Capitulation? Not quite. More a tactical retreat.

The Prime Minister may have been dragged "kicking and screaming" to a royal commission into banking, but not before lobbing a hand grenade into proceedings.

It now transpires that the royal commission for which the electorate has been clamouring is not quite the royal commission being offered up by the Government.

Having been given the all clear from the banks — in the face of a revolt from within the Coalition — the PM has delivered what appears to be a neat little weapon the banks may well find to their liking.

Rather than merely cast a torchlight into the dark recesses of the banking world, the inquiry has also been told to delve into superannuation; an area where the banks for years have been at war with not-for-profit industry super funds.

According to the draft terms of reference, it can examine any fund that employs "members' retirement savings for any purpose that does not meet community standards or expectations or is otherwise not in the best interest of members".

That has been widely interpreted as yet another attack by the banks on the not-for-profit funds which, for the past quarter of a century, have consistently outperformed the retail funds run by the banks and insurance companies.

But it may end up backfiring on the bank-run super funds if royal commissioner Kenneth Hayne adopts a broader view.

For it is high time Australia's supposedly world-class superannuation system was shown for what it truly is: a massive rort.

Why the banks hate not for profit super funds

Each week, almost 10 per cent of every worker's salary is directed straight into the arms of the superannuation industry. It's a government-mandated growth industry.

The fees are raked off, not on performance or the amount of work done, but as a percentage of the total pie. So as the fund naturally grows, the fees soar.

Little wonder the banks have identified the industry as a honeypot; a rich source of fees just ripe for gouging.

Consider these statistics from financial research group Rainmaker: of the more than $2.3 trillion in Australia's superannuation system, total fees last year amounted to a staggering $31 billion.

But it is the way the fees are split that is truly stunning. Industry funds manage around 42 per cent of that cash. Their fees account for around 42 per cent of the total fee take.

Retail funds, on the other hand, have their foot on far less than industry funds with just 29 per cent of the market. But their fees are much higher, accounting for half the $31 billion total. So, less than one-third of the market but half the fees.

Extra fees for worse performance? How does that work? Simple, those huge fees the banks take come straight off the top of workers' retirement savings.

In the past decade, there have been several major inquiries into our busted super system; the Cooper Inquiry, the Financial System Inquiry and the Future of Financial Advice. The Productivity Commission has one underway right now.

All have arrived at the same conclusion; the fees are too high and the system is designed to benefit the industry, not the workers for which it was intended. Still, the fees remain exorbitant, among the highest in the world.

Industry funds — bosses and workers

In the past few years, the retail funds have launched a relentless campaign against industry funds, attempting to break the stranglehold they have on what's known as "default accounts".

These are super accounts that are allocated to any worker who does not select a preferred super fund.

At the moment, the default accounts are assigned by Fair Work Australia as part of an industrial agreement. Industry funds dominate.

While all this has been going on, the Government has embarked upon a campaign to "reform" industry funds, pushing for a shake-up of industry super boards.

It has demanded that at least one-third of all directors be independent, along with the chairman.

On paper, those demands sound like a pretty reasonable move. After all, those are the rules that apply to stock exchange listed companies.

But the rationale behind it is deeply flawed, primarily because there is a great myth that has been perpetrated about industry super funds.

Pick up any newspaper or magazine, check any website — including the ABC's — and any reference to an industry fund will be accompanied by the prefix "union-backed" or "trade union dominated".

It has become something of a truism. Except that it is an untruth.

Industry super funds are not union dominated or union backed. Their constitutions force them to have a balance; equal numbers of employee and employer representatives on every board. Bosses and workers together.

Immigration Minister Peter Dutton on Friday gave voice to a frequent government refrain and left little doubt about the Government's motive for including superannuation as part of the royal commission.

Industry funds, he said, would face more scrutiny as a result of the royal commission, given they have "union members and whatnot on the board".

The "whatnot" include businesspeople such as Australian Industry Group chief executive Innes Willox, who has been a director of industry fund AustralianSuper for the past two-and-a-half years.

Most employer representatives find the "union dominated" tag insulting, to say the least.

As Mr Willox told ABC's The Business on Friday night: "There are many examples of where employers have a very strong equal voice and sometimes stronger voice in industry funds."

What about performance?

The Government and the banks — through various lobby groups like the Financial Services Council — seem obsessed with the make-up of industry super boards.

Surely, performance should be the main issue.

For 25 years, industry funds have delivered better returns to their members than bank-run retail funds.

During that period, billions of dollars in fees have been raked off for the benefit of bank executives and directors, many of whom have been paid obscene bonuses for pathetic results.

Former prime minister Tony Abbott once remarked that industry super funds were run by "venal" and "corrupt" union officials.

He may be right, although Justice Dyson Heydon uncovered precious little corruption relating to super in his royal commission, despite his best efforts.

It is quite likely there has been corrupt activity within industry funds that has not been exposed.

But what has been revealed to date pales into insignificance when compared to the litany of complaints, criminal behaviour and the ongoing revelations of wrongdoing within our banking system.

Perhaps the final word on the matter should be left to the banking regulator APRA.

In its most recent adjudication of superannuation fund performance, industry funds produced a 9 per cent return on investment in both the 12 months to the end of September 2016 and the year to the end of September this year.

The bank-run retail funds were no match. They notched up a 6.1 per cent return last year and just 6.3 per cent this year.

It has been the same story for a quarter of a century. That alone is worthy of investigation.