House debates

Tuesday, 20 October 2015


Superannuation Legislation Amendment (Trustee Governance) Bill 2015; Second Reading

4:12 pm

Photo of Lisa ChestersLisa Chesters (Bendigo, Australian Labor Party) Share this | | Hansard source

As I was saying before debate was adjourned earlier, the Superannuation Legislation Amendment (Trustee Governance) Bill has nothing to do with growing superannuation funds. It has nothing to do with ensuring that hard-working Australians will have increased superannuation. The bill is about red tape. It is about taking a wrecking ball to an industry that is already working well.

Industry super funds in this country already outperform retail funds, and they have done so since their creation. I note, however, that it did not stop the government in question time trying to go after the current leader of the Labor Party. It did not stop them trying to allude to something that happened when Bill Shorten, the current Leader of the Opposition, was involved in industry super. Let us set the record straight about what did happen with the Leader of the Opposition was a director of AustralianSuper, before entering parliament. This is relevant, because, two million Australians, like me, have AustralianSuper funds.

AustralianSuper featured in the 10 top-performing funds every year for a decade, including when Bill Shorten was a director. Overall, AustralianSuper fund is ranked 5th of the 10 top-performing funds for the last 10 years. This is what is relevant to this debate. Industry super funds are already doing a great job ensuring that the working people of Australia have decent retirement incomes. Yet what the government is proposing is to take a wrecking ball to a model that is working—to take away the 50-50 per cent representation and impose this new model of one-third independent directors. That is so loosely defined and gives absolute power to a body to decide what independent is.

AustralianSuper, however, is not the only industry super fund that is performing well. They are in good company. Of the 10 top-performing growth funds for the last 10 years, we also have CareSuper, AustralianSuper, which I have already mentioned, Cbus, QSuper, UniSuper and Hostplus. These are all industry super funds that are doing well for their members. The government's agenda is clear. They want to take a wrecking ball to everything that is associated with the words 'trade unions'. They are not interested in standing up for Australian workers, whether in the workplace or when it comes to their retirement incomes.

The amendments before us are also bad policy because they will impose more red tape in this space. This red tape will result in an extra $8.5 million being imposed on these funds for start-up costs and a further $12.3 million in ongoing costs. The government admits this in its own explanatory memorandum that accompanies this bill. If the government was serious about supporting working people and making sure they had healthy, decent retirement incomes, it would back down on this proposal. It would not proceed with breaking a model that is working. Who are the people at the centre of this? They are who the government has forgotten. They are our cleaners and our security guards—people like John, a security guard from New South Wales, who simply says:

When I get older and reach retirement, I worry if I will … have enough money to support myself and my wife.

He supports industry super funds. He is on track to a good return. The government's plan is just going to smash that dream.

4:16 pm

Photo of Pat ConroyPat Conroy (Charlton, Australian Labor Party) Share this | | Hansard source

It is a pleasure to follow the member for Bendigo's passionate contribution to this debate in defence of industry super funds and their ability to pick their own boards. I rise to speak on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. This bill is important because it is an acknowledgement that the superannuation system needs reform. Both sides of politics agree that the system needs reform and is unsustainable in its current format, but the great issue is: what is that reform? The great issue is that the different approaches of the two sides of politics demonstrate the focus, the values and the real core beliefs of those political parties.

There is a clear choice here about how we reform a system that is clearly unsustainable. It is unsustainable because the cost of superannuation tax concessions in this country exceeds $40 billion a year. In a couple of years time, it will exceed the cost of the pension. Currently, 40 per cent of that massive tax concession goes to the 10 per cent of wealthiest Australians in this country. The system is clearly in need of reform. There are two choices here for reform which I will go to in a minute, but I want to talk about why the system is in need of reform. It is in need of reform because of one of the worst decisions that the Howard-Costello government ever made—a decision that, at the time, was pointed to as something that would haunt future governments. Not only is it haunting future governments; it is haunting future generations. It is the decision to make income from superannuation funds tax free for everyone once they reach the age of 60. It was a decision made at the height of a mining boom that was flushed away by Peter Costello in tax cuts. It was a decision that has built a massive structural imbalance into our budget that now the government are trying to confront. They are failing to confront it properly, but they are trying to confront it. It is a burden that a future Labor government will also need to address. That one decision has completely skewed the budget. It is disproportionately skewed, with benefits going to the wealthiest Australians. The current system is something that I know will no longer be there when I retire, because it is clearly unsustainable. It has set generation against generation. It has set baby boomers and the generation preceding baby boomers against gen X and gen Y and whatever we call the next generation after that.

It needs change, and that is why I am proud of Labor's policies in this area. The choice here is between Labor's policy and the coalition's policy. Labor's policy is that, for those over the age of 60, once you earn more than $75,000 in a year from your superannuation, you pay 15 per cent tax on additional income. This is designed to address the issue that, for example, we have 475 Australians in this country who have over $10 million in superannuation and earn, on average, $1½ million a year tax free. The objection from the coalition government is, 'They've earned that superannuation. That has been built up by them selling a business or earning income. That's their own money and they should be able to spend that freely.' No-one is touching their superannuation—I agree with that premise. The issue is that they do not own those concessions. Concessions are tax expenditures. Concessions are a choice by a federal government to give them a tax break. Effectively, the government are robbing taxpayers of that money to award it to those superannuants. It is an area in need of reform.

Why should a retail worker in my electorate—a checkout operator at Cardiff Woolies—pay 19c tax once they have earned their first $18,000 but someone over the age of 60 not pay a single cent in tax on, for example, $1½ million of superannuation income? I submit that it is unsustainable and, more importantly, inequitable. It is saying that that income is different from other incomes and it repudiates a fundamental value of our taxation system that income should be taxed the same regardless of its source. That is the choice of the Labor Party. That is our plan.

Those on the other side, the coalition government, have chosen to go on another path. They have chosen to terminate the low-income superannuation contribution, effectively cutting a superannuation concession to 3.6 million Australians—increasing the tax on super for 3.6 million of our lowest paid workers. That really shows the choices of the coalition government: giving a tax break to our wealthiest Australians while cutting superannuation concessions for 3.6 million Australians. In the area of superannuation, there is a clear choice between the true social justice, egalitarian values of the Labor Party versus the class warfare being practised by the coalition government.

This bill goes further to that choice. This bill goes to how we govern superannuation and what, effectively, is the model for superannuation in this country. The proponents of this change say it is sector blind—it is not attacking one subsector of the industry; it is sector blind, merely providing that a minimum of one-third of the directors on boards of superannuation funds should be independent. But that is not what is happening. This is a clear ideological attack on industry superannuation funds, for a variety of reasons. One is ideology, in that they have always been suspicious of superannuation funds that are owned by the industry itself and that have an employee-employer representation model. So they attack it from an ideological point of view that they do not want employee representatives to have a true say in these bodies. Secondly, it is an attack on the purported links between trade unions and superannuation funds. Thirdly, it is my heartfelt belief that it also reflects trying to do the bidding of people in the retail finance industry who are threatened by industry super funds that constantly outperform them in any sort of measurement in this area.

Let's go to some of the facts of the performance of retail superannuation funds against industry superannuation funds. On the matter of fees, retail superannuation funds, in the past year of data collection, which is the APRA Annual superannuation bulletin of 2013, collected $449 million in fees. Compare that with industry super funds, which collected $88 million. The share of fees collected by retail super funds compared with total fees collected was 82 per cent, yet the share of assets held in retail super funds was only 26 per cent. So, they have 26 per cent of assets under their administration, but they collect 82 per cent of the fees. That is grossly disproportionate, and that is reflected in the fees per member: $7 fees per member in superannuation and industry super funds versus $31 per member in retail funds.

You just have to ask: is this massive fee difference reflected in performance? Well, it is reflected in performance, but not in the way you would expect. In terms of 10-year average annual returns—the return on investment over a 10-year span at an annualised figure—retail superannuation has performed at 4.9 per cent per annum and industry super funds have averaged 6.7 per cent, an almost two per cent difference in performance of superannuation funds going to the low-fee provider. Retail funds charge much higher fees, they manage far fewer assets and they constantly underperform industry super funds and other not-for-profits.

This is not to say that there are not good retail super funds; there are. And it is not to say that every industry super fund sets the world on fire in terms of performance but merely that retail super funds should not be held up as the paragon of governance and performance in this country. In fact, industry super funds should. Not one of the top 47 individual super funds that are in the top league table in terms of performance are retail funds. If you look at payments to related service providers, which goes to conflict of interest, where you have accusations of directors on one super fund directing payments or purchasing services on behalf of their members with a related entity—whether it is insurance, legal advice, financial advice, broking or asset management—with retail super funds the average payment per member to a related service provider is $485; with not-for-profits, of which industry super funds are a subsector, it is $185.

If you are really worried about governance of superannuation funds in this country, you should be looking at the sector that charges more fees, that underperforms the rest of the sector and that charges triple the amount for related service providers, not the other model. But that is not what this bill is about. This bill is about ideology. This bill is about an attack on a coalition government on a bastion of our superannuation system, a bastion of providing decent retirement incomes to low-paid Australian workers, and that is the industry super funds model.

There is a requirement for all superannuation boards to have the right skills mix. They must satisfy APRA that their board, as constituted, has the appropriate skills mix to act in the best interests of their members. There is already a requirement around skills mix that does not need to look at independent directors. APRA already has a responsibility to make sure the boards have that mix. If the government was truly serious about improving superannuation governance it would be encouraging APRA to make sure that boards have the right skills mix, rather than embarking on this ideological crusade around independent directors.

I should note at this point that having independent directors on the boards is not a bad thing. It is to be encouraged. But ultimately it should be up to the boards to decide. Mandating that at least one third of board members must be independent is a silly way of going to this issue. It should be left up to the boards themselves. Many industry super funds have independent directors, and most super funds—and I think all of them in terms of chairs—have independent board members as well. Hostplus, for example, has a third independent directors. But that does not mean you mandate that model for every board. There are significant benefits to having an equal representation model between employers and employees. They bring wisdom. They bring a deep commitment to their members' interests that goes beyond just simple performance of the super fund. And that attitude has informed choices of investment asset allocations that has rewarded those funds in the long term.

For example, typically with industry super funds the board members are very committed to long-term returns. They are not worried about short-term fluctuations in share markets, because their bonuses are not dependent on it. They are not coming out of the banking industry with that short-term mindset. So they have invested more than average on long-term assets, like infrastructure assets, which provide good, stable, long-term returns and can deal with the fluctuations in the share market. That is one of the reasons—besides low fees—that industry superannuation funds consistently outperform retail super funds that chase the quick buck on the share market.

So, the equal representation model works. It provides stability for boards. It provides stability for investment choices. It reflects the outlook of their members. And I would submit that it is actually a much more sustainable model for guarding the trillions of dollars of retirement savings in Australians' superannuation accounts. This is where we really need to focus: what is in the interests of members, what is in the interests of sustainability of a trillion-dollar industry—a trillion-dollar industry started by visionary Labor governments, led by Hawke and Keating and continued in policy announcements of other Labor governments and Labor oppositions. That is what we should be focused on—not narrow ideological attacks, not attacks on union bogeymen, not attacks on the performance of super funds that are doing a good job.

On superannuation, there is a clear policy choice. The coalition government are intent on rewarding high-wealth individuals who have millions of dollars in their superannuation accounts. As recently as yesterday, the coalition rejected our attempts to get a bipartisan approach on reforming taxation concessions that are not sustainable, taxation concessions that are grossly inequitable because they accrue to the top 10 per cent of the wealthiest Australians, that are grossly inequitable and will soon outweigh the pension in terms of cost, that are grossly inequitable that say to a Cardiff Woolies checkout operator, 'We're going to take your income once you have earned 19 grand but someone can have 1½ million in superannuation and we're not going to tax them at all.'

On the Labor side, we stand up for a sustainable superannuation system that is based on treating everyone equally, that is based on giving a dignified retirement to all Australians, that is based on saying that the wealthiest Australians should pay their fair share and that industry super funds have a clear future in this country. The coalition's approach is class warfare, saying that the wealthiest Australians should get a tax break but the 3.6 million low-paid Australian workers deserve to get their tax concessions cut. I proudly reject this bill. I proudly reject what is yet another attack on industry super funds and another attack on the millions of Australians who depend on industry super funds to deliver their retirement incomes.

4:30 pm

Photo of Gai BrodtmannGai Brodtmann (Canberra, Australian Labor Party, Shadow Parliamentary Secretary for Defence) Share this | | Hansard source

With all due respect to those proud servants of democracy who are sitting in the advisers' boxes and the hard work they have put in to create and draft this bill, in my view, it is a complete farce. That is why I rise today to join my Labor colleagues in opposing the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. This legislation makes amendments to the SI(S) Act 1993 to enforce super funds to ensure that one-third of directors, including the chairperson, are independent.

Regarding the lack of women on boards, I think we recently received the figures from the ASX on the representation of women, and it is still underdone. I note my colleague did a review of the recent reports of representation on Commonwealth governance boards. Even though there is a target of 40 per cent on those boards, unfortunately, under this government that has slipped. I want to underscore the need for representation of women and diversity more generally on boards.

Labor have a number of concerns with this legislation. First and foremost, it is not needed. It is redundant. It is, in many ways, farcical. There are no issues with super fund governance. I speak from experience here. I do have a strong interest in governance. I am a member of the Joint Committee of Public Accounts and Audit. I used to be deputy chair of that committee. I am a former director of a number of boards in Canberra and I was also a former audit committee member on those boards. I do have a very strong interest in governance and I am always looking at ways to improve governance of private boards, governments boards and not-for-profit boards. I do have a strong interest in governance and I want it to be as best as it can be.

At this stage, there are no issues with super fund governance. The notion that this legislation has been created to address that issue is completely nonsensical. As my colleague the member for Charlton has just mentioned and other colleagues have mentioned, this legislation is purely ideological. On this side of the House, we do not support it for that very reason. It will not achieve its stated goal to improve super fund governance. Rather than focus on the behaviour or skills required of directors, the bill introduces a quota of so-called independent directors based upon the relationships a director may have with the fund or its sponsoring employers and unions. There is no evidence whatsoever to support that having a majority of independent directors will give rise to better performance or better governance. That said, as the member for Charlton has mentioned, if people choose to have independent directors, well and good. If the board chooses to have a mix of independent directors and they deem that that is worthwhile for the board in terms of the culture and behaviour of the board and if they think it is going to end up with a better bottom line, then bring it on. But that should be the decision of the board. It should not be mandated.

Secondly, this bill creates unnecessary red tape for super funds and it is heavy-handed in that process. To those opposite, what happened to reducing red tape? We have had much fanfare from the other side on that. From memory, it is usually in the Autumn sitting that the government come into this place and outline how they are reducing red tape in so many different ways, when quite often it is just about changing a few semicolons and dot points in legislation. If this government are deeply committed to reducing red tape then what are they doing introducing this piece of legislation?

This legislation adopts a heavy-handed, one-size-fits-all approach regardless of the super fund size or the circumstances of its membership. Corporate governance, as we know, is not something where one-size-fits-all. Yes, we do have corporate law that governs that. We have codes of ethics and codes of behaviours through the AICD that help guide directors. In terms of one-size-fits-all, there is broader legislation that does provide some degree of governance, but it really is up to the boards to guide what is best for the organisation. That is especially true in our super system, which has intentionally provided for alternative governance models. This has delivered undeniable benefits for competition over the past two years, and I will speak more on that later.

Labor are also concerned that a considerable number of people who are qualified and experienced to be independent directors will be excluded due to the criteria in this legislation. As I said, the member for Charlton highlighted the fact that a number of boards do decide to bring on independent directors; they do see merit in that. That is a good thing and bring it on. Surely, representative trustee boards and their shareholders are capable of making decisions in the best interests of beneficiaries and it should not be mandated. It should be up to those boards to work out the appropriate decision for the mix on the board in accordance with good governance outcomes, good investment outcomes for superannuation funds and good bottom-line outcomes, should it be a business.

Our final concern with this legislation is that, as I said, it is simply not needed. It is redundant. The existing legislation is only two years old and it provides significant rigor around governance. There is already significant regulatory oversight of superannuation funds. The Australian Prudential Regulation Authority, APRA, has the power to set and supervise compliance with and enforce prudential standards so that funds meet the financial promises they make to beneficiaries. APRA funds are required to continuously report on the composition of their boards and whether boards and individual directors have the required mix of skills and expertise. Boards are also required to conduct ongoing performance reviews, manage conflicts of interest and make sure that directors are fit and proper. This is already happening.

As I said, many of these requirements are new. They were only introduced in July 2013, so they are just over two years old. Further time should be allowed to assess their effectiveness before changing legislation. These are very, very new laws. They are still in many ways, I imagine, being bedded down. So, as I said, this legislation is not needed. It is redundant. There are already enough checks and balances in place to ensure that there is good governance.

The relevant APRA prudential standards are making sure that funds are well governed. This is already out there. This is already in existence. Some of the requirements of SPS 510 require an RSE licensee: to ensure that the chairperson of each board committee that has responsibility for activities related to prudential matters is a director of the RSE licensee; develop and implement a policy on board renewal to ensure that there are succession plans and that they are refreshing constantly; and have procedures for regular assessment of board performance to ensure that the board is achieving what you want it to achieve—that is, the best bottom line or the best investments.

As I said, this is already in existence. The standard requires a remuneration policy that aligns remuneration and risk management and covers all responsible persons of the RSE licensee, excluding approved auditors and actuaries. It requires a board remuneration committee and a board audit committee, each of which is comprised of only non-executive directors. Also required is an internal audit function that can be either operated in-house or provided by an outsourced service provider.

It is also already in existence that you have to make sure that directors are fit and proper. SPS 520 requires the RSE licensee to have a fit and proper policy with certain minimum features, including a process for assessing the fitness and propriety of each responsible person of the licensee and a process for dealing with any responsible persons who are found to be not fit and proper.

Another point is on managing conflicts of interest. This is dealt with in SPS 521. This requires a licensee to develop and implement a conflict management policy that is approved by the board and to develop and maintain up-to-date registers of relevant interests and duties.

Aside from these standards, super funds are also required: to maintain adequate financial resources to address losses from operational risks; to have systems for identifying, assessing, managing, mitigating and monitoring material risks to ensure that all outsourcing arrangements involving material business activities entered into by an RSE licensee be subject to appropriate due diligence, approval and ongoing monitoring; and to implement a whole-of-business approach to business continuity management that is appropriate to the size of the business. It acknowledges that there are businesses with different business models. Super funds are also required to implement a sound investment governance framework and to manage investments in a manner consistent with the interests of beneficiaries. The governance and business operations of super funds are already extensively supervised and extensively governed by that list of requirements I have just outlined.

We, Labor, have proud track record on superannuation. We introduced universal superannuation and we also introduced the compulsory superannuation guarantee. Superannuation is part of Labor's DNA. We created it. We are always looking for ways to improve it and to ensure that Australians enjoy a comfortable retirement. I am particularly concerned about women, because they are way behind the eight ball with where they are at with their super when they retire. Super has been part of our DNA. We introduced superannuation. We introduced the compulsory superannuation guarantee. We are the party that wants to ensure that Australians retire comfortably.

That is in contrast to those opposite. Those opposite never believed in a universal superannuation scheme. They opposed the creation of superannuation. They opposed every increase to the compulsory superannuation guarantee, and they are opposed to industry superannuation. That is where we arrive. That is the nub of this issue—industry superannuation. Their opposition to industry super is purely ideological.

This legislation attacks a model that is clearly working. It seeks to change the representative model of governance of industry super funds which can only be called successful. Every single year, industry super funds are the most successful and highest performing funds in the sector. The numbers prove it. The average performance of industry funds for the year was 10.2 per cent compared to 9.6 per cent for retail funds. As the member for Bendigo said earlier, nine out of 10 industry super fund members have expressed satisfaction with their super fund.

I want to go to Money magazine. It is something I subscribed to when I set up my own small business. When you set up your own business you have to make your own contributions. There is no-one making a co-contribution. I went to my financial adviser and she told me how much I needed to put in to reach my superannuation target for my retirement. Then I had to go about the business of working out the best super fund to invest in. I turned to Money magazine. The beauty of Money magazine is that at the back of every edition is this thing called 'databank'. It has your guide to super data. I will go to the October edition. It lists the best super funds and balanced options, which is what most people default to. I will go through the top 10. No 1. is Telstra Super, which is a corporate fund. Then we have UniSuper, which is an industry fund. Then there is AustralianSuper, which is an industry fund. Then there is CareSuper, which is an industry fund, Hostplus, which is an industry fund, REST, which is an industry fund, Equip, which is an industry fund, Kinetic Super, which is an industry fund, Cbus, which is an industry fund, HESTA, which is an industry fund, and AustSafe, which is an industry fund. Of the top 11 balanced super funds nominated by Money magazine, 10 of them are industry funds.

Then, if you want to look at diversified funds, which are also another option for people who want to take a bit more of a risk with their super, we have the top seven here. Hostplus, which is an industry fund, is No. 1. Then we have AustralianSuper industry fund at No. 2 and Statewide Super, an industry fund, at No. 4. We have CareSuper industry fund at No. 5, AustSafe Super industry fund at No. 6 and REST super, which is also an industry fund, whose bond option is No. 7.

In concluding, I again call out this legislation for what it is, which is nothing more than ideology. I have just listed where Money magazine rates industry super funds. In the case of balanced funds, 10 out of the top 11 are all industry super funds. In the case of diversified funds, six out of the top seven are all industry super funds. So, I think that the jury has spoken in terms of their performance. This legislation is nothing more than ideological. The bottom line is that the representative super model is working and does not need to be changed. It is an attack on industry super and I completely oppose it. (Time expired)

4:46 pm

Photo of Adam BandtAdam Bandt (Melbourne, Australian Greens) Share this | | Hansard source

There is a fair bit that we need to discuss in this place and elsewhere about superannuation. We are getting to the point where the cost to the public purse of maintaining the super system is about to overtake the cost of the age pension itself. Given that super was there in the beginning to be a supplement to the age pension system and to take the burden off the public purse, it now turns out that we are on the verge of potentially spending more in tax concessions that we know are going to those who already have a lot of money. It is going to cost us more to keep the super system alive as it currently is framed than it will to keep the age pension alive. So there is a very good argument for saying let's go back to basics and work out whether the super system is doing what it was intended to do, which is to top up the age pension, or whether we need to be looking at some other broader reforms.

The Greens have certainly put some proposals on the table about how super might be reformed with respect to perhaps amending some of the concessional marginal tax rates that exist. There would also be some sense in having a discussion about how the savings in superannuation funds that we have in Australia at the moment, currently worth between $1½ trillion and $2 trillion, could be put to better use. Given that we have such a huge need to invest in key public infrastructure in Australia, we have to ask the question: why aren't we getting more investment in some of that from our super funds and what could we do to open that up? I am not a fan of the measure that some super funds have taken of advocating for asset recycling—that is, flogging off some state assets and letting us and the super funds own them—but there is so much greenfield investment and infrastructure that needs to be built. Surely, that is something that we could turn our minds to. Not being exposed to having to borrow from overseas quite so much would also assist Australia. We could use some of the money that we have here already—that is, people savings—to invest in infrastructure here in Australia. Those measures are not on the table from this government. What is on the table from this government is a bill about governance, and so we have to deal with that.

As the Treasury spokesperson for the Greens, which has a number of members in the Senate, I have not exactly been subject to a sustained lobbying campaign from people saying this bill is very important and must be passed. In that context, we have decided to have a look at the problem ourselves to see whether, in fact, this is a problem that is worthy of this parliament spending its time on and, if so, whether this is the solution. This is something that I and the Greens come to with an inquisitive, open mind, looking at the evidence to see whether it is a problem.

As anyone who looks at the parliamentary register of interest would know, I have money not only in an industry super fund but also in a fossil-fuel-free private fund, Future Super. That is done for varying reasons, including ethical reasons. So we are not coming to this with a particular point of view about the best of setting up funds. But what you see when you look at the evidence is that, first of all, from the point of view of returns, the industry super funds are consistently good and have been so for many, many years. They have been returning funds to members on a not-for-profit basis but with good returns.

But, more importantly, given that this is a bill about governance, when you look at the history of the governance of industry super funds, in particular, but also some across the board, it is difficult to find a big, glaring problem in the governance that somehow requires this parliament's attention. Some have said, 'If it ain't broke, don't fix it.' Perhaps that might be a little bit too glib. In this parliament we should always be vigilant about making sure that when so much money is at stake the governance arrangements for that money are the best ones. We should not necessarily wait for a problem to arise before going and fixing it. But are there any warning signs going off? No-one has come and put any before us.

Are there any reasons to think that the current strong regulation from APRA is somehow inadequate? That really ought to be the question, and I think the government ought to be demonstrating that somehow what APRA is doing at the moment is not good enough and that some structural change to the way superannuation boards are governed is required. It is difficult to see what it is that APRA is supposedly doing wrong at the moment. Indeed, one might say that part of the reason why industry funds and other funds have been able to perform so well over many years is that APRA has been doing its job. That is a conclusion that is available to be drawn on the evidence in front of us at the moment. So I do not think this is a bill where the government has made out a case, nor is there a big public clamour for us to take action.

What makes me sceptical also about why we are spending time on this and whether governance really is a question of concern for the government is that, if you look at what they are doing here and you compare it with what the government did with financial advisers and financial planners, with financial advisers and financial planners they ran the other way. When it came to the private sector and financial planners, the government said: 'In the last parliament, you worked together to put in some protections for consumers that regulated how financial planners behaved. That is a great imposition. People should be able to decide things for themselves. We should let the market rule.' This was despite the scandals—where there was a massive case, with strong evidence, made out that people had lost a lot and that many people had been fleeced and had lost their life savings—despite a crying need there for regulation and despite some very, very basic conflicts of interest that do not exist when you have member-led super funds. There are some very basic conflicts of interest that exist when financial planners get money for selling products to people—from the banks who benefit from the products—whether or not it is in the person's best interest. When I look at what the government has done in the financial planning sector, there is a dissonance with that and what it is trying to do here, which again makes one sceptical about the government's motives and wonder whether the government is really trying to just break open a model that is working so that there is more custom available to the blanks—to be blunt. That seems to be what the government is doing.

As I say, this question of superannuation is something that we as the Greens come to with an open mind and without perhaps the same kinds of vested interests or allegiances that others in this place might have, and yet there has not been a strong case made to us to seek our votes to support this legislation. So, for the reasons that I have just outlined, it is not a bill that we will be able to support here or in the Senate.

There is ample opportunity in this place for us to have a sensible debate about superannuation and to go back to basics and say, as I said at the start, 'Is this system doing what it was designed to do?' I am hopeful that perhaps a change of leadership in the government will open up space for some more sensible debate about that, because I think it is a debate that people are prepared to have. I know the last leadership said that superannuation tax concessions were off the table. They said: 'We're not going to touch them. We're happy to talk about making you pay more to go and see the doctor, but we're not happy to talk about getting rid of super tax breaks for the very wealthy. We're quite happy for those still to be used by some very rich people at the end of their life as, essentially, a tax haven and a way of washing money through it. But we won't talk about that.' Well, I hope that the government does talk about that, because, if the governments puts those things back on the table, then maybe there will not be the suspicion about motivation.

But, at the moment, in the absence of any case being made out, and when you compare what the government is doing here with the complete lack of action about financial planners and the response today to the financial systems inquiry—where, again, the big banks and their financial-planning model are just being given a small pat on the head and being told, 'Look, you might have done something wrong in the past, but, as long as you do a bit more education, it will all be all right'—you do wonder whether this government has at its core the interests of consumers and people who are trying to save or simply the interests of the banks. On the available evidence, you would have to think it is the latter, and, for that reason, we will not be supporting the bill.

4:55 pm

Photo of Brendan O'ConnorBrendan O'Connor (Gorton, Australian Labor Party, Shadow Minister for Employment and Workplace Relations) Share this | | Hansard source

I too rise to oppose the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. This bill has, I think, a dishonest motive. The ostensible purpose of the bill as it is drafted is to somehow provide better regulation for superannuation funds—in particular, not-for-profit funds—and supposedly to ensure better regulation and more independent advice, which would lead to better outcomes for members of superannuation funds. Unfortunately for the government, the evidence belies the presumptions that motivate this bill, because, if you look at all the evidence in relation to this matter, you will find that, generally speaking, over the last 20 or more years, the facts are that the not-for-profit industry funds have had better outcomes for members, they have been cheaper and there have been fewer, if any, scandals in relation to those funds when compared with some of the for-profit funds. So it is quite a remarkable proposed piece of legislation, when we are looking to change the governance arrangements for better funds rather than look at and examine more closely some of the deficiencies of other parts of the super industry.

That is of great concern to the opposition. But it comes as no surprise to us, because we know that the government has an ideological predisposition in relation to industry super. It has never supported industry super. The Liberal Party in this place has never, ever voted for, for example, employer contributions to super. It has always, when elected to government, reneged on its earlier commitments to increase the contribution. We had that most recently with the recently disposed of Prime Minister, Tony Abbott, who made a commitment to increase superannuation prior to the election, and, upon election, reneged upon it. Prime Minister Howard had made, before the 1996 election, a commitment to increase the employer contribution, and he reneged upon that when coming into government. So there is a long, long history of enmity towards compulsory super but also, in particular, a keenness by Liberal governments to attack the arrangements for not-for-profit superannuation funds. As I say, this is hard to countenance, given the history. The history is that, over the last many years, the dividends have been better; the scandals, if any, have been fewer—certainly less scandalous than in the for-profit area; and the fees have been lower.

This bill does not achieve its stated goal. The changes will not improve super-fund governance. Rather than focus on the behaviour or skills required of directors, the bill will introduce a quota of so-called independent directors, based upon relationships a director may have with the fund or its sponsoring employers and unions. Drafting has proven problematic and has resulted in a large number of unintended outcomes.

The bill is unnecessary. Two years ago new governance obligations were enacted. These require all funds to regularly evaluate—by using an independent third party—the effectiveness of their board and directors, to manage and disclose conflicts of interest, to ensure all directors are fit, proper and capable of making decisions expected of them, and to regularly review their board-renewal policies. APRA has robust enforcement powers and has admitted that these new requirements are still being bedded down within funds.

The bill is inappropriately heavy-handed. Unlike the regulation of company boards, the bill adopts a heavy-handed one-size-fits-all approach, regardless of the super fund's business model or the circumstances of its membership. The bill does not address the governance challenges of super funds. If enacted, it will change the governance of the most successful super funds, the representative model that applies across the not-for-profit sector, while failing to address the governance issues associated with consumer losses in the scandal-ridden bank and wealth management industry. That is why you have to be sceptical of the government's intentions, in relation to this matter. It seeks to punish the most successful funds and leave alone the funds that have left many of their members worse off. It is unjustifiable for the government to contemplate that.

When you are advocating change to public policy, particularly in a sensitive area like superannuation, there needs to be confidence that the government is doing it in the interest of the beneficiaries—in this case, superannuation funds. There is no evidence to suggest that these policies will, in any way, improve the lot for members of industry funds. If you look internationally, the representative model has been more successful than having a board full of independent directors. If you look at domestic arrangements, the same is true. If you look at the level and degree of regulation of current super funds, there is no reason for the government to be going down this path.

Is this about diminishing the role of employer bodies and unions in industry funds? The answer to that is: unequivocally, yes. This is about diminishing the representative model and, in particular—happy to sacrifice employer bodies, along the way—diminishing the role of unions in superannuation. That in itself is a remarkable thing. In this country, even in the pre-accord years, many of the ideas for the existing super industry emanated from the union movement. In fact, the ideas for striking the accord and intention to deliver on employer contributions to super commenced in about 1986. It did not take effect, by way of parliament, until six years later, but it was driven by the Labor movement to make sure that people who were seeking some security in their retirement would have decent savings.

If you go back to the mid-eighties, the only people who could say they had any adequate superannuation savings were public servants—I would not suggest their conditions were as good as they are now, but they had some security when it came to retirement savings—and managerial staff in the private sector. I know that many blue-collar workers in the private sector had no superannuation, whatsoever, 25 years ago.

The efforts of Labor to make sure we provided access to savings beyond the pension for people retiring has been a 30-year journey. It emanated in the mid-eighties. The federal Labor government joined the ACTU to make submissions, before the Industrial Relations Commission, to have employer contributions inserted into awards. This culminated in 1992 with the first parliamentary enactment providing minimum contributions by employers. Often, these were in lieu of wages. This was to not only build national savings but also to ensure that people who were not making a great deal of money were able to have a reasonable nest egg upon retirement. That has been a 30-year journey.

Throughout that entire journey, there is not one point where the Liberal Party, whether in government or opposition, has supported the advancement of those contributions to millions upon millions of Australian workers. Not one. They did not vote for the 1992 enactment. They did not vote for the increases to employer contributions. Indeed, they attacked the intentions of the then government and, upon election, reneged upon any commitment they had made about increasing that contribution, even though they were quite happy to use it as a commitment—it ended up being a broken promise—in, at least, two elections.

So there is a history of neglect and disregard for universal super retirement savings for Australian workers. And, of course what we see now is that their most interested focus is allowing it to be one which provides enormous concessions for the very well-paid and very high-income superannuants in this country. That seems to be where they focus their intentions. They have abandoned the co-contribution for 3½ million low-paid workers. They have resisted the opposition's efforts to find some bipartisanship on reducing some of these remarkably high concessions to the most fortunate and very high-paid superannuants. It is unfortunate that there has been that divide between the two major parties.

But despite that divide, because it is so popular and because the Australian people warmed so readily to this policy, the government today and the Liberal Party generally have not been able to dismantle it—as they would like to have done. They would like to take a wrecking ball to superannuation generally. They do not like the idea of it; they have never liked the idea of it. That is manifest in every decision they have made with respect to it. But it is so popular that they just have to find another way to affect the benefits that flow on to many millions of workers.

One of the ways they have considered affecting it was to bring in this legislation that will diminish the role of employer bodies and unions sitting on those funds and representing the beneficiaries of those funds. Of course, that is one of the reasons why we cannot support it. And the other, as I have outlined already, is that if we compare the not-for-profit super funds with the for-profit super funds, when it comes to outcomes the evidence shows that the not-for-profit funds have been superior. In some cases, that is by at least a full year's salary more than the for-profit funds.

When it comes down to the fees, we have seen them to be generally lower than those of the for-profit funds. And, of course, when you look at some of the scandals that have happened in our financial sector, they have not involved industry super funds. Unfortunately, they have involved other types of funds. And yet the government has tended to focus its energies and its red tape on industry super funds.

This piece of legislation as proposed is targeting unions and employer bodies ideologically. It wants to smash up what has been the most successful arrangement in so far as representation on boards goes. And, of course, the Assistant Treasurer is very much motivated to take on unions. Like her old boss, Peter Costello, she is from the Dollar Sweets clan. They are really into this sort of stuff!

But the reality is that everyone knows what they are doing. They are trying to attack hardworking people. And they are willing to attack unions to do it because they do not believe in unions or, indeed in this case, in employer bodies governing super funds. This is despite the fact that they have been more beneficial than any other fund that we have seen in this country.

5:11 pm

Photo of Kelly O'DwyerKelly O'Dwyer (Higgins, Liberal Party, Minister for Small Business) Share this | | Hansard source

Firstly, I would like to thank those members who have contributed to this debate. The Superannuation Legislation Amendment (Trustee Governance) Bill 2015 will amend the Superannuation Industry (Supervision) Act 1993 to align governance and superannuation more closely with the corporate governance principles applicable to ASX-listed companies.

This will increase the level of independence in the management of superannuation funds and ensure that directors with the best experience and expertise are represented on superannuation trustee boards, enhancing decision making and producing better outcomes for members, whilst minimising the costs to the superannuation industry.

The bill fulfils an election commitment of this government. As a result of this bill, the governance of super fund boards will move from an outdated model that has applied since 1993 to an international-best-practice model whereby at least one-third of directors are independent. Our key objective is to have the best people governing the retirement savings of Australians.

Superannuation balances at over $2 trillion now represent, after the family home, the biggest part of Australian households' net assets, accounting for around 27 per cent of Australian household net wealth. This amount is only going to increase, and by 2040 the size of Australian household superannuation overall balances is estimated to reach around $9 trillion.

Superannuation is a key pillar supporting the retirement incomes of Australian workers. Superannuation represents a long-term investment and, in general, employees cannot access their funds until retirement. Apart from self-managed super funds, Australians rely on others to manage these balances. Only governance arrangements that are international best practice can be appropriate for the management of monies that are paid in a compulsory manner, concessionally taxed, greatly depended upon and invested for long periods of time.

There has been some suggestion from those opposite that there is no reason to change. However, international-best-practice governance involves the presence of independent directors on boards. Independent board members bring different skills and experience, and different expertise. They hold other directors accountable for their conduct, particularly in relation to conflicts of interest. APRA, the prudential regulator of the Australian financial services industry, has a mandate to mitigate systemic risk to the financial sector. One way it does this is by requiring the boards of banking and insurance companies to have a majority of independent directors, as independence helps to ensure that decisions are made in the best interests of the depositors or policyholders.

In APRA's words—in fact, from a speech given just this morning—there is more on the reasons for change:

APRA's long-held view is that independent directors play a very important, positive role on boards … APRA's experience, over many years and across all our industries, is that having at least some independent directors on boards supports sound governance outcomes. Independent directors broaden the skills and capabilities that can be brought to the board table, and improve decision-making by bringing an objective perspective to issues the board considers. They are also well placed to hold other directors accountable for their conduct, particularly in relation to conflicts of interest.

Under ASX corporate governance principles, shareholders of listed companies benefit from governance arrangements with independent directors. For those opposite who are still looking for a reason to change, I remind them that both the Cooper Review into Superannuation in 2010, which was commissioned by the previous Labor government, and the more recent Financial System Inquiry into the financial system in 2014, which was released today with the government's response to the recommendations, concluded that superannuation fund members would benefit from having a greater number of independent directors on fund boards.

This bill will protect the interests of all members of APRA regulated superannuation funds including members of corporate, industry, public sector and retail funds. It will bring the governance arrangements in line with international best practice and require independent directors on their boards. The bill will help ensure that decisions are made in the best interests of members and not in the best interests of others. While the bill will require super fund boards to have a minimum of one-third independent directors and an independent chair on their board, boards will be able to choose to have the remaining two-thirds of their directors split between member and employer representatives if they consider it appropriate.

Despite what those opposite say, the government is in no way preventing funds from enshrining equal representation in their constitutions. Beyond a minimum of one-third independent directors, it is appropriate to leave it to boards to structure themselves in a manner they believe will best serve their members' interests. The existing definition of 'independent' is being replaced because it currently relates only to whether a person is independent of the members and the employers of the fund and does not cover any other relationship. The new definition will look at ownership or structural arrangements relating to the RSE licence as well as the relationship an RSE licencee might have in determining independence. In addition, APRA will be able to determine whether someone is independent or not based on whether they have the ability to exercise independent judgement. This will allow APRA to respond to situations where a person's circumstances and his or her capacity to exercise independent judgement are not clear; for example, where somebody does not meet the technical definition of independence but they have the ability to act independently.

APRA'S determinations are reviewable so someone affected by the decision will be able to ask APRA to reconsider as well as seek a review by the Administrative Appeals Tribunal. This type of power is consistent with other regulators' powers; for example, ASIC can make a declaration that something is not a financial product. There will be a three-year transition period for existing trustees commencing when the legislation receives royal assent.

In addition, the bill will amend the governance of Australian government superannuation schemes at 2011 to restructure the trustee board for the Australian government's main civilian and military superannuation schemes, the Commonwealth Superannuation Corporation, to comply with the new governance requirements by the end of the transition period. The CFC board will comprise a majority of independent directors and the board will be reduced from 11 to nine directors to better align with the principles of governance best practice.

I thank all of those people who have been involved in the various exhaustive consultation processes of these reforms and I commend the bill to the House.

Photo of Rob MitchellRob Mitchell (McEwen, Australian Labor Party) Share this | | Hansard source

The question is that this bill be now read a second time.

Bill read a second time.