Senate debates

Thursday, 7 September 2006

Superannuation Legislation Amendment (Superannuation Safety and Other Measures) Bill 2005

Second Reading

12:43 pm

Photo of Ursula StephensUrsula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Hansard source

I would like to speak on behalf of Senator Nick Sherry, during his absence, in relation to the Superannuation Legislation Amendment (Superannuation Safety and Other Measures) Bill 2005. This bill amends three acts—the Superannuation Acts of 1976, 1990 and 2005—by changing some provisions for public servants to make them more consistent with the private sector regulation of superannuation. Specifically, the bill allows negative credit rates to be applied to member accounts in the CSS. Allowing a negative credit rating will mean that the CSS, in line with other super funds, will apply a negative in a poor investment year. Currently, what is called a ‘smoothing’ is carried out in a negative earnings year by declaring a zero rate of return and transferring the losses forward to the following year or years by a reduction in the positive rate of return. This is carried out by the use of a reserve account. Members’ accounts up to 1 July 2006 will be quarantined and accumulations only from this date will be affected.

Maintaining smoothing is now very difficult for two reasons. Firstly, the introduction of investment choice will allow members to actively switch investments to higher risk categories and members who do not do this subsidise members who do. Secondly, the CSS is closed and will experience a rapid decline in membership over the next 10 years. If negative earnings occur, the members who have left the fund due to retirement are subsidised by the remaining members—a rapidly declining number—who will be required to make up the losses.

Also this bill will ensure the operation of the PSS and CSS are consistent with the requirements of the Superannuation Industry (Supervision) Act 1993, the SI(S) Act, concerning fitness and propriety standards for superannuation fund trustees. This is a common-sense approach and ensures that a ‘fit and proper person test’, with the power of removal if an individual does not meet the test, covers public sector superannuation, as it does private superannuation, trustees. It is a necessary safety improvement. Labor supports the bill and provisions contained within.

However, given this is a superannuation safety bill, Labor is greatly concerned about what is not in the bill. Labor has been greatly concerned for some years about two further aspects of safety for superannuation—theft and fraud, and employer insolvency. Labor has actively advanced policies to solve the gaps in protection. In respect of theft and fraud, current law only guarantees protection for up to 90 per cent of moneys lost. The Liberal government has tried unsuccessfully to reduce this to 80 per cent. The current compensation mechanism provides that where theft and fraud occur a levy mechanism is applied across fund assets, currently totalling some $905 billion, to compensate the individuals affected. Fortunately, incidence of theft and fraud is minute in the context of total savings. This levy, when activated, represents a reduction of some 30c to 40c on members’ fund balances. However, theft and fraud are catastrophic for the few hundred out of the millions of fund members affected each year.

Given superannuation is compulsory, long term and for retirement, there is a very strong public interest argument that in these circumstances individuals should be fully compensated. Labor’s second reading amendment reflects this. In respect of employer insolvency the General Employee Entitlements Redundancy Scheme, GEERS, pays compensation for all unpaid wages, all accrued annual leave, long service leave, pay in lieu of notice and up to 16 weeks redundancy entitlements, as per community standards. Statutory entitlements and community standards are covered, except for one—unpaid superannuation contributions, the superannuation guarantee.

Each year some 20,000-plus employees miss out on approximately $100 million in mainly compulsory superannuation contributions. This figure is an updated one based on the Australian Taxation Office compliance program 2005-06. Often the unpaid super is greater than other protected entitlements. For example, a worker on a wage or salary of $50,000 a year who has, under GEERS, three weeks annual leave owing and a week’s notice would receive approximately $4,300, but the unpaid super would amount to $4,500. So that statutory superannuation payment is unprotected. Labor’s second reading amendment calls on the government to consider extending the GEERS to protect this major statutory entitlement—superannuation. I move Labor’s second reading amendment:

At the end of the motion add:

“but the Senate notes that:

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