Concetta Fierravanti-Wells (NSW, Liberal Party, Minister for International Development and the Pacific) Share this | Hansard source

I too rise to make a contribution on the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017. Given the compulsory nature of our superannuation system, the government ultimately bears responsibility for the prudent management of and confidence in our superannuation system.

APRA-regulated superannuation funds hold $1.4 trillion in compulsorily deferred wages on behalf of ordinary, hardworking Australian people. There can be absolutely no argument that members of superannuation funds—those hardworking Australian people—have to have the best and the brightest minds sitting around the board tables of the superannuation funds in Australia. That is why we as a government are committed to legislating appropriate standards of governance. Being consistent with these appropriate standards of governance means that we need to include minimum levels of independence across the entire sector.

We have seen the superannuation industry evolve considerably since the introduction of compulsory superannuation in 1992—and this has been a very, very positive thing—but, at the same time, governance arrangements have not kept up with this growth. This is despite the fact that superannuation funds have become larger. They have certainly become more complex and they certainly have more diverse memberships. The funds themselves have evolved and have been opened up to competition so that they can appeal to a wider range of members. They are competing actively for market share beyond what have been their traditional membership bases, including multiple employers across multiple industries.

We know that some trustee boards do not have appropriate governance arrangements in place to reflect the very important role they play in ensuring that the retirement savings of their members are appropriately dealt with. These standards need to meet the expectations of the Australian people. In some cases, they do not. Therefore, endeavouring to lift the level of independence in the superannuation sector should be a priority not just for the government and for all of us but also for the industry itself. Strengthening trustee board structures through greater independence is, in my view, in everyone's interests.

This bill includes the previously introduced measure aimed at increasing independence of the boards of superannuation funds in Australia. This has been a measure on the policy agenda for several years and has been recommended by previous reviews that have been undertaken in relation to superannuation. This government makes no apology for seeking to put the interests of the superannuation fund members ahead of the self-interest of the industry. So I'd like to take the time, if I may, to make a closer examination of some of the schedules to the superannuation package and to look at some of the ways that this is going to be beneficial. During the course of my intervention, I will also reflect on something that is very important in the Illawarra. It is something that has been raised with me repeatedly by the victims of financial fraud who have been actively seeking changes to legislation, and seeking to have issues that arose out of the Trio collapse dealt with appropriately.

Let's look at schedule 1 of this bill. Schedule 1 creates a statutory minimum requirement for one-third of the directors to be independent directors, including an independent chair on the superannuation trustee boards. We think that, without this minimum standard, fund members may be exposed to detrimental outcomes that can arise through poor decision-making or failure to deal with conflicts of interest appropriately—and haven't we seen that in recent years! This schedule includes a new definition of 'independent' that will ensure that a director of a superannuation trustee board is able to exercise independent judgement.

Let's look at schedule 2, with regard to the board of the Commonwealth Superannuation Corporation. This schedule will enable the trustee for the Australian government's main civilian and military superannuation schemes to comply with new independent requirements. This goes, in particular, to strengthening trustee arrangements.

I want to focus now on improving accountability and members' outcomes in the superannuation bill. From the government's perspective, this bill will give everyday Australians more control over their superannuation providers, and a stronger regulator to ensure their money is being managed in their best interests. The Superannuation Member Outcomes Package represents an important set of reforms that strengthen the foundation of our compulsory superannuation system, in particular for default MySuper members. This is a package that has been developed with the unequivocal, clear objective of improving outcomes for consumers.

The superannuation sector has grown to over $2 trillion. This has been largely as a consequence of the mandatory nature of the system. And, of course, all Australians rightly expect that the superannuation industry be held to the highest standards of transparency and accountability. Consumer-focused reforms to make superannuation much more consumer-friendly and superannuation providers more accountable for how they use their members' money will be welcomed. Add to that stronger prudential standards, better enforcement and more transparency, and it will lead to a boost in the confidence people have that their super savings are being managed in their best interests.

Many of the measures, including these measures, have been on the policy agenda for several years and, as I've indicated before, been recommended by past reviews into superannuation. This legislation includes important measures aimed at increasing choice and transparency. It also includes important measures aimed at strengthening supervision of the sector but also boosting trustee accountability and improving member engagement. It also closes a legal loophole that has been used, regrettably, by unscrupulous employers to short-change employees who choose to make salary sacrifice contributions into their superannuation accounts.

I'd like to examine a number of the schedules and make some general observations in relation to that. Firstly, in relation to schedule 1 of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017, the annual MySuper outcomes assessment, an outcomes test will strengthen obligations on trustees to consider the appropriateness of the MySuper product on an ongoing annual basis. This test will be in two stages. One will require trustees to consider what MySuper is offering—its design, investment scope, insurance framework and scale—and the other will require that trustees compare their MySuper products with other MySuper products. We believe that, to ensure that the financial interests of members are promoted, trustees should give consideration to the overall quality of their products. This test is designed to inform a trustee's assessment of their product. It won't weaken or lessen their obligation to promote the financial interests of their members through net returns. The importance of net returns, clearly, in promoting the financial interests of the members of the fund should remain foremost in any trustee's mind.

Through the outcomes test, the APRA, the Australian Prudential Regulation Authority, will be able to obtain a more comprehensive view of how funds are working to improve the quality of their products and have stronger grounds to engage with trustees, most especially, where there are concerns about their products. There will obviously be requirements to publicly release information and so, ultimately, this will all add to transparency. There will also be provisions about authority to offer, with only suitable trustees being able to offer MySuper products, and products being removed when they are no longer suitable. These authorisation changes will improve the quality of the products on offer.

Schedule 3 deals with director penalties. The current gap in the criminal and civil penalty framework concerning the conduct by a director or trustee of a superannuation fund will be addressed as a result of the changes to this schedule. Directors will now be held accountable for their conduct in the same way as directors of managed investment schemes. They will be subject to both civil and criminal penalties if they fail to execute their responsibilities to act in the interests of their members or if they use their position to further their own interest to the detriment of members.

I want now to come to schedule 4, which deals with approval to own or control an RSI licence. Members will have a greater level of protection against fraud when a change of ownership or control of a trustee takes place. As I said, we have seen this spectacularly in the past. As I indicated earlier in my speech, one was in relation to the Trio collapse, and I know that many of the victims of that collapse took advice from providers in the Illawarra and they have been arguing consistently for quite a number of years to seek redress. The provisions of schedule 4 will go a long way to ensuring and affording necessary protections against fraud, especially when a change of ownership or control of a trustee takes place—that was one of the complexities in relation to the Trio collapse. Given the detrimental outcomes that can arise through the mismanagement of funds, we believe that no-one should be able to own or control a super fund without APRA's approval. This change will make the superannuation industry broadly consistent with the change of ownership requirements of other industries regulated by APRA.

Schedule 5 will deal with APRA's directions power. APRA has powers across the credit union, the banking, the friendly society, the insurance and the superannuation sectors. Now, as a consequence of the legislation, those powers will be harmonised. When APRA has prudential concerns and, again, harking back to things that have happened in the past, when those circumstances do occur where prudential concerns or APRA's concerns are engaged, it will be able to intervene early and address those concerns so that action can be taken early in the piece—it's the old adage of prevention being better than cure—and, therefore, act in the best interests of its members, rather than delaying it. The new powers will enable APRA to take action to ensure that the intent of the law is given effect to, including the new outcomes test and the enhanced and better management-reporting requirements that have been delivered as part of this package.

I now look at schedule 6, which deals with portfolio holdings disclosures. This measure will enable members and interested parties to see where superannuation funds are investing their contributions. Importantly, this will ensure that members' contributions are invested appropriately and, therefore, it will empower members not only to know that but to make their funds a lot more accountable. Of course, the changes in this particular area will reduce the complexity of the current law. It was introduced in 2012, but has never commenced. The bill will limit portfolio holdings disclosure to assets held directly and to investments through associated entities, including initial investments made into non-associated entities.

We know how important our superannuation system is, and the important bearing it has on the retirement incomes of each and every Australian, especially those Australians who have invested heavily and want to know not only that they are getting a good return but also where their money is being invested. Requiring funds to disclose their portfolio holdings is also consistent with best international practice. Of 25 markets looked at by international financial market analysts Morningstar, Australia is currently the only market with no implemented regulation form of portfolio holdings disclosure.

In the limited time available to me, I will also briefly mention that schedule 7 looks at annual members' meetings. This is a measure to improve accountability and ensure that members have full opportunity to ask questions and get appropriate answers, not just of the trustees but of their fund's officers, auditors and actuaries. Schedule 8 deals with issues from choice of fund to workplace determinations and enterprise agreements. Given compulsory super's important contribution to individual retirement incomes, individuals should be able to know where their funds are invested. Other schedules deal with reporting standards and with ensuring salary sacrifice integrity.