John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

The Superannuation Legislation Amendment (Trustee Board and Other Measures) (Consequential Amendments) Bill 2008, currently before the Senate, has been the subject of a lot of delay before today’s very brief debate. The bill does have the support of the opposition Liberal, National and Country Liberal parties.

The bill indeed has a very wide coverage. For example, schedule 1 of the bill covers something like 27 Commonwealth acts that make reference to the previous CSS and PSS boards which effectively recognise the Australian Reward Investment Alliance and replace references to the previous boards with the new name, Australian Reward Investment Alliance, or ARIA.

I need to put the Superannuation Legislation Amendment (Trustee Board and Other Measures) (Consequential Amendments) Bill 2008 into a time perspective. For example, on 1 July 2005 the Public Sector Superannuation Accumulation Plan was introduced. This bill makes certain amendments to that legislation. Then, on 1 July 2006, there was established a single superannuation board, named the Australian Reward Investment Alliance, to administer the Commonwealth Superannuation Scheme, the CSS; the Public Sector Superannuation Scheme, the PSS; and, finally, the PSSap, which is essentially an accumulation fund. The bill before us today sees the introduction of a new regime for managing legislative instruments provided for under the Legislative Instruments Act 2003, known as the LI Act. The bill ensures the use of ordinary time earnings, sometimes referred to as OTE, to calculate the employer superannuation guarantee. This matter essentially has only academic interest, because the earnings base for a long time for Commonwealth sector funds has always related to ordinary time earnings.

An interesting measure of the bill is the proposal to remove the requirement that interest determinations be gazetted. Website listing is of course a much more efficient and practical approach than gazettal, when members seek to get information about their investments. I would also like to signal that there are some interesting aspects of the manner in which ARIA makes its periodic determinations of interest on investment earnings that are credited or, in the event of a downturn, debited to members’ accounts. This is a matter that I will take up in other forums. But it does raise questions that I will take up with APRA to ensure there is consistency amongst superannuation funds in crediting members’ accounts with income earned.

The schedules and amendments ensure that ARIA, the Australian Reward Investment Alliance, is not only the trustee body and board but also the management authority and, according to the bill, is the appropriate body to issue certificates for the Commonwealth commissioners and authorities, where the employee member retires on grounds of physical or mental incapacity. It covers a diverse range of people such as—and this is not an inclusive list—the Director of Public Prosecutions, the Australian Building and Construction Commissioner, the Australian Radiation Protection and Nuclear Safety Agency, APRA members, the CEO of the Australian Film Commission, Australian Federal Police employees, the Auditor-General, the Registrar of the AAT and the CEO of the Family Court.

I would like to take a few minutes of the Senate’s time to speak about ARIA’s management and its transparency. I remind the Senate that, at the last Senate estimates hearings, I raised issues about scrip lending. Scrip lending can be engaged in by bodies such as hedge funds. It appears that ARIA has permitted its custodian to engage in such activities. In fact it raised something like $889,000 of income during 2007. You may say it is good for members to get such income, and the Chairman of ASIC indicated that there is nothing illegal in such practices, but I remind the Senate that there is still an ethical issue—whether it is ethical for the board to allow the lending of scrip, which essentially belongs to members, to hedge funds and other people, so we can get a sort of short-selling operation. I raise this issue, because those assets really belong to approximately 156,000 federal public servants and approximately 52,000 uniformed members of the Australian Army, Navy and Air Force. Such activity is not illegal. In times of rising stock exchange values you could say that it is good for the exchange because scrip-lending activities increase the volume of activity, but I remind the Senate that in times of a decreasing or a falling market the practice can be absolutely devastating and can lead to a high degree of instability, which we have seen in recent times. In fact, the super fund Equiticorp had falling share prices caused by short-selling and has now discontinued its own short-selling arrangements.

Trustees of ARIA might say, ‘Yes, it’s good that we can get some investment income,’ but is it good for members who are pulling out of a fund at a time when the market is low because of instability created by short-selling, scrip lending and other sorts of activities which ARIA has supported? No doubt some people have experienced diminished payouts. The extent of the impact the practices of ARIA might have had on market valuations could never be determined. I remind the Senate that highly ethical investment companies, such as the Australian Foundation Investment Company, completely prohibit this practice of scrip lending, and they are far bigger than the ARIA investments.

I put to the Senate and to the members of ARIA and their board: please consider some of the ethical issues as well as the potential to get investment income from your practices. I also call on you to provide greater transparency and disclosure to your members and to ensure that members are confident that you have adequate policies in place and that members are told of policies to cover such interests as rights to dividends on scrip lending, because in the absence of disclosure problems can arise. I will conclude on that note. I issue this challenge on ethical grounds to the board of ARIA to look at their policies to ensure complete transparency and disclosure and to ensure that such practices cannot contribute to instability in the market which can lead to members, on retirement, getting less than the full value of their investment. I thank the Senate and I commend the bill to the Senate.

Penny Wong (SA, Australian Labor Party, Minister for Climate Change and Water) Share this | Link to this | Hansard source

As the Senate is aware, the main purpose of this legislation is to update a range of legislation as a consequence of other legislative changes. I thank senators for their contribution to the debate.

Question agreed to.

Bill read a second time.