Wednesday, 13 September 2006
Superannuation Legislation Amendment (Superannuation Safety and Other Measures) Bill 2005
Debate resumed from 7 September, on motion by Senator Minchin:
That this bill be now read a second time.
upon which Senator Stephens had moved by way of an amendment:
At the end of the motion, add “but the Senate:
- notes that:
- given Australian workers and their families are:
- not provided with full compensation in the event of theft and fraud from a superannuation fund, and
- not provided with compensation for the loss of statutory 9 per cent superannuation guarantee contributions in the event of employer insolvency under the General Employee Entitlements Redundancy Scheme (GEERS), even though GEERS does pay other statutory entitlements such as unpaid wages, accrued annual leave, long service leave, pay in lieu of notice and up to 16 weeks redundancy entitlement, and
- given that superannuation is compulsory, long-term and for retirement; and therefore
The Public Sector Superannuation Scheme, often referred to as the PSS, and the Commonwealth Superannuation Scheme, known as the CSS, provide superannuation services and products to employees of the Australian government and other participating employers. The CSS was established on 1 July 1976 and closed to new members on 1 July 1990. On the other hand, the PSS was established on 1 July 1990 and closed to new members on 30 June 2005. A new fund, the PSS Accumulation Plan, known as PSSAP, commenced operating on 1 July 2005.
The main purpose of this amendment bill, the Superannuation Legislation Amendment (Superannuation Safety and Other Measures) Bill 2005, currently before the Senate is to ensure that the operation of these two schemes, the PSS and the CSS, are consistent with the requirements of the Superannuation Industry Supervision Act of 1993, commonly referred to as the SIS Act. The requirements of that act that concern this bill are those which concern the fitness and propriety standards for superannuation fund trusts and their members, and those providing for reduced reliance on acting members of the board, and for the use of proxies at board meetings to match the standards in the private sector.
The bill will also allow what is now the ARIA board to delegate certain functions to its staff, broadens the type of information that can be provided to members via their employers, allows negative crediting rates to be applied to amounts held in the CSS and authorises certain payments made incorrectly to a small number of CSS members. So it is virtually aligning it with the practice in the private sector.
I note, by way of interest, that, whilst the explanatory memorandum to the bill refers to the CSS and PSS boards, the situation really has changed somewhat because, since that memorandum was written, the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006 has taken effect, from 1 July this year. The previous structure of one board managing the CSS and another board managing the PSS and PSSap created duplications. But, under the new structure of one board, named ARIA, the superannuation arrangements for Australian government employees would not have been sustainable or cost-effective in the long term.
So, we have the merger between the Australian Reward Investment Alliance, that is the new board, a simplified, sustainable and more effective governance structure. The ARIA board is now required to provide information to members under other acts. I also note that the ARIA board has a lot of very experienced people; for example, Chairman Susan Doyle, Winsome Hall, a former member of parliament David Connoly AM, Joy Palmer, Des Moore, Graham Rogers and Peter Feltham. They have between them formidable experience, and I have every confidence in their ability.
The bill will provide for the appointment of acting members to the Commonwealth Superannuation Scheme to comply with the Superannuation Industry (Supervision) Act 1993. The bill allows the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme boards—now the ARIA board—to delegate certain functions to staff and it also broadens the type of information that can be provided to members via their employers.
The amendments will require that substantive and acting appointments to the Commonwealth Superannuation Scheme board do not contravene the Superannuation Industry (Supervision) Act 1993 fitness and propriety operating standards. The bill will also provide that the Minister for Finance and Administration may terminate the appointment of any board member who does not meet that standard. These amendments will place the same obligations on the ARIA board as for other trustees of superannuation funds in relation to having to comply with fitness and propriety requirements.
An interesting case came from Tasmania, where, not so long ago, a marketing manager, a Mr Sonny Azzopardi, was dismissed by the industry fund Tasplan—a highly respected and performing industry fund—because of a theft by him from a former employer, the Tasmanian Chamber of Commerce and Industry. And this action was given the nod by the regulator, APRA. This highlights that trustees and directors of superannuation schemes have to maintain higher standards of propriety than even operate in the private sector boards of public companies in Australia.
The proposed amendments enable members of the ARIA board to participate in meetings even when overseas and to vote and disclose conflicts of interest at board meetings through proxies. New section 27N(4A) also provides that the appointment of the proxy is to be in writing and signed by the appointing member. New section 27N(4B) provides that the proxy is not entitled to vote on behalf of the member on a proposed decision unless there is an instrument of proxy appointment which sets out the terms of the proposed decision and indicates whether the appointing member is in favour of or against the proposed decision. The proxy member votes on the proposed decision in accordance with the indication in that instrument.
The bill also makes amendments to the Superannuation Act of 1976 and the Superannuation Act of 1990 to broaden the type of information that can be provided to a scheme member via their employer, provided that this would not breach the Corporations Act 2001 or any other act. Item 23 will amend section 42A(1)(a)(ii) to allow the ARIA board to request a designated employer to provide to a member of the Public Sector Superannuation Scheme any information required to be provided by the Public Sector Superannuation Scheme board to a member under any act. Schedule 2 of this bill provides for amendments to the 1976 act which will allow a negative crediting rate to be applied to Commonwealth Superannuation Scheme member accounts. This initiative has the effect that members will now bear investment risk relating to their account balances, as I believe is appropriate. It will also provide the ARIA board with a greater capacity to equitably distribute earnings between those members who leave the scheme and those who stay.
As you would know, Mr Acting Deputy President, previously the CSS board’s investment policy included a reserving mechanism, an unusual arrangement which gave effect to the legislative requirement that members not exit the CSS with less than what they have contributed even when investment performance has been below zero. Reserves were limited to no more than five per cent of the CSS’s assets and were used to smooth annual returns. If the value of the reserves was not sufficient to offset completely any negative investment returns then, because the CSS board could not determine a negative interest rate for members, a negative reserve was actually created. This negative reserve was replenished out of future earnings. This was a very convoluted arrangement. Because the CSS is no longer determining annual crediting rates but is instead allocating members their share of the fund’s assets when they leave—which is very appropriate—the CSS may have a notional balance which represents unallocated earnings. This balance is invested in exactly the same way it would be if allocated to members, and members can then earn a return on the balance in exactly the same way they would if it was allocated to them. The effect is that the members bear the investment risk.
Schedule 3 of the bill also provides for amendments to the 1976 act. This schedule will rectify the situation where a group of Commonwealth Superannuation Scheme members have received benefits in breach of superannuation laws. They were deferred benefit members who had ceased contributory membership by joining an alternative superannuation arrangement offered by their employer. After they had reached preservation age they received payment of the benefits without meeting certain conditions such as terminating their employment or reaching the age of 65 as required. The amendments in this bill will effectively validate these payments. The bill also provides for necessary technical amendments as a consequence of the government’s reforms on the safety of superannuation as well as providing the changes to facilitate the application of negative interest rates to the Commonwealth Superannuation Scheme.
I turn now to superannuation safety. I am reminded that there was an attempt to steal $150 million over an extended weekend break late on a Friday afternoon in 2003 involving overseas bank accounts. Fortunately the attempted fraud was detected quickly through a vigilant custodian, JP Morgan. Fortunately no member benefits were lost. It took some time for charges to be laid but last year six men were charged over the attempted fraud after an 18-month international investigation by the AFP. Of the $150 million stolen, $147 million has been recovered by the AFP. This issue essentially involved transaction between the board, the custodian and the perpetrators. I must emphasise that no members’ money was actually lost.
I am surprised that it has taken so long to bring these people to justice. What has happened since August 2005? Obviously these people were left out on bail. I think it is in the public interest, now that these people have been charged, that there is some debate and discussion, because there was a significant sum of money involved. I think APRA have a responsibility to warn other trustees of the sorts of activities that could lead to these sorts of losses. It also illustrates the need for trustees to have in place mechanisms and procedures to discourage fraud. I am surprised that APRA have not been a little more up-front in sending circulars warning other trustee companies about the potential risks which may occur in terms of communications. So what actually happened? The fraudsters had a very good knowledge of how the transfer of funds processes worked. I understand, and we have been assured, that there has been a certain upgrading of communications and IT platforms to strengthen the framework against fraud. That is to be commended. In conclusion, I trust that APRA are now in a position to issue upgraded instructions to all other boards and trustees in terms of their communications with their custodians who hold the assets. I commend this bill to the Senate.
The Superannuation Legislation Amendment (Superannuation Safety and Other Measures) Bill 2005 will amend the Superannuation Act 1976 in relation to the Commonwealth Superannuation Scheme, the CSS, the Superannuation Act 1990 in relation to the Public Sector Superannuation Scheme, the PSS, and the Superannuation Act 2005 in relation to the Public Sector Superannuation Accumulation Plan, the PSSAP. Following the passage of this legislation, similar amendments will also be made to the PSS Trust Deed and Rules under the Superannuation Act 1990 and the PSSAP Trust Deed under the Superannuation Act 1995.
The bill includes changes required to facilitate the application of negative crediting rates to the CSS, changes to validate the payment of benefits to particular members of the CSS and a number of minor amendments related to the delegation of powers of the trustees and the disclosure of information by those trustees to employers. The bill also includes provision to amend the Superannuation Act 1976 to include certain safety of superannuation reforms in the governing rules of the Commonwealth Superannuation Scheme. These safety of superannuation provisions have already been implemented through the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006, which received royal assent on 9 June 2006. As a consequence, these provisions of the bill are no longer required. Under technical arrangements included in the Superannuation Legislation Amendment (Trustee Board and Other Measures) Bill 2006, sections 1 to 14 and 25 of this bill will be automatically repealed when the bill is passed, so these provisions no longer have any practical effect.
The government is also moving amendments to this bill to change the commencement date of negative crediting provisions. The existing terms of this bill have these provisions commencing on 1 January 2006. As this date has passed, it is important to make this amendment to ensure that all provisions remain prospective. The bill will enable the trustees to allocate negative earnings to members’ accounts. The trustees requested these changes to allow allocation to members of actual fund earnings, including negative earnings, when member investment choice was introduced for relevant members in 2004. This will resolve the inequity where negative earnings are not passed on to members exiting the funds but are deducted from future earnings applicable to remaining members’ accounts.
The bill will also amend the Superannuation Act 1976 to authorise a small number of CSS benefit payments that were incorrectly paid because ComSuper incorrectly informed certain members that they were entitled to claim their benefits. The effect of these changes will be that recovery from these individuals will not be required. The bill will also make a number of other technical amendments to enable trustees to delegate administrative functions to their staff and to broaden the type of information that can be provided to scheme members via their employers, provided this would not breach the Corporations Act 2001 or any other act. I commend the bill to the Senate.
That the amendment (Senator Stephens’s) be agreed to.