Kelly O'Dwyer (Higgins, Liberal Party, Minister for Small Business) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This bill gives more employees choice in relation to the superannuation fund where their compulsory employer contributions are placed.

Currently some employees are forced to have their compulsory employer contributions paid to a fund specified in their enterprise agreement or workplace determination. They cannot choose a different fund.

The superannuation law effectively exempts these employers from having to provide choice.

Individuals in this situation may have limited capacity to influence their enterprise bargaining. Indeed, they may have commenced employment after bargaining has concluded, with several years to wait until the agreement is renegotiated.

Not being able to choose a fund can force some employees to maintain multiple superannuation accounts, exposing them to multiple fees and insurance premiums, potentially reducing their retirement savings. For some individuals, lack of choice contributes to disengagement with superannuation.

Take the example of John. He works part time for a large hardware store chain under an enterprise agreement, which requires his compulsory superannuation contributions to be made to fund A. At the same time he supplements his income with casual work for a small construction company that also makes compulsory superannuation payments under an enterprise agreement but to fund B. John has no choice but to maintain two superannuation accounts. This means two funds, two sets of fees and insurance premiums and greater complexity for John.

The financial system inquiry (FSI) recognised these issues and recommended that employees be given choice of fund.

The bill implements the government's response to recommendation 12 of the FSI final report on choice of fund.

Compulsory employer superannuation is one of the three pillars of retirement income in Australia and often makes up a large part of an individual's private savings at retirement.

The government believes people should be able to make key decisions that suit their personal circumstances around savings that they are forced to set aside until retirement.

More broadly, expanding choice of fund will increase competition among superannuation funds for the compulsory employer contribution of members, which can put downward pressure on fees.

Fees can have a big impact on retirement savings and income in retirement. Analysis in the FSI showed that, for someone on average earnings, a 30 basis point reduction in average superannuation fees could provide up to an extra $2,000 per year in retirement income.

When choice of fund was introduced in 2005 there were concerns about the cost to employers of paying employee superannuation to multiple funds. Technology has moved on since then. The effects of SuperStream and the availability of clearing houses have greatly reduced these costs.

The bill ensures more employees under enterprise agreements and workplace determinations made after 1 July 2016 will be able to choose the fund for their compulsory employer superannuation.

It also makes a minor technical amendment to ensure employers who rely on an existing exemption for certain members of a defined benefit scheme are not penalised.

It is estimated that this will extend choice to up to 800,000 people on enterprise agreements who have restricted choice of fund.

Existing employees will be able to request a choice of fund form from their employer that lets them select which fund their compulsory contributions are paid into.

New employees will be given a choice form when they commence employment under an enterprise agreement that is made after 1 July 2016.

Employees who get choice as a result of this bill do not have to exercise it and we certainly do not anticipate that all of them will.

But individuals will be able to consider their personal circumstances, look at the default fund of their employer and compare it with other funds, then make the decision that best suits their needs.

Similarly, we are not saying or assuming that funds currently mandated by enterprise agreements are bad; many of them perform well. Employees may prefer the default fund of the employer; they may prefer some other fund or they may not exercise choice at all. Whatever the case, the government believes it should be the individual's decision, which is why I commend this bill to the House.

Debate adjourned.