Wednesday, 23 June 2010
Superannuation Industry (Supervision) Amendment Bill 2010
Debate resumed from 26 May, on motion by Mr Bowen:
That this bill be now read a second time.
I welcome the opportunity to speak on the Superannuation Industry (Supervision) Amendment Bill 2010, which makes some minor changes to the ability of superannuation fund trustees to purchase assets through limited recourse loans. The purpose of this bill is to resolve the uncertainty with the application of the borrowing exemption allowing for limited recourse loans, which reduces the risk to superannuation funds investing through this type of borrowing. Section 67 of the Superannuation Industry (Supervision) Act generally prevents a trustee of a regulated superannuation fund from borrowing money. There are exceptions in the act, such as if there is a temporary need for liquid funds to settle outstanding securities transactions.
In 2007, another exemption was added. The coalition responded to sentiment in the industry to allow an exemption to borrowing requirements of superannuation trustees in terms of limited recourse loans purchased through instalment warrants. These types of loans have become popular with the self-managed superannuation fund sector. The flexibility allowed by SMSFs, including high levels of engagement in choice, are all principles that the coalition has tried to follow in superannuation, and they have informed our amendments to the Superannuation Industry (Supervision) Act. The amendments made to the act in September 2007 allowed superannuation fund trustees to borrow money on a limited recourse basis to acquire any asset that a fund is not prohibited from acquiring directly.
Under these rules, superannuation trustees are able to use instalment loans to fund the purchase of any number of assets. However, the loans made to trustees typically have guarantees placed on them, allowing recovery outside of the assets that the loan was originally intended for. This practice of offering personal guarantees on assets held on collateral outside the specific assets covered by the loan allows lenders to access an individual’s superannuation balance to cover any defaults on a loan. The bill introduced by the coalition in September 2007 was not intended to allow superannuation balances to be used as collateral against a loan. The amendments made by this proposed legislation address this issue and also make a number of other changes to protect the integrity of recourse lending available to superannuation fund trustees.
There are two main amendments to the system of recourse borrowing made by this legislation. Firstly, under the current law, it is possible to interpret ‘asset’ in the plural for the purpose of using recourse borrowing as funding. Again, this was not the intention of the legislation and this bill explicitly defines the interpretation of an ‘acquirable asset’ in the singular. This amendment ensures that the recourse of the lender or any other person against the superannuation fund trustee for default on the borrowing is limited to the rights relating to the acquirable asset. Guarantees on loans beyond the value of the underlying asset will effectively be prevented. Importantly, the amendments are drafted to allow for investments in a particular kind of asset class, and it is their intent that superannuation funds will still be able to borrow on a limited recourse basis to fund an investment in a managed share portfolio. This amendment addresses the situation where a superannuation trustee is able to choose which asset is to be used in order to settle defaults on a debt.
The amendments will allow lenders certainty when judging the risk inherent in lending to a particular type of asset. They will also protect the integrity of an investor’s superannuation balance by limiting the risk to a particular asset and minimising the exposure of the fund to claims made by creditors. The bill clearly defines which assets can replace the assets purchased under a recourse loan for the purpose of designing a dynamic investment strategy. For instance, money is not eligible as a replacement asset under any circumstances. The replacement cannot be improvements of real property and an asset cannot be replaced by an asset arising from an insurance claim covering the loss of the original asset.
The second set of measures contained in this bill makes amendments to the measures allowing personal guarantees as collateral against recourse loans. The situation has arisen from the 2007 amendments where several providers of limited recourse borrowing are requiring trustees or fund members to provide guarantees of the borrowing to underwrite the provider’s risk for the limited recourse nature of an instalment warrant. The amendments will prevent a trustee from using superannuation balances as a guarantee against a default on a limited recourse loan. Again, this protects the balances of superannuants whilst limiting the risk to the asset under which the loan falls. These arrangements are sensible reforms to the legislation. The Treasury held a consultation process in March 2010 where stakeholders were broadly supportive of the changes.
I would like to reflect the view of the SMSF Professionals Association of Australia, or SPAA. I have mentioned before that the coalition is a strong supporter of the self-managed superannuation fund sector. There are approximately 800,000 trustees and members in the sector, but the investments made by SMSFs account for 31.8 per cent of total superannuation assets, or around $400 billion. This is a significant proportion of Australia’s total superannuation asset pool, which currently stands at $1.23 trillion. SPAA have raised two issues with this legislation which will impact on the SMSF sector. It will be the responsibility of the government to monitor the impact of the legislation to ensure that the provisions are working as intended. Firstly, SPAA see no policy justification for banning superannuation loan structures which hold only liquid assets such as a diversified portfolio of listed securities. I have already mentioned that the legislation will enable investments in managed funds from loans to be made on a limited recourse basis, but the SMSF sector believes that this should be more flexible. SPAA admit that section 67A of the act as implemented by the amendments to place a general ban on the use of multiple assets within complying loan structures should contain an exemption for securities listed on the Australian Securities Exchange. The coalition asks that the government and the Treasury continue to monitor the impact of this policy on a number of SMSFs which are able to invest in ASX listed shares and whether the policy has had any detrimental effects.
The second issue with regard to self-managed superannuation funds is relating to personal guarantees. Under the proposals, personal guarantees will not be held over the superannuation balances under the trustee but third-party guarantees will continue being permitted. This means that an individual member of a super fund will be able to make a personal guarantee relating to personal property in order to cover a potential default on a limited recourse loan. This creates the situation where members of small superannuation funds may become personally exposed as a result of a personal guarantee without any recourse to fund assets. SPAA submit that the ban on personal guarantee be extended to all guarantees linked to a superannuation fund complying loan structure. The impacts of these measures need to be monitored. However, without access to any guarantee the lender may be less likely to provide credit for the purposes of purchasing assets in a superannuation fund. In this case the risk of lending might be too high and the creditor will be less likely to lend to superannuation trustees for purchases of assets.
Whilst the government must monitor the implication of the two issues raised by the SMSF sector, the intent of the legislation is to reduce the risk of limited recourse loans to superannuation trustees. The premise of the legislation is that personal guarantees on a limited recourse loan are a risk to superannuation balances. The coalition support the legislation because we support measures that protect superannuation balances from risk that is not connected directly to that superannuation balance, like a separate asset in fact. This is why we do not support measures from the government that intervene in the market and increase the risk to superannuation balances today.
Since the government’s great big new tax on mining was revealed in the press in April, superannuation investments in the resource sector have reduced significantly. The peak of this plunge occurred on 21 May, with a total of $23 billion wiped off superannuation fund investments in resource stocks. The impact of the resources tax, particularly on smaller Australian miners, has been disastrous. This is why the Rudd Labor government is now being labelled ‘a sovereign risk to Australia’ by international investment professionals. The manager of the government’s own Future Fund, Mr David Murray, said:
… if we can’t achieve a design that does not penalise the existing projects—that’s a sovereign risk issue and a design that does not discriminate between recurrent spending and long-term intergenerational wealth creation; if those things can’t be done, the tax should be abandoned.
The chairman of the Australian company Wesfarmers, Mr Bob Every, said:
To change the rules for investors after decisions have been made and costs incurred risks undermining Australia’s position in the international investment community.
So, although the government is looking to minimise risks to superannuation balances by virtue of this legislation, its actions and its broad agenda are a great risk to those very same balances. The ANZ Bank suggested that an international lender in credit markets should compensate for perceived sovereign risk by adjusting the interest rate charged. By lowering the interest rate charged in areas of high sovereign risk, the lender can expand the demand between potential borrowers. The fall in the Australian dollar since April demonstrates the extent to which the exchange rates have moved. A proportion of this fall can be attributed to the increased risk in investing in Australia. The Australian dollar has fallen by eight per cent against the US dollar since April. This is a sovereign risk and a risk to superannuation balances.
The coalition does not support risks to superannuation balances unless the investor has assumed that risk with due diligence. Superannuation investors should not have to worry about risk that is beyond their control. This is one of the reasons the coalition opposes Labor’s great big tax on mining and this is the main reason the coalition supports the amendments to the Superannuation Industry (Supervision) Act. As I have outlined, the bill makes some important amendments and clarification to the exemption in the act allowing superannuation trustees to access limited recourse loans for the purpose of producing or purchasing investment assets. The amendments will limit loans to a single asset or asset class. This will limit the risk to one asset and prevent a member’s superannuation balance from being accessed in the event of a default on the loan. The amendments will also prevent personal guarantees relating to superannuation assets from being used as security against the recourse loan. This protects the balance of an investor’s superannuation account and provides that investor and the lender with certainty as to which asset is attached to the risk involved. The coalition support these principles and we support the legislation. I commend the bill to the House.
I rise to speak on the Superannuation Industry (Supervision) Amendment Bill 2010. At a moment like this it is important that we examine the bill and ensure it is compliant with the grand policy position that the Labor Party has always pursued, which is to guarantee the retirement incomes of working-class people. This bill amends section 67 of the Superannuation Industry (Supervision) Act for the purpose of reducing the risk posed to superannuation funds invested in limited recourse borrowing arrangements. In straightforward terms this bill seeks to protect the superannuation savings of Australians by prohibiting superannuation fund trustees from borrowing money against assets in a way that exposes those assets to the risk of loss as a result of a default on the loan.
This bill amends the act to make sure that superannuation fund assets are protected in the event of a default on a limited recourse borrowing arrangement by ensuring that the right of the lender to recover against the superannuation fund in the event of a default is limited to the asset in question. This bill ensures that the term ‘asset’ will now be read in the singular so that it cannot be interpreted as allowing borrowing arrangements of multiple non-identical assets. This definition does permit borrowing arrangements over assets that are known collectively as a single asset or a single collection of identical assets. Also, the asset within the arrangement can only be replaced in prescribed circumstances that arise from owning the original asset. These amendments respond to issues arising within the regulatory framework surrounding superannuation investment which were raised by the Australian Taxation Office, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
This bill is a further step in a genuine trend by Labor governments to progress policy in relation to retirement incomes and to safeguard the retirement incomes of Australians. This is a good opportunity for us to examine some of the history of superannuation and retirement incomes. A fairly cursory examination shows that Labor governments have achieved a great deal while our conservative colleagues have a history of failure and vacillation. Bills such as this provide a good opportunity to look at those issues. Back in 1900 the New South Wales Labor government introduced a means tested age pension of ₤26 a year. It would be pretty hard for us to live on that amount today but I assume it bought a lot more then than it would now. This was funded out of general revenue; it was a pension rather than a superannuation scheme. This scheme was replicated in Victoria and Queensland shortly thereafter.
In 1901 the Constitution established that the Commonwealth should have express power to legislate on the provision of aged care and invalid pensions. This has subsequently been interpreted to include superannuation—a very important step. In 1923 the conservative Nationalist government of Stanley Bruce established a royal commission to examine the possibility of a comprehensive national insurance scheme—which I suppose could be described as superannuation—but, after receiving the results of that royal commission, chose not to introduce the bill, which was known as the National Insurance Bill.
It is quite interesting to examine Stanley Bruce. It is a little-known fact that he was the only Prime Minister other than John Winston Howard to lose his seat in a general election. So he was outstanding not only for his failure to take action on superannuation but also for his electoral fortunes. He was also awarded a peerage to the House of Lords, which he took up later in his life. So, all round, he was a fine and outstanding member of the conservative political community.
We then had to wait until 1945, when Ben Chifley’s government introduced an additional levy on personal income tax which was credited to the National Welfare Fund. There was initially no direct relationship between the National Welfare Fund and pensions but it was envisaged that it would form the basis for a national superannuation scheme some time in the future. However, political events intervened and no further steps in this direction were taken.
At the time of the election of the Whitlam government in 1972, only 32 per cent of workers were covered by superannuation. For many people, particularly for working-class Australians, retirement meant a period of near-poverty and difficult circumstances. This was particularly the case for people who did not own their own homes and for whom the pension was their sole source of income, which can be quite difficult. In 1973 the Whitlam government established the National Superannuation Committee of Inquiry, chaired by Keith Hancock. It made a number of recommendations in 1975. In particular—and I think this is still important—it recommended that pensions be pegged at 25 per cent of average weekly earnings. That is a principle we still adhere to, and I think many people who rely solely on the pension still find it a very important principle.
The Hancock inquiry recommended a partially contributory universal pension scheme with an earnings related supplement. A minority recommendation suggested a non-contributory flat rate universal pension, a means-tested supplement and the encouragement of involuntary savings through expanded occupational superannuation. Labor again clearly put superannuation on the political and national agenda.
With the election of the Fraser government: further inaction. The Fraser government decided in 1977 not to establish a contributory national superannuation scheme—something that I think would have been greeted with a great deal of disappointment by many people out there in the community. He went on in 1979 to reject the recommendation of the Hancock inquiry, which recommended regular increases in pensions. I think the period of the Fraser government was very difficult for people on limited incomes and those who relied solely on the pension—a phenomenon that was repeated during the period of the Howard and Costello government.
In 1983 with the election of the Hawke government there was strong support for superannuation. It was certainly part of the political agenda as I recall. The May economic statement after the election began the process of reforming the taxation of superannuation: for lump sums at age 55 or later, the first $50,000 would be taxed at 15 per cent, the remainder at 30 per cent; and lump sums taken below age 55 would be taxed at 30 per cent.
People may recall that in 1986 Labor joined with the ACTU in seeking a universal three per cent superannuation contribution by employers to be paid into an industry fund or in lieu of a wage rise. That was a major principle embraced by Labor and the union movement to say that it was important for superannuation to be accumulated and that it was a partial way of those employed in the workforce to be paid and to ensure that in retirement they could rely on a standard of living close to what they enjoyed during the time they were working.
In 1988 only 51 per cent of people had their own superannuation. In 1989 the conservative government established the policy in Australia based on the twin pillars of age pension and private superannuation, therefore rejecting the idea that there should be some sort of compulsory superannuation. This tended to mean that those who were on lower incomes, working members in Australia, were less likely to have superannuation while those on high incomes were able to take advantage of superannuation and the beneficial taxation arrangements.
In 1991 in the budget, Treasurer John Kerin announced that from 1 July 1992, under a new system to be known as superannuation guarantee, employers would be required to make superannuation contributions on behalf of employees. This was groundbreaking not only in Australia but internationally. The argument I am putting forward today is that the superannuation system that we enjoy in Australia and the beneficial retirement incomes that will be enjoyed by Australians for many years to come is a direct result of the policies and far-reaching vision of Labor in government.
The superannuation guarantee also extended retirement savings to 72 per cent of workers—a sudden leap of 22 per cent in one stroke of the pen, essentially. Super contributions were to be progressively increased from 1992 to 2002 from three per cent to nine per cent, a figure which the superannuation guarantee was at at the time of the present budget.
There have been a number of changes made to superannuation in an incremental manner since then. But the boldest decision that has been made in relation to superannuation by this government has been the continuation of the co-contributions for low-income earners on a dollar-for-dollar basis. There was also the decision announced in this budget, arising from the Henry review, to increase the superannuation guarantee over time to 12 per cent—a very important decision which will ensure that everyone in Australia has a reasonable standard of living in retirement. A secondary but equally important step is to ensure that the savings of all Australians have increased and that investment in our local businesses has increased as a result.
I commend the bill to the House. Certainly it is in line with a continuing commitment by the Australian Labor Party and the government to maintain superannuation for all Australians. We are heading towards a 12 per cent guarantee, and I certainly believe it is in the interests of all Australians to continue to adjust and improve the superannuation system as we have here in this bill today, the Superannuation Industry (Supervision) Amendment Bill 2010.
I, too, am very happy to be speaking on the Superannuation Industry (Supervision) Amendment Bill 2010. I want to congratulate Chris Bowen, the Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services, for his hard work in this area and his ongoing commitment to ensuring proper, appropriate and timely reform in what could be said to be one of the most critically important areas of the Australian economy—individuals’ superannuation.
Before the member for Robertson leaves the chamber, I just want to congratulate her on speaking not only on this bill but also on the history of superannuation in this country, because I think it is important to remember and note the longstanding commitment that the Labor Party and Labor governments have had, over 100 years, to superannuation in this country.
We sometimes talk about superannuation but forget to mention what it really is, and that is people’s retirement incomes. Superannuation is really about ensuring that people in their retirement have sufficient income to be able to survive—to be able to maintain a reasonable and decent standard of living. That is why it is so important, and that is why it is so important to get the settings right and to make sure there is continual reform and change to keep up with changing financial or demographic environments.
The member for Robertson spoke about that historical perspective. More recently, the Hawke-Keating government era was the one where the major changes to Australia’s superannuation system took place. That system now forms a substantial part of Australia’s financial standing in the world. We have a AAA rating and more than $1 trillion under management in funds—the fifth largest funds under management in the world and in the OECD. A whole range of other accolades have been bestowed upon Australia as having financial expertise and experience and corporate governance in these areas. That it is no small feat and is due in no small part to all of those key decisions that were made during the Hawke years, the Keating years and in Labor governments before those. I think it is fair to say that, for Labor governments, superannuation has always been a priority, and this government, the Rudd government, is continuing the tradition of making it a priority and ensuring that superannuation does move into the 21st century.
That is being done through very much needed reforms. They are being supported by the other side—as they should; these are good measures. Further than that, we are ensuring that there is a continuation in the growth of superannuation. We are doing that particularly through the superannuation guarantee—lifting it from nine per cent to 12 per cent. That is probably a little overdue but, given that we have not been in government for 12 years, you could expect that it would be overdue. It was one of our very first acts—reflecting our continuing commitment in this area to achieve that goal.
I heard one of the opposition members, in fact the shadow minister, speaking before about this area, about the resource tax, and a range of other tax issues, and giving a very poor picture of what that taxation measure would do. I want to speak specifically about that, because I do not know that this message has got through to as many people as should understand it. That resource tax will in large part be the catalyst for the increase in people’s superannuation from nine per cent to 12 per cent, ensuring that people have long-term sustainability in their retirement incomes. That is not something that should be looked upon lightly.
While the shadow minister, the member for Cowper, is back in the chamber, I will take the opportunity to rebut some of the comments he made on the resource tax and look more closely at issues such as share prices, markets and sovereign risk. They think that a tax that had not yet been introduced—that had not even been considered—somehow caused the global financial crisis. There seems to be a bit of a disjointed argument from the opposition in terms of what this means. If I understand them correctly, they believe that all the markets around the world collapsed on the basis of us going to introduce a resources tax.
When we made the announcement we saw opposition frontbenchers buy resource stocks. Obviously they personally see it as a good investment. Mind you, so do the rest of the community. Stocks in resource companies, such as Rio Tinto and BHP, have actually increased since we made that announcement. You will find there has been more of a decline in global markets and where there have been declines in resource companies in Australia they have been less than their counterparts in other markets around the world. I am not sure which ones the opposition were referring to, but all the ones I am looking at show only positive stories and positive increases.
The world is going through a tough financial time. In no way are we through the global financial crisis; it continues. This government took on the difficult job of dealing with it. We not only ensured reform but acted quickly to deal with the necessary issues at the time—we ensured we maintained our economy, we ensured that people remained in work and we ensured we retained our AAA rating. All of those things have been achieved. We ensured that there was not a run on the banks by guaranteeing wholesale finance and retail finance. We made sure that our banking sector would survive and be sustained through this.
This is part of the reason—I will not claim it is all of the reason—why we have not seen the banking collapses that have happened in other jurisdictions overseas, why there remains a high level of confidence with Australian consumers in the Australian market, why there continues to be strong growth in mining exploration, resource companies and their related share prices, and why there remains great confidence internationally about our corporate governance, our general governance and our markets from overseas investors.
There will, of course, be some concern whenever there is talk about a tax in the resources sector, but at the end of the day we are talking about a greater share of what in the end is a resource that belongs to all Australians being more appropriately distributed. I am more than comfortable to talk about this issue, but it is quite disingenuous of the opposition to come into this place and try to wrap up every ill in the world into the resources tax. That is completely disingenuous.
What we have before us is a bill that makes some very necessary and good amendments. It does relate to the most important of investments for ordinary Australians—that is, their superannuation. This government is making sure that we get on with the job of maintaining confidence. People ought to have the utmost confidence in their superannuation and markets should as well.
The bill enhances the regulatory framework governing superannuation fund investments in leveraged products. We want to make sure that the borrowing exemption under section 67 of the Superannuation Industry (Supervision) Act 1993 is not used in a manner that places the superannuation savings of everyday Australians at undue risk. I think that is a commitment and view shared by everybody in this place. The bill contains a number of amendments that reduce that risk to fund assets from limited recourse borrowing arrangements that would involve personal guarantees on lending or related borrowings, particularly in relation to multiple assets or the replacement of the asset.
When the minister spoke on this bill he detailed in a range of areas what that actually means. The current regulations say that ‘asset’ could be taken as meaning multiple assets. This amendment clarifies that to mean a singular asset. This is very important. It means that, if you are borrowing and there is a guarantee against a particular asset, it is just that asset and not all other assets in a superannuation fund. That is an important amendment.
There has been extensive consultation with the sector, in particular on issues that were raised by the Australian Taxation Office, the Australian Prudential Regulation Authority and also the Australian Securities and Investments Commission, as well as concerns that were raised in consultations with the industry stakeholders. We have acted on that basis. This is good reform. It is timely reform. It continues to demonstrate our commitment to ensuring that we have sound regulatory frameworks surrounding superannuation that are robust and that superannuation funds are prudently managed—managed in a correct way.
If you look at industry numbers, certainly the largest part, about two-thirds of all superannuation funds, are being managed by the large industry players, retail funds or other funds, but a very large proportion, about one-third of all of the moneys, is held in the greatest number of accounts by almost tenfold—that is, self-managed superannuation funds, small funds with an average of about $500,000 across the sector. Those funds are of particular interest to me. While they are on the whole well managed, they are more vulnerable in a range of areas to particular discrepancies or areas of concern in regulation.
We have made a number of changes to ensure the robust nature of self-managed super funds. There is one that came out of my committee’s recent report on financial services and products. We are taking out of the hands of ordinary accountants the ability to set up self-managed superannuation funds and putting it into the area of those who are specifically licensed, who hold an Australian financial services licence, to not only manage but set up a fund. There was an anomaly which entitled people who could not manage funds to set them up. I think that has been one other good reform in this area.
Prudently managing a person’s superannuation funds is of critical importance. I will just mention a recent event which highlights the risks that can be taken and the catastrophic outcomes that can occur. If we look to the not-too-distant past, to the collapse of the Storm Financial business, which took with it the life savings, homes and superannuation savings of thousands of Australians, we can see just how critical it is to get regulation right in this area. Storm Financial had 14½ thousand clients. It used a whole range of mechanisms to invest in funds. In the end, I think the most dangerous thing it did was to use highly leveraged products and use people’s superannuation savings bundled together, putting all of those people’s assets, life savings and superannuation at risk in one lot. The catastrophic outcome, of course, was that an unfortunate number of those people with Storm Financial lost not only their home and their life savings but all their superannuation as well.
This government has not only done a review but taken action to minimise the potential for these things to happen again in the future. It goes without saying but it is obvious to most people that there will always be people who do the wrong thing out there, and you can never prevent all circumstances taking place. But, once you find problems, I think you have a very strong responsibility to fix those matters, and that is what this government has done.
While I commend the amendment bill before us to the House, I add that it is part of a broader agenda that this government has taken on board. In the short 2½ years since we came to power, we have taken on a very serious agenda in financial services reform and are slowly progressing to that end. I believe this reform, in consultation with the sector, has been very positive, even the difficult decisions, because the sector can understand and see our strategy in getting to a sound position, providing certainty, providing strong direction and leadership and providing a basis for where the sector could be in five or 10 years time. We are certainly raising the levels of education and professionalism within the sector, ensuring some timely updating of a whole range of regulatory frameworks that need to be updated and doing that as quickly and efficiently as we can to make sure that the regulatory environment today reflects the changing global environment that exists right now.
I am very proud to be part of a government doing that. We heard before the member for Robertson talking about the proud history and tradition of Labor governments dating back 100 years in ensuring that we provide for people in their retirement either through a pension or through some form of superannuation. Nothing could be stronger than the reforms brought out a little over 20 years ago by the Hawke-Keating governments which ensured that working people in this country would have those two levels of choice, between either a pension and/or their own private superannuation, to help support them in their retirement. I commend the work done by all agencies involved and the minister in bringing this forward, and I commend the bill to the House.
On behalf of the minister responsible for superannuation, I thank the members for Cowper, Robertson and Oxley, who contributed to this debate, for their support for the bill. The Superannuation Industry (Supervision) Amendment Bill 2010 introduces amendments to the Superannuation Industry (Supervision) Act 1993 to reduce the risks for superannuation funds investing in limited recourse borrowing arrangements. It contains amendments that reduce the risk to superannuation fund assets arrangements involving personal guarantees on lending or related borrowings, multiple assets or the replacement of the asset. The bill ensures that the term ‘asset’ should now be read in the singular so that it is not interpreted as permitting borrowing arrangements over multiple non-identical assets. This will ensure that funds are not exposed to the greater risk of borrowing arrangements over multiple differentiated assets.
The bill amends the act to clarify the circumstances under which refinancing and related expenses are permitted. Industry stakeholders were uncertain whether the existing borrowing exemption allowed refinancing on related expenses to be incorporated into borrowing arrangements. The bill amends the act to list the specific circumstances in which a replacement asset is permitted. This will prevent replacements that increase the risk to fund assets. The bill introduces amendments to ensure that the rights of the lender or any other person against a superannuation fund trustee are limited to the rights relating to the acquirable asset. This will protect fund assets from guarantees and other charges that may circumvent the limited recourse nature of the borrowing in the event of a default.
The amendments respond to issues with the regulatory framework surrounding superannuation investment in limited recourse borrowing arrangements such as instalment warrants, raised by the Australian Taxation Office, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. The amendments also reflect concerns raised in consultations with industry stakeholders. The bill demonstrates the government’s commitment to ensuring that the regulatory framework surrounding superannuation is robust and that superannuation funds are managed prudently in a way that maximises the income of Australians in retirement. On that basis, I commend the bill to the House.
Question agreed to.
Bill read a second time.
Ordered that the bill be reported to the House without amendment.