Chris Ketter (Queensland, Australian Labor Party) Share this | Hansard source

This is an ideological agenda continuing from what we know of the government's attack on the ABCC and the Registered Organisations Commission. This government's obsession with the union movement is on display for all to see.

In relation to these particular bills, I want to start by talking about my concerns regarding the rushed process with these bills. As set out very clearly in the Senate Economics Legislation Committee's dissenting report, we note that these bills were introduced into parliament on 14 September this year, on a Thursday morning, on the last day of a two-week sitting period. This was made worse when very short reporting dates were set for the bills. I note that the Manager of Opposition Business in the Senate, Senator Gallagher, moved a motion to extend the reporting dates on the superannuation bills to give proper time for scrutiny. It is unfortunate that we lost that vote. As I look at the bills in more detail, the more concerned I become. The committee managed to review four bills over a two-day period and, for that, some credit is due to the chair, Senator Hume, for her cooperation, despite the unreasonable reporting dates set by the government.

I'll use my time today to go through two major aspects of these bills: firstly, the policy aspects of these bills and how the government continues to confuse corporate governance and trustee governance; and, secondly, the politics of these bills and the government's incessant desire to destroy the union movement. So the first is the policy issue. I'll begin by talking about the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017. Let's be clear: this is a recycling of the same bill that was defeated in 2015. Since that time, no clear evidence has been received to show that there was any deficiency in the funds with equal representation boards that warranted this bill, and that's notwithstanding the contribution that Senator Fawcett made. He identified a number of areas, but, again, it's all about throwing mud at the industry funds and, when it comes to the retail banks and their performance, it's all: 'There's nothing to see over here. Let's move on and attack the sector of the superannuation industry which is performing at a higher level and, at the same time, charging much less in fees to members of the superannuation funds.' There's no evidence which would warrant the establishment of a minimum of one-third independent directors or to warrant abolishing the requirement for equal representation for the remaining board members.

We have seen the scandals in the major banks. If we take a step back, I think we can all agree that superannuation is now a vital part of our public policy landscape. That wasn't always the case, and I'll talk a bit more about that later.

It's Labor and the union movement that have a proud record of establishing the superannuation sector—$2.3 trillion now—for the benefit of all Australians, not just the privileged elite. Labor and the union movement have a proud history of establishing industry funds or profit-to-member funds. We have capital and labour at the same board tables, working together to enable workers to have a decent retirement. The history—and I know Senator Watt has touched on this—is that it was the unions that won superannuation as an industrial matter back in the 1980s. Then, through the accord with the Labor government, that was established as an industrial matter that could be put into industrial instruments. Of course, employers opposed that at the time. In fact, the employers took the matter to the High Court, and it had to be determined there. Then, having won that battle, Labor introduced the concept of universal superannuation in the 1990s. Where was the coalition at that time? It was opposed to that. When it came to increasing the initial three per cent superannuation to nine per cent, that was something that Labor voted to do. Where was the coalition? Again, it opposed that. When it came to increasing the superannuation level from nine per cent to 12 per cent, again, this was something that Labor voted for and the coalition opposed.

Let's be quite frank about this: the coalition expects us to believe that it is acting in the best interests of the members of the nation's superannuation funds. If it were left to the coalition, we wouldn't have the $2.3 trillion superannuation benefit for Australian workers. In fact, the superannuation system wouldn't exist. If this were a reform package truly designed to focus on improved accountability and member outcomes then the sort of things we'd be looking at would be the underperformance of bank-owned super funds. Why is this happening? It's within our competence to find out what is going on there. Why is it that the bank-owned funds are continuously underperforming compared to industry funds? Why don't we have a look at the vertically integrated structures of the retail banks, the potential conflicts that exist and whether members' interests are being safeguarded there and not bank interests? Why aren't we looking at the lack of visibility of profits and margins in retail funds and their related entities and how much the retail fund is spending on related party transactions, which impact the net return to members? Why aren't we looking at whether all super funds are run only for the benefit of their members? Of course, we know that the elephant in the room is that retail funds are inherently conflicted because they operate in the environment of return to shareholders as well. We should be looking at things like transparency and accountability measures being sector neutral. This is a package of measures which is aimed, fairly and squarely, at the industry fund sector, and it is an instance of the government running, basically, a protection racket for the banks.

We know that industry funds, according to the analysis of APRA data by a number of stakeholders, have outperformed retail and corporate funds on average, and they've done a better job of making their customers rich. The competitive tension between industry funds and the trustee governance structure and other financial services firms with their corporate governance structure is a good thing for the sector. Ideally, it should be a race to the top to offer the best outcomes for working Australians.

In that context, looking at the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill, it remains flawed in that it seeks to impose a corporate governance model on funds which operate under a trustee governance model. Corporate governance faces particular issues which need to be addressed. These include board members having a fiduciary duty only to their shareholder owners, which can put at risk the needs of a company's customers, and executive directors—that is, management of the company—having a presence on the board, where decisions might be taken that advantage management over the needs of shareholders. The inquiry found that profit-to-member funds do not normally face these same issues. As the Australian Institute of Superannuation Trustees notes, 'Profit-to-member funds do not face the shareholder-customer conflict, and also do not have executive directors on their boards.'

This bill seeks to prescribe independence in legislation. Stakeholders such as the peak body ASFA said that the ASX principles based approach would be the preferred approach. In seeking to mandate a minimum of one-third independent directors, the government is claiming that board decision-making will be improved and that member outcomes will lift in the long term as a result. However, in our inquiry, witnesses such as Mr Cooper, whom Senator Fawcett cited, and Mr Samuel stated that what should really be desired in board member selection is the concept of cognitive independence—that is, that each board member is able to think independently of other board members, with diversity of thought leading to better group decisions. Mr Bernie Fraser, who is well known to most Australians, also appeared before the committee. He stressed that the skills and values of board members are paramount in good board member selection—not labels such as 'independence'.

When poor consumer outcomes were being considered during the inquiry, Industry Super Australia tabled a document which noted that $480 million in compensation, reimbursements, refunds, payments, remediation and consumer loss for alleged misconduct has been made by the big four banks plus Macquarie and AMP. And this is only in the past two years. This document included details of the ANZ paying an additional $10.5 million in compensation to 160,000 superannuation customers, CBA paying $16.3 million to staff after a review of superannuation guarantee arrangements where they were not paying their part-time staff, the National Australia Bank's superannuation trustee company paying $35 million in compensation for two breaches involving failures in relation to provision of general advice, and Westpac's BT Financial Group paying $12 million to customers whose life insurance claims were knocked back. This document is an absolute eye-opener. It goes for pages. As I said, going forwards two years from 16 September 2015 it details $480 million. If you put that up against the types of issues that Senator Fawcett was raising, we are looking at chalk and cheese here when it comes to failure of governance. That is quite clear. This list continues to evolve.

As time goes on, we know things are happening. You are well aware of these matters, Mr Acting Deputy President Williams. We know that ASIC is pursuing the banks when it comes to attempted unconscionable conduct in relation to the BBSW rate-rigging scandal. So $50 million has been agreed to by the ANZ in respect of a settlement there. It's expected that the National Australia Bank will have a similar settlement. We have seen that the Commonwealth Bank has been in significant breach of anti-money-laundering laws—53,000 breaches. That could potentially lead to billions of dollars in fines.

Although those matters don't directly relate to superannuation, the $480 million figure certainly does. It's also worthwhile noting that just today we see reports of ASIC now probing how banks and super funds stiffed customers of billions of dollars. This is in relation to what is supposed to be happening with the transition of legacy superannuation products into the low-fee MySuper environment. This is supposed to be happening under reforms introduced by the Gillard government in 2012. There was a four-year period to enable all funds to transition to offering the MySuper product. We saw the industry super sector moving across to the MySuper environment much quicker. This ASIC investigation is into the fact that a number of bank-owned super funds have taken until the eleventh hour of the four-year transition period to transfer these funds.

Why have they done that? This was the subject of a Rainmaker report instigated by Industry Super Australia. Rainmaker concluded that the slow retail transition was most likely a deliberate strategy by retail wealth managers. The transition has had a material impact on the profit margins of some of the major banks. One UBS analyst has said that the profit margins on revenue for the major banks over the past six months fell 8.5 per cent year on year and the MySuper transition was one of the major drivers of the falling profit margins. We see billions of dollars of extra fees being gouged from members as a result of the banks dragging their feet in moving to the low-fee MySuper environment.

We know that there are many other scandals, but I think this just illustrates the point that, when it comes to governance issues and misbehaviour, no credible observer could say that there are genuine governance issues on the industry fund side in comparison to what's been happening with retail banks. We see the ridiculous situation where the minister has said that the purpose of these bills is to lift the standards of all funds to this level. If that's the purpose of it then it really is misdirected, at best. In fact, this is a protection racket for the banks.

We know that, two years on from the previous attempt to pass these types of bills, the profit-to-member funds have not been idle in reviewing their own governance arrangements. The AIST Governance Code, which applies ASX corporate governance principles to the superannuation and trustee governance context, will be in force on 1 July 2018. Mr Fraser also delivered his review and made recommendations to strengthen the selection process of board members and to ensure that boards had the right mix of skills that they required.

I want to say that I'm not against independent directors as a principle. A number of industry funds have already moved down that track, but it should be left to trustee boards to suit their own circumstances. Where they believe that independent directors would enhance board decision-making then they should be appointed. Many profit-to-member funds, as I said, have adopted such appointments. However, I don't agree with prescribing an arbitrary quota of independent directors and defining 'independence' in legislation. I welcome the work of AIST in developing a governance code and endorse the idea that cognitive independence is what policymakers should strive to achieve. Given all these findings, the Senate should reject this trustee arrangements bill once again.

A number of the submitters to our inquiry—including, I think, Choice—were very concerned about the fact that the government was throwing the baby out with the bathwater by abandoning the employer and employee governance model and basically leaving a vacuum there. Apart from the one-third director component of the board, the rest of the composition of the board is left open. I think that is very much a backward step. Once again I want to illustrate the difference between what we've got on the industry super fund side and on the bank side. We know that many of the retail bank funds do have a majority of independent directors, but that's in an environment where they've got banking executives sitting on the board of superannuation funds, making decisions about the interests of members—and who is appointing these banking executives to these boards? Of course, it's the banks themselves. Not only do the banks appoint the banking executives; they also appoint the so-called independent directors. When it comes to concerns that we should all have about governance, the focus should very much be on what is going on in the retail super sector.

When it comes to member outcomes—I have a brief period of time to address this issue; this is a very dense piece of legislation and I won't go through all the details—I am concerned this legislation will not improve protections, accountability and outcomes for members across the sector. In particular, the need to strengthen outcomes for choice products and to improve reporting and accountability of retail RSCs with a large financial firm parent company has not been given due consideration in these bills. In closing, these bills are misdirected; they are a protection racket for the banks and should be rejected.