Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Hansard source

I thank most of the members who participated in the debate on the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012. Trust and transparency are critical to the maintenance of confidence in our superannuation system. The Labor government has made and will make long-term decisions to improve transparency in the governance of superannuation and financial services. These long-term decisions include banning the payment of sales commissions to financial advisers.

The recent inquiry of the Parliamentary Joint Committee on Corporations and Financial Services into the Trio collapse noted that hefty commissions were paid to an adviser who recommended Trio products and that some of the advice provided may contravene the government's new best interests hurdle. Yet those opposite, including the member for North Sydney and the member for Mackellar, did nothing to stamp out conflicts of interest in financial planning when they had the chance. Why did they not, as part of the Financial Services Reform Act of 2001, ban commissions? Why did those opposite, when they were in government, fail to introduce a new duty for advisers to put the interests of investors first?

The same goes for governance and superannuation. Those opposite, when they were in government, had ample opportunity to improve governance standards for superannuation. But the record shows that those opposite, whilst they talk about governance and superannuation, failed to act time and time again. In fact, some of the governance examples cited by the member for Mayo in his attack on funds in his speech on this bill appear to have happened on the Howard government's watch. It was disappointing to read the speeches on this bill by the member for Mayo, the member for Forde and the member for Bradfield—and I suspect that, when I read the Hansard of the member for Mackellar's speech, it will fall into the same disappointing category.

The divisive and extreme views put forward in these speeches echo the extreme and divisive views held by the Leader of the Opposition. It seems that the standard tactic of those opposite is to fill speeches with extreme rhetoric in an attempt to disguise their lack of policy. They have no policy to boost superannuation savings and create wealth for millions of Australians, no policy to help better management of people's savings when they enter retirement and no policy to boost Australia as a financial services centre. Too much time is spent, I am afraid, on the attack rather than on looking for the positives. Their negative rhetoric shows how out of touch some of those opposite are with the concerns of fund members and those who work in the financial services industry. The all-out assault by those opposite on a legitimate segment of the industry funds market ignores a statistic that is at the heart of members concerns—long-term investment performance. That is how little some of those opposite understand superannuation.

This government has plans, which it will continue to deliver on, to boost the superannuation wealth of Australians, to make the superannuation system more efficient and transparent and to create jobs and growth in our financial services sector. These plans include the measures in this bill as well as future legislation. The measures contained in this bill implement changes recommended by the Cooper review into the governance, efficiency, structure and operation of Australia's superannuation system. They impact 216 registrable superannuation entity licensees. New requirements for trustees and directors will improve trustee decisions and fund efficiency and effectiveness, thereby helping to grow the superannuation entitlements of members and confidence in the system.

I thank Paul Costello, who chaired the consultation panel that has advised the government on how best to implement the Stronger Super package of which these reforms are an important part. I also thank the hardworking team from APRA and Treasury which has been involved in the development of this important legislation.

The amendments in schedule 1 of the bill apply new duties to trustees, including: exercising the same degree of care, skill and diligence as a prudent superannuation trustee; acting fairly in dealing with classes of beneficiaries and beneficiaries within a class; and, where a conflict exists, giving priority to the duties to and the interests of beneficiaries over other persons. Trustees will have expanded requirements in relation to their investment strategies. They will have a new requirement to develop an insurance strategy and a risk management strategy for members of their fund and to maintain financial resources either as trustee capital or as fund reserves to cover the operational risks of the funds they manage.

In most cases trustees are corporations that have a board of directors. The Cooper review of the super system was concerned that there are difficulties for the directors of corporate trustees in understanding what is expected of them and that, as the industry consolidates, conflicts of interests and duty may arise more regularly. Importantly, the bill identifies clearly the duties that apply to individuals who are directors or corporate trustees of superannuation funds, including acting honestly and in the best interests of members. This is an important new requirement: a new duty is being applied to individual directors to act honestly and to have members' interests at the forefront of their minds.

Trustees who are authorised by APRA to offer a MySuper product will also have additional obligations, reflecting that members have effectively delegated all decisions for their superannuation to the trustee. There will be a primary obligation to promote the financial interests of members of the MySuper product—in particular, returns after the deduction of fees, costs and taxes.

The bill contains an obligation for trustees to determine that there is sufficient scale. Where a trustee determines that assets or member numbers are insufficient, the trustee will need to take appropriate action to rectify the insufficiency so that they continue to meet their general obligation to promote the financial interests of beneficiaries. APRA will consult with industry to provide prudential guidance on processes trustees could adopt to form a determination and relevant considerations for trustees in rectifying insufficient scale.

It is not intended that trustees will be required to make detailed comparisons of their performance against every other fund in the market. It is expected that many large funds will be able to determine quickly that scale is not a problem for them. It is expected that many well-performing funds will also be able to determine readily that the members are not being disadvantaged due to insufficient scale. However, small poorly-performing funds will need to consider actively whether insufficient scale is a factor impeding their performance.

Schedule 2 to the bill will provide APRA with the ability to make prudential standards. APRA already has this ability in banking and insurance. Prudential standards will provide APRA with greater flexibility to adapt effectively to industry developments in superannuation and the ability to provide regulated entities with clearer and more tailored legal requirements. APRA released draft prudential standards on 27 April and is consulting on them until 20 July this year. The provisions introducing the power to make prudential standards will apply from the date of royal assent. Duties for trustees and directors, including those offering MySuper products, will apply from 1 July 2013.

I am committed to reforming the governance and supervision of our superannuation system and will be bringing further changes before the parliament. These will include additional disclosure requirements for trustees, enhanced data collection and publication powers for APRA and also rules for financial advice charges deducted from members' accounts and charging for intrafund advice.

The government has a strong track record in improved transparency, including in relation to the future of financial advice reforms, implementing MySuper and the Productivity Commission inquiry into the selection and ongoing assessment of default superannuation funds in modern awards. The Productivity Commission will develop transparent and objective criteria against which funds wishing to be eligible for default fund status in modern awards can be assessed on an ongoing basis to ensure that the best interests of members are met if their superannuation contributions are allocated to a default fund under the modern award.

I will continue to work with industry and people of goodwill to ensure that superannuation trustees adopt best practice in terms of governance and transparency. I commend this bill to the House.

Question agreed to.

Bill read a second time.

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