Wednesday, 16 June 2021
Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020, Treasury Laws Amendment (Your Future, Your Super) Bill 2021; Second Reading
I just want to make a point, first of all, on some comments that were made by Senator Bragg. Isn't it amazing that he had the hide to stand here in this parliament and have a go at the banks? He said the banks are part of the problem, except the Treasury Laws Amendment (Your Future, Your Super) Bill doesn't deal with the retail banks. He says the banks need to be held to account. But this bill doesn't make them accountable. In actual fact, it clearly makes them unaccountable. I describe Senator Bragg as a modern Liberal defender and protector of all things commercial, unless it involves content disagreements with people like the ABC. He disagrees with them. He disagrees with making sure retail super funds are held to account. He is all things commercial whilst he is running a defence line for the retail funds, but look at Senator Bragg's track record. He happily delivered the keynote speech at the 2020 FinTech Awards when the top gong was given to a payday lender, Beforepay, that charges only five per cent to lend up to $200 for a week, the equivalent of a 260 per cent annual interest rate! It says it all, doesn't it?
Senator Bragg touched on the important area of the reverse onus of proof. You don't have to go into all the legal details of reverse onus of proof except to simply say that in the Your Future, Your Super Senate inquiry what was highlight by the department was that the only significant areas where there's reverse onus on proof other than superannuation funds that are not run for profit are Australians accused of being paedophiles overseas. They have a reverse onus overseas. Terrorists have a reverse onus of proof. So now we have industry funds that have some of the most prominent businesses and employer organisations in the country and—heaven forbid!—worker representatives with equal numbers on the board that all now have a reverse onus of proof just like paedophiles and terrorists. Doesn't that say it all about Senator Bragg highlighting that point?
The Morrison government has landed on a strategy for how it can attempt to pass woeful legislation through this parliament. The government serves up an abysmal bill. It's opposed by all corners of the Australian parliament—even by members of the Prime Minister's own coalition. The government is then forced to axe some of the most offensive parts of its bill. And then the Prime Minister sees if he can squeeze through the unpalatable leftovers!
The Morrison government tried to exclude administration fees from performance testing. And the Prime Minister was forced to backflip. The Morrison government served up benchmarking, which would have disincentivised investment in regional Australia. And the Prime Minister was forced to backflip. Then the Morrison government attempted to give the Treasurer the power to cancel any investment by any super fund for any reason. And the Prime Minister was forced to backflip.
I wish I could say that that means the bill before us now is a sensible piece of legislation which addresses the actual issues in the superannuation sector, but it's not. First and foremost, this bill still contains a back door for the Treasurer of the day to create regulation to control what super funds can and can't invest in. They might be able to dupe the National Party, but they certainly can't dupe us. The power was supposed to have been removed from this bill in the House, but, if you read the fine print of the bill on page 30, schedule 3, part 1, section 10, it's all too clear. You'll see that super fund trustees will be forced to comply with any requirements prescribed by the regulation. This is a limitless power for the current Treasurer, and any future Treasurer, to take direct control over super fund investments. I'll come back to the sneaky attempt to back-door these powers a little bit later.
I want to go to the Productivity Commission's 2018 inquiry into superannuation. It found two issues: unintended multiple accounts and entrenched underperformance were costing Australians $3.8 billion each year. Labor wants to address these problems. Industry super funds want to address these problems. Employers want to address these problems. Judging by this bill, the Morrison government doesn't.
This is a bill with a very small constituency, but it's a constituency that is very important to this Prime Minister, and that's the constituency, of course, of the big banks. This is the Prime Minister who voted against a royal commission into banks on 26 separate occasions—the Prime Minister who, as Treasurer, referred to Labor's calls for a royal commission into the banks as 'a populist whinge'. That same Prime Minister has put forward a bill, supported only by the big banks, which leaves Australians worse off in retirement and worse off if they get injured at work.
Now let's examine this bill a little bit more closely. Schedule 1 will staple fund members to a single fund for life. The government is claiming this will address the issue of unintended multiple accounts. But, by not addressing underperformance first, it will mean that three million Australians will be stapled into underperforming funds at exorbitant fees.
And who are the funds with eye-watering fees? Well, fortunately, APRA publishes data on the funds which slug members with the highest fees. And surprise, surprise! Nine of the 10 funds with the highest fees are for-profit retail superfunds—funds like AMP, Suncorp, Aon, Mercer, Colonial First State and Commonwealth Bank, the Prime Minister's old mates, who he worked so hard to protect from the royal commission. These are the sorts of funds that three million Australians will be stapled to if this bill proceeds.
Stapling will also be catastrophic for workers in high-risk industries who depend upon the insurance they receive through their industry super fund—workers like 25-year-old Andrew, who was crushed at work by two glass plates weighing more than 1.6 tonnes and suffered severe spinal injuries. Thanks to his Cbus insurance, he is recovering with the support of a financial safety net. Under this bill, if Andrew had opened his first super fund with his bank, or his hospitality fund, it would be very likely his policy would have explicitly excluded the occupation from coverage. He would've been left with nothing. How is stripping insurance from construction workers, truck drivers and frontline health workers a good policy? How is locking three million Australians into underperforming funds are good policy?
Schedule 2 is supposed to be addressing underperforming funds. Let's see how we go here. Again, this is something that Labor does support, but the actual provisions in this bill are woefully and deliberately inadequate. In 2012 the Gillard Labor government introduced the MySuper reforms. MySuper funds are simple, low-cost superannuation products that are suitable for the vast majority of Australians who do not want to actively manage their super investments. Non-MySuper products are commonly referred to as 'choice' products. If you read the whole way down to page 27 of the Treasury Laws Amendment (Your Future, Your Super) Bill, you'll see that the entire performance test schedule only applies to MySuper funds and some choice funds prescribed by regulation, which we now know from the draft regulations will only be trustee directed choice products. That leaves an entire third of super assets, $5.15 billion in exempt choice funds, excluded from performance testing. That's a $5.15 billion loophole. It's not an accidental loophole. It's intentionally written into the bill and into the regulations. So, why has the government excluded a third of the sector from performance testing? I think I know. Here is a quote from the Productivity Commission's report from its inquiry into superannuation:
… we found that about 36 per cent of choice products—
that's the big retailers—
in our sample, with about 15 per cent of assets, underperformed benchmarks tailored to their own asset allocation (in the 13 years to 2017). Almost all were offered by retail funds. This is likely to be a conservative estimate of underperformance in the whole choice segment …
The Productivity Commission identified that, even by conservative estimates, these exempt choice products consistently underperformed and were almost exclusively retail funds offered by financial services companies like the big banks. So, of course—surprise, surprise, surprise—the Prime Minister who voted against the royal commission 26 times excluded them from performance testing. Here's another quote from the Productivity Commission report, and, again, this is the report the bill is supposed to be implementing:
In the choice segment, poor comparability of products … the charging of fees for no service, the entrenched tail of high-fee products and persistent underperformance by some funds all point to an absence of healthy competition.
So we have retail products that persistently underperform, charge high fees, charge fees for no service, and these are the products that the government has chosen to create a loophole for. I have an article that was published in the Guardian today titled 'Commonwealth Bank reaped superannuation profits even when fund members' balances fell'. Now, I'm sure this headline brings immense pleasure to the 'Senator for Financial Services', Senator Bragg, because the article reads:
Australia's biggest bank, the Commonwealth, reaped more than $1.4bn in profits from superannuation arm Colonial First State over four years that include periods when members of the funds it ran saw their balances shrink or stagnate.
The only part of the statement that would disappoint Senator Bragg and the Prime Minister is that it was only $1.4 billion! Under this bill, when these sorts of funds are exempt from performance testing, it will be easier than ever before for the big banks to milk Australian superannuation accounts dry.
Finally, I'll go to schedule 3. As I said earlier, the government ditched this part of the bill, which explicitly gave the Treasurer the power to kill super fund investments. But, as always with this government, the devil is in the detail. You'll see that the bill changes the wording of one of the covenants in section 52(2)(c) of the Superannuation Industry (Supervision) Act. It omits 'best interests' and substitutes 'best financial interests', so that trustees must perform the trustees' duties and exercise the trustees' powers in the best 'financial' interests of the beneficiaries, and adds 'including complying with any requirements prescribed by the regulations for the purpose of this paragraph.' That gives the Treasurer of the day the power to set seemingly limitless requirements on funds through regulation. That could include what super funds can and can't invest in. I know that the member for New England and the member for Hughes were both particularly vocal in opposition to that power. I'm sure this back door to that same power would be of great concern to senators on all sides of this chamber.
This bill will staple three million Australians into underperforming funds. This bill will strip vital tailored insurance away from workers in high-risk industries. This bill will create a $515 billion loophole for some of the worst-performing, highest-fee retail choice funds to operate outside of performance testing. This bill will create a back door for the very investment powers that were supposed to have been axed in the House. It's a bill that contradicts both the Productivity Commission and the banking royal commission and delivers a big payday for the Prime Minister's mates at the big banks, and it must be opposed.
(Quorum formed )