. This term was used in the context of ASIC Report 30: Disclosure of Soft Dollar Benefits, released June 2004, which concerned inducements to financial advisers.

[16] Senate, Hansard, 22 June 2004 at 24,555.

[17] Transcript, David Elia, 14 August 2018, 4871.

[18] SIS Act s 68A(1).

[19] Transcript, David Elia, 14 August 2018, 4871.

[20] Transcript, David Elia, 14 August 2018, 4871.

[21] Transcript, David Elia, 14 August 2018, 486870.

[22] Transcript, David Elia, 14 August 2018, 486870.

[23] Transcript, David Elia, 14 August 2018, 486870.

[24] Transcript, David Elia, 14 August 2018, 4871.

[25] See, eg, Treating Act 1696 (Imp); Commonwealth Electoral Act 1902 (Cth) s 176. See also Colin Hughes,Electoral Bribery(1998) 7(2) Griffith Law Review 209, 21011.

[26] SIS Act s 6(1)(c).

[27] ASIC, Module 5 Policy Submission, 3–4 [16]–[17].