One of Australia's leading authorities on the superannuation system has accused bank-run super funds of "looting" workers' retirement savings for profit, and criticised the Federal Government's "bizarre" targeting of the not-for-profit industry super sector.

Key points: Forcing new model on industry funds would undermine members' interests, expert says

Forcing new model on industry funds would undermine members' interests, expert says Legislation would require at least one third of trustees on a super fund be "independent"

Legislation would require at least one third of trustees on a super fund be "independent" But expert says this requirement has failed to overcome conflicts of interest at bank-run funds

Wilson Sy was formerly head of research at the Australian Prudential Regulator Authority (APRA), which oversees superannuation funds, and principal adviser on the 2010 super system review (the Cooper Review) which resulted in major reforms of the industry.

He said it was ridiculous that the Government is trying to force changes on the "world's best practice" industry super fund model which has persistently and consistently delivered significantly higher returns for members than the retail funds run for profit by banks and big financial conglomerates.

"The industry funds have averaged 2 to 3 per cent better [than retail funds] over a period of 20 years," he said.

Over the same period, retail funds have delivered "about four and a half per cent" after fees and charges but before tax, which is "about the same as cash", said Mr Sy, who recently analysed two decades of official data.

"I think it's looting," he said.

"Retail funds are there to make profits for shareholders. Basically, they treat their members as consumers to which they sell some sort of financial product."

Government hoping to pass super reforms this week

The Government is hoping to pass legislation on superannuation fund governance before the summer break, with Parliament set to debate the government's bill this week.

The legislation would require that at least one third of the trustees on a super fund be "independent".

This would force many industry funds to abandon the "equal representation" rule, under which the trustees of a fund are made up of equal numbers of employer representatives and representatives of the workers who are fund members, usually nominated by unions.

"The reform is important because independent directors bring different skills and expertise and they can hold other directors accountable for their conduct, particularly in relation to conflicts of interest," the explanatory memorandum for the bill says.

Sorry, this video has expired Superannuation changes: greater transparency or a plan to hobble unions?

But Mr Sy says the independent director requirement, which is already in place at most bank-run funds, has failed spectacularly to prevent workers' retirement savings being eroded by excessive fees and has failed to overcome blatant conflicts of interest.

Trustees of superannuation funds that are run for profit by banks and other financial services firms face an "inherent conflict of interest", he says, because they are required under Corporations law to serve the interests of the shareholders who own the fund and required under superannuation laws to serve the interests of the funds' members.

The consistent and persistent underperformance of retail funds showed that the conflict has generally been resolved in the interests of shareholders.

Independent directors of retail funds are generally finance professionals schooled in making profits from workers' retirement savings, Mr Sy said.

It was naive to think that they would serve the interests of members at the expense of profits for the financial institution that owned the fund.

'It's precisely the wrong model': Reforms slammed

He also said that few so-called independent directors, drawn from financial services firms that provided services to banks or the super funds they own, would risk future work by standing up for members' interests at the expense of profits.

"Members do not reward the directors," Mr Sy said.

"Directors get rewarded for serving the shareholders of the bank that owns the fund, and pays their directors fees."

Often trustees of industry super funds are members of the fund themselves and therefore had a direct interest in minimising fees and maximising returns to fund members, Mr Sy said.

"If you are a director of a super fund and have most of your superannuation in the fund that you are a director [for], you are less likely to allow higher fees to be paid to service providers," he said.

"That is called skin in the game or alignment of interest."

Forcing the new governance model on industry funds would undermine members' interests, with fewer directors aligned directly to members' interests and more finance professionals aligned to the interest of the finance industry — profiting from workers' retirement savings — he said.

"It's precisely the wrong model."

The Government has acknowledged that the legislation would impose extra costs on industry funds, largely due to the expense of hiring new directors.

The Coalition has been trying to impose the new governance arrangements for years without success, but it is believed that the Government could be close to getting the numbers after intense lobbying of the crossbenches.

Mr Sy recently wrote to members outlining his concerns.