Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services I present the committee's report into the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012, incorporating a dissenting report.

In accordance with standing order 39(f) the report was made a parliamentary paper.

by leave—On 3 November 2011 the House of Representatives referred the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 to the committee for inquiry and report. The committee received 18 submissions into the provisions of this bill and held a public hearing on 2 March 2012 in Canberra. On 29 February 2012, the Senate referred the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 to the committee. While the committee had limited time to consider this bill, it did call for and receive 11 submissions. The committee also offered those witnesses who gave evidence at the public hearing on 2 March the opportunity to comment on the provisions of the trustees bill and, in the report that I table today, the key issue of trustee obligations in proposed section 29VN of the bill is discussed in some detail. The committee thanks all those who made submissions and gave verbal evidence to the committee.

The MySuper core provisions bill and the trustee obligations and prudential standards bill are part of the Australian government's Stronger Super reform package announced in December 2010.

The MySuper core provisions bill would amend the Superannuation Guarantee (Administration) Act 1992 and the Superannuation Industry (Supervision) Act 1993 to introduce a new regulatory framework for default superannuation products. As the Minister for Financial Services and Superannuation has stated:

… around 60 per cent of Australians do not make active choices in relation to their superannuation.

…   …   …

Having created an industry which flourishes on the back of compulsory savings mandated by legislation, it is fair that this industry, which benefits so much from the compulsory saving system in Australia, contributes to higher retirement savings through greater efficiency and lower fees.

The minister added:

MySuper will provide a simple, cost-effective default product that all Australians can rely upon.

I can inform the House that submitters to this inquiry supported the introduction of simple, comparable and cost-effective default superannuation products, as envisioned by the MySuper reforms. The Australian Chamber of Commerce and Industry argued that the reforms are required to give appropriate recognition to consumer behaviour. It stated in its submission:

ACCI supports the MySuper goals of reducing account costs, making costs more transparent, improving the basis for inter-fund comparison, and providing improved member protection. ACCI recognises that many employees are not well positioned to be actively engaged in making investment decisions, and an appropriate superannuation system must recognise this.

The Financial Services Council told the committee that the reforms will enhance transparency and consumer protection within Australia's superannuation sector. To quote the Financial Services Council:

For the first time, it effectively says that when you have a compulsory savings system in this country we believe there ought to be some protections or some provisions around where those compulsory moneys flow.

The Industry Super Network strongly advocates the reforms, arguing:

… it is entirely appropriate to reassess the regulatory framework, particularly for superannuation providers who wish to offer default funds in workplaces where members do not exercise a choice of fund.

The Financial Planning Association of Australia noted in its evidence that it:

… supports the intention to have 'comparable' characteristics based on cost, investment performance and the level of insurance coverage.

The committee considers that the introduction of a cost-effective, simple and comparable default superannuation scheme is compatible with the objective of promoting a market in which consumers can confidently invest. The evidence provided to this committee and explored by the super system review panel points to a need for reform. A system cannot be in the best interests of its members or facilitate informed participation if it does not effectively respond to members' engagement with that system.

The evidence before the committee also highlights the alarmingly low levels of consumer financial literacy regarding Australia's superannuation system. The committee would welcome greater efforts to improve members' understanding of an investment that is of significant financial importance. The committee may raise this matter with the Australian Securities and Investments Commission (ASIC) as part of the committee's ongoing oversight of ASIC. The committee would also be interested in advice in this area from the Financial Literacy Board regarding the board's activities in this area.

I commend the report to the House and I thank the committee secretariat for their assistance.

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

by leave—The report which has just been tabled deals with the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012. The coalition has significant concerns with both of these bills.

Firstly, the MySuper core provisions bill has some very serious implementation issues. Secondly, the bill is defective in its failure to open up the default fund system to competition. And, thirdly, the bill is defective in allowing a charge to be made for the provision of intrafund advice—that is to say, the bill is defective in relation to the arrangements under which intrafund advice may be provided, which allow the cost of that advice to be recovered across all members of the superannuation fund. This is inconsistent with a key principle underlying the Future of Financial Advice reforms, which are simultaneously going through the parliament, that financial advisers are not permitted to provide advice without charging for that advice in a transparent manner.

In relation to the trustee obligations and prudential standards bill, the coalition's view is that, while a broad sweep of reforms was recommended by the Cooper review, which underpins this set of bills, the bill deals, somewhat surprisingly, with only a selected area of those reforms. The provisions of the bill which impose additional obligations and liabilities on directors are, in our view, ill-judged and go too far, and the so-called scale test is very much opposed by the coalition. Rather than addressing all of these areas in the brief time I have available today, I wanted to focus briefly on the relationship between the introduction of MySuper products and the arrangements in relation to default superannuation funds. This is an area of significant concern to the coalition. A key aspect of the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 is that only MySuper products may be used by employers in making default superannuation contributions for employees who have not specifically chosen a fund. The wording of proposed section 29K(4), which is about the objects of that particular part of the bill, is clear:

… employers will need to pay contributions for an employee who has no chosen fund into a fund that offers a My Super product.

The difficulty is that there is inadequate choice of MySuper products for employers to pay that contribution into.

The Cooper review recommended, firstly, that the Superannuation Guarantee Act should be amended so only a MySuper product would be eligible to be a default fund nominated by an employer and, secondly, that all MySuper products should be able to be nominated for default fund purposes in awards approved by Fair Work Australia. In other words, the policy principle identified in the Cooper review, and a policy principle which on this side of the House we support, is that the only requirement for eligibility to be a default fund is simply that you have an approved MySuper product. Unfortunately, the legislative framework which will result from the bill, should it pass into law, together with existing law is that an additional necessary condition must be satisfied before a MySuper product is eligible to receive contributions in respect of a particular employee from an employer. That additional necessary condition is that the relevant superannuation fund has been approved by Fair Work Australia as a default fund—under the secretive and non-transparent process which Fair Work Australia uses.

The member for Robertson spoke of comments made by the Financial Services Council. I would like to refer to another observation made by the Financial Services Council. They had this to say:

This unnecessarily restrictive regulatory framework has a negative impact on the ability of employers to administer their compulsory superannuation obligations …

The council also said:

It also restricts competition, efficiency and innovation in the financial services industry.

The failure to include a provision in this legislation that any MySuper fund is eligible to compete in the marketplace—that any MySuper fund is eligible to be the default fund chosen by any employer—is a lamentable omission. It appears to the coalition to be inconsistent with the policy principles underlying the Cooper review.

I regret to say that the government's failure to make provision for this appears to be part of an ongoing pattern of the government using superannuation policy to bolster and benefit the union movement. Successive Labor governments have seen considerable attraction in using the compulsory superannuation system to increase the power, influence and financial position of the union movement and its key personnel. The minister with responsibility for this package of bills is a natural candidate to advance such an agenda. He is a former secretary of the Australian Workers Union and a former director of the predecessor organisation to the largest industry superannuation fund, AustralianSuper.

Under the Fair Work Act, as I have mentioned, the so-called modern awards are required to contain a clause specifying the superannuation fund into which the employer must pay the employee's superannuation contributions if the employee has not separately nominated a fund. It stands to reason that to be nominated as a default fund under a modern award is a very valuable right because a default fund is guaranteed a steady stream of contributions. This is highly relevant to the content of the bills discussed in the report which has just been tabled, because of the point that I have just made—a failure to amend the law to ensure that the only necessary requirement to be nominated as a default fund, applicable to any employer-employee relationship, is to be a MySuper fund. An analysis conducted last year by the Institute of Public Affairs found that, across 166 modern awards approved by Fair Work Australia, there were a total of 566 superannuation funds specified. Of these, 513 were industry or public sector funds.

Decisions about the superannuation system—

Greg Combet (Charlton, Australian Labor Party, Minister for Climate Change and Energy Efficiency) Share this | Link to this | Hansard source

On a point of order, Mr Deputy Speaker: as a matter of courtesy we granted leave for the member to comment on this report. It is now extending into quite a lengthy contribution and there is much government business to be conducted.

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

I understand that, but leave was granted. I am sure the member for Bradfield is mindful of your concerns, but there is no time limit once leave has been granted.

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

I am bringing my contribution and my comments to a close. I conclude with these observations. Decisions about the superannuation system should be made in the interests of superannuation fund members. This bill's failure to deliver real choice of fund by making MySuper status the only requirement to be a default fund is a glaring omission. It is hard to avoid the conclusion that this is designed to continue to advantage one sector of the industry which in turn has very close links to the union movement.