Thursday, 14 February 2019
Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018; Second Reading
I rise today to speak on the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 put forward by the government. Senator Patrick talked about a certain aged, overweight man. I don't smoke a pack a day, mate. I don't think you do either. But it is true that, when we, as a society, as a succession of governments, force people into a compulsory savings scheme, we need to be very cautious that we do so in such a way and under such preconditions that ensure a maximum level of transparency and accountability. We also need to ensure people have an ability to make choices about their superannuation and take control of their superannuation. We should do nothing in this space that removes from people the desire, the inclination, the incentive to actively take control of their finances into retirement. That is what we want people to do. That is my starting point for how we should always think about superannuation.
People should be engaged with their retirement, particularly as society asks them, through a compulsory savings vehicle, to place a large part of their money—again, in a compulsory fashion—into that savings vehicle, which is controlled, as Senator Patrick pointed out, by a very small number of entities, some of them private companies, some of them industry superannuation funds, some of them sectorial superannuation funds, and a limited number of people in the older government-run schemes. We force people to hand their money over to a very small number of people who have an extraordinary amount of market power, particularly within the equities market and also the property market. As we give the power over people's retirement savings to those entities, we must ensure that the protections we put in place for those people are adequate.
I must admit, like probably most people in this room, over the course of my life I've had more than one superannuation account floating around. I probably shouldn't admit it but I think I still may have two in action, so I'm paying two sets of fees, one of which I don't need to pay. For someone fortunate enough to be in my position, that's a choice. I could take the time to clean that situation up relatively quickly. It's probably not making a huge difference over the course of my savings history. But for someone who is young, for someone who is not in a high-earning position, for someone who loses track of their superannuation, for someone who moves between relatively insecure employment for the first few working years of their life, it is not inconceivable—and I've certainly seen this in relation to the industry I grew up with, agriculture, where people do seasonal work and bounce between employment opportunities and are not necessarily in stable employment for the beginning of their career—that they can end up with a number of superannuation funds, all with very low balances and, as Senator Patrick pointed out, all being charged fees and cross-subsidising those in superannuation funds with higher balances. This is the situation that this bill sets out to address, and I think that is a very important reform. There is $2.6 trillion in the superannuation sector now. That is an extraordinary amount of market weight in our economy. As I have said, we need to ensure that we do as much as we can to protect those who are part of that system with very low balances.
I will go to some of the provisions of the bill before returning to a few more-general remarks. The key point of this bill is that it's about putting in place fee protection. It's putting the members of super funds first. In a compulsory superannuation system the government does have an obligation to protect members against account erosion. We force people to put their money in, so at the very least we need to prevent those funds being eroded, particularly low-balance funds. Those low-balance funds currently face disproportionately high fees, which are eroding away their balances and can result in a significant negative outcome for those people over the course of a long period of time. Flat fees, in particular, which are imposed on accounts where there are very small or no contributions, obviously have a significant impact on account balances. Accounts can be eroded to zero. There are currently no special protections to prevent low-balance accounts being eroded to zero.
In 2013, as part of the MySuper changes, Labor, those opposite, through a decision made by the now Leader of the Opposition, repealed member protection standards. These standards had protected accounts below $1,000 or accounts held in eligible rollover funds from erosion by requiring that fees not exceed investment earnings. This bill introduces new requirements to prevent trustees of superannuation funds from charging administration and investment fees and prescribed costs exceeding three per cent of the balance per annum for accounts below $6,000. Based on the most recent data available, this will mean that around seven million Australians will save around $570 million in fees in just the first year, thanks to the government's reforms. When talking about superannuation balances we often hear, particularly from those opposite, about how small changes can make a big difference over the course of somebody's working life. Well, this will make a very significant difference over the course of the working lives of millions of Australians. It will see that $570 million in fees in just one year maintained in superannuation account balances. That money will compound over time and it will be added to the next year when those fees are not allowed to be collected again, and the next year and the next year, so you will see a significant reduction in the erosion of super fund balances, particularly small super fund balances, and the commensurate improvement in national savings that will result.
The measure also prevents trustees from charging exit fees on all superannuation accounts, thus removing a disincentive to account consolidation. According to APRA data, approximately one-third of funds—that's around 79 funds—charge exit fees. At June 2017, the average exit fee disclosed by superannuation funds for MySuper products was $68, with total exit fees collected across the industry totalling $52 million. Again, that's $52 million of hardworking Australians' money that is being collected merely from consolidating or changing superannuation accounts. There might be a good reason why someone chooses to change superannuation funds, but over a number of years now we have been actively encouraging people to consolidate their funds, to move three or four small accounts together in one place to limit the amount of savings erosion that is going on and to maximise those savings that people have when they retire. Obviously this is a very important part of maintaining those balances and helping people with low-balance accounts to lower their fees and consolidate accounts. We don't want exit fees to be a disincentive for people bringing small-balance accounts together.
I will just move on to schedule 2 on the insurance arrangements. The current system requires the provision of default insurance for MySuper members. Default insurance can result in members paying for cover that they are not aware of, that goes beyond their needs or which they cannot claim on. Insurance premiums can reduce the accounts of low-income earners—this disproportionately affects women—with retirement balances by 10 per cent or more compared to having no insurance. This increases with every additional policy held by an individual. Schedule 2 of this bill prohibits trustees from providing insurance on an opt-out basis to new members under the age of 25, to members with account balances below $6,000 and to members with inactive accounts unless the member has actively directed otherwise. Changes in this package aim to better target default insurance and minimise balance erosion due to insurance premiums, particularly for individuals who have duplicate insurance cover through multiple accounts.
We've talked about the importance of account consolidation. There may be a reason why people have more than one account, but, if it's merely through inaction, if it's merely from being disengaged with their future retirement, that is something we want to work against. We want people to engage with their retirement, with their savings. This money is their money. It's not the super fund's money. It's certainly not the government's money. It's the Australian people's money. As much as possible, through reforms like this, we are protecting that money, but we also hope that people will become more engaged with their retirement savings.
These changes will not prevent anyone who wants insurance within superannuation from being able to obtain it. Low-balance, young and inactive members will still be able to opt in to insurance through superannuation if that suits their circumstances. There may be reasons why people want to make this choice. Again, this should all be about much more choice and control whilst protecting people from the erosion of their own money. It is estimated that these changes will benefit around five million Australians. They will have the opportunity to save an estimated $3 billion in insurance premiums by having the choice to opt in to this cover, rather than paying for it by default. Obviously that $3 billion may not all be taken. Some may choose to continue to buy additional insurance. That is the way the system operates. If people make an active choice to take out additional insurance, for whatever reason—if they are risk averse and believe they need to have their insurance risk spread over a couple of different pools—it might not necessarily be the best financial strategy, not that we should ever advise people on that, but that is their choice. Again we must always focus on remembering that superannuation money is the money of Australians who have worked for that money. Just because it has been compulsorily put into a retirement account does not mean that it is not their money, and they should always retain maximum choice, control and awareness.
Particularly as superannuation balances grow over time and we move to a world where many more people will be reliant on their superannuation balances rather than on an age pension, people are becoming actively engaged with the choices they make from the earliest point of their working life. People need to make active choices about what their superannuation will look like and who is in control of it. We need to make sure we put in place a system that, whilst protecting people, offers that maximum choice and flexibility of engagement for all Australians.
Funds will be required to notify individuals affected by these changes, as well as provide ongoing notification to members when their accounts have not received a contribution for six, nine and 12 months. Members who wish to maintain insurance cover on an inactive account can make a written direction to their fund to maintain their insurance cover. Insurance cover will only cease at the end of the period for which premiums have been paid.
Schedule 3 concerns the ATO's lost and unclaimed superannuation money regime. These changes substantially reduce the total of low-balance accounts. It has been a goal, as I said earlier, to encourage consolidation of accounts, to not have people with their money lost in the system somewhere, floating around from a part-time job that they did when they were 18 or 19, or from a temporary job they did while they were travelling. While there is a current regime for transferring lost superannuation balances to the Commissioner of Taxation to protect them from erosion, this regime is triggered by long periods of inactivity—up to five years—before those amounts are transferred. It's not inconceivable that a low-balance account has actually completely eroded over this period of time.
In addition to that, there are numerous exceptions which permit trustees to avoid transferring balances below $6,000 to the ATO. Again, this allows ongoing erosion of those superannuation balances. Schedule 3 of this bill means that, from 1 July this year, inactive accounts below $6,000 and without insurance cover will be protected from further fees and charges by being transferred to the ATO. For the first time, the ATO will also be empowered to return these amounts proactively, along with existing unclaimed superannuation moneys it holds, to an individual's account, provided the combined balance of the consolidated account would exceed $6,000, the member is still alive and the ATO is able to transfer the funds to an identified account.
The ATO estimates that, on average, it will be able to reunify an amount it holds to its rightful owner within months of receiving the funds. Therefore, we will see, again, a lot more money in the superannuation system. Rather than being lost—being disconnected from an individual—it will be returned to the active control of that individual. That must always be the goal of the superannuation system. We force people to make a contribution to their future savings; we ask them to contribute and we must do everything we can to minimise the erosion of those small accounts particularly, and to actively have the individuals involved engaged with their future retirement needs and with their superannuation account balances. We do not want a superannuation system which is set and forget, where people can have a superannuation fund, get disconnected from it and then have another superannuation fund and get disconnected from that as they begin their journey in life.
It's estimated that in the first year of operation, the new system will see $6 billion reunited with the active accounts of around three million Australians. These three million Australians will be recipients by being reconnected to $3 billion of their own money, which is a very important thing in them achieving a level of dignity in retirement and not being reliant on government assistance in retirement.
The reforms will also help individuals who have been forced to hold multiple accounts as a result of restrictions on superannuation choice, restrictions which we have proposed to lift and which the opposition, to date, has refused to support. Currently, lost and unclaimed accounts must be requested from the ATO in writing or through the myGov platform, so we really need to look at these unclaimed accounts and look at ways we can get money back into the pockets of the Australians who have worked very hard for it.
There have been some changes made to this legislation, and I think it's important that the government has listened to concerns that were raised by industry and by individual senators—particularly around individuals in dangerous occupations, who are likely to benefit from default insurance in superannuation as they may face barriers to accessing insurance elsewhere.