Senate debates

Monday, 19 March 2012

Committees

Corporations and Financial Services Committee; Report

7:31 pm

Photo of Sue BoyceSue Boyce (Queensland, Liberal Party) Share this | | Hansard source

I present the report of the Joint Committee on Corporations and Financial Services on the provisions of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012, including the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

by leave—I move:

That the Senate take note of the report.

On yet another occasion we have a dissenting report from the coalition based on the complete mismanagement of the legislative program and of policy development by this government. This is about the third report that I have been involved in today where the government's own majority report on the bill has comment after comment suggesting that the bill should not be passed in its present form. It is easy to see many of these comments. The government says that, in terms of the liability offences under the bill, it is apparent that the offence at 29WA is incomplete. But where is the recommendation to fix that? There is not one. Many of these requirements suggest a staggered approach to the introduction of the legislation. The comment in the government's majority report was:

Evidence before the committee is highly critical of this staggered approach of introducing the MySuper reforms.

It quotes at length from the Financial Services Council, saying:

Further, subsequent tranches to this legislation may give rise to additional issues with this very bill.

That was one of the two bills. The government first asked for comments on one bill, introduced a second bill and then gave people 10 days to comment on the second bill. There is a third bill which, as all the witnesses pointed out, might yet affect the first bill.

The way this has been conducted is I was going to say a dog's breakfast but it is more a bitzer's breakfast. If you look at the fact that the Minister for Financial Services and Superannuation, Mr Shorten, has recently agreed that the FoFA legislation will be 'voluntary' for the first 12 months, this is some cack-handed way of the government attempting to not accept the view of the opposition, the view of any intelligent practitioner in the field, that there is no point in introducing vast numbers of different types of legislation that affect the investment, the superannuation and the financial advice industry at different times in different ways, especially when they do not know what the effects will be. The report goes on:

In the evidence put by the government members of this committee alone it was evident that the introduction of the MySuper scheme in tranches has resulted in bills that are not self-contained.

It was put to the committee that matters contained in one bill cannot be evaluated on the basis of the provisions in that bill alone. Rather, understanding one concept requires reference to all tranches of the MySuper legislation and this includes the topic of intrafunded advice, which of course was an area where we received a lot of submissions. Once again, you have legislation that does not set out definitions. It sets out to confuse and leave it for the regulations, which this government has yet to even consult on, before the financial services industry, the superannuation industry, will have any certainty in what is happening.

The committee view—and by that I mean the majority government members of the committee in their report, is:

The introduction of the MySuper legislation in numerous tranches in effect asks parliament to pass a segment of an overall policy scheme in reliance on statements by the executive on the final form of the scheme. It is also of concern to the committee that measures in tranches yet to be introduced and apparently still under development …

This is the government members who think apparently they are still under development. The introduction of those tranches and the measures in those tranches will affect the measures in the two bills that are subject to the parliamentary inquiry and are yet to come before this chamber, although they have gone through the House of Representatives. The government report goes on to say that, while the approach taken may not be best practice, it is the most practical. I am sorry for the government members; that is their vague attempt to try and say the way the government has done this is acceptable. It is not acceptable. It has been a typical mishmash of mistaken attempts at implementation. We are currently debating the mineral resources rent tax. There was a further report released today on personally controlled e-health records with the same words from the government's committee. The only thing that is missing from the lines put in this report by the majority of members is the suggestion that they go away and think about this again. And that is certainly what we as a coalition will be suggesting. We have some amendments to suggest. To go ahead with this bill while we are still waiting for the Productivity Commission's report is wrongheaded. It is wrongheadedness based in ignorance, unfortunately, of how the real world operates.

Before I conclude my remarks, I would like to thank the outgoing chair of the Parliamentary Joint Committee on Corporations and Financial Services, Mr Bernie Ripoll, for his good-humoured and intelligent chairing of the committee. I would also like to congratulate Ms Deborah O'Neill on being elected to the position of chair of the committee.

7:39 pm

Photo of Matt ThistlethwaiteMatt Thistlethwaite (NSW, Australian Labor Party) Share this | | Hansard source

The Parliamentary Joint Committee on Corporations and Financial Services report into the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 gives rise to an important element of the government's Stronger Super reform package and is part of the second tranche of major reforms to this country's financial services guidelines and system.

These reforms come about as a result of a comprehensive review that was undertaken by Jeremy Cooper in 2010 into Australia's superannuation system. That review looked at a number of aspects of the administration, efficiency and investment outlook for superannuation in this country. A number of important conclusions of the Cooper review have been taken up by the government and become part of a process of reform to strengthen our superannuation system moving forward. It is not only an important investment and savings vehicle for this country but also important for the futures of millions of working Australians.

One of the striking conclusions and findings of the Cooper review was the fact that, despite compulsory employee superannuation in this country, in many cases there are very low levels of financial literacy when it comes to individual members' superannuation investments. We all know there is a level of disengagement in the wider community regarding superannuation and in particular the individual aspects of a member's portfolio and the services that are available to members of superannuation funds such as insurance.

The committee also found that, for those who do not avail themselves to the choice of superannuation funds and who are not engaged with their own superannuation and retirement incomes and the associated services, there is an inadequate level of protection. Many members of superannuation funds are paying for services that they do not need or that they do not request. In some cases they were paying for services they did not even receive. Given we have such a large and growing pool of investment funds in superannuation—$1.3 trillion and growing—and having created an industry which flourishes on the back of compulsory savings that are mandated by legislation, this government believes it is fair that this industry, which benefits so much from the compulsory saving system in Australia, contributes to higher retirement savings through greater efficiency, lower fees and better information for members of superannuation funds.

This suite of legislation that is the subject of this report will add to the efficiency of the system and in particular to the provision of relevant information for members into the future. The aim of the MySuper legislation was to provide a basic, low-cost default superannuation scheme for those members identified in the Cooper review as disengaged and not availing themselves of the services that are available in respect of their savings. The characteristics of a MySuper product will be a single diversified investment strategy; equal access to options, benefits and facilities for all members; amounts attributed to members in a way that does not stream gains or losses only to some members of the MySuper product; no differences in the extent of fee subsidisation for employees of certain employers if fee subsidisation is allowed by employers; and no limits on the sources or kinds of contributions made by or on behalf of members.

An important aspect of this tranche of legislation is the changes that intend to be legislated with regards to the obligations of trustees and their fiduciary duties to members. Again, these reforms came as a result of the Cooper review. They found the investments of those members in default superannuation funds who were disengaged were particularly vulnerable moving forward. Coopers recommended a greater level of governance and integrity in terms of trustee obligations for those who are in default fund situations. The additional obligations that will be introduced in respect of trustees that offer MySuper products are reflected in the legislation and in this report are to promote the financial interests of MySuper members, to access on an annual basis whether the fund has sufficient assets and members to enable it to continue to promote the financial interest of MySuper members, and to include in the investment strategy for the MySuper product an update on an annual basis of the target investment return and the level of risk for the product. That involves an assessment of the scale of investment in the fund moving forward.

The committee did in its deliberations highlight some concerns with the bills. They relate to a number of issues. Two particular issues were the tailoring of investment options for people and funds that fit within the MySuper stream. The legislation has a definition of a large employer to which tailoring can apply, which is one with more than 500 members. There was some confusion about how that particular obligation would work, and the committee has recommended that the legislation be clarified so that the large employer requirement of 500 or more members needs to be satisfied upon the authorisation of the MySuper product and at the end of each annual reporting period. Related to that is a further recommendation to allow APRA to grant a grace period of up to six months for large employers whose fund members have fallen below the 500-member threshold as part of annual checks. The committee has certainly heard the concerns of the industry in respect of that.

There are a number of comments in the report on trustee obligations. In respect of the scale test and the concerns that have been put to the committee by witnesses and in the opposition senators' report, I draw the attention of the Senate to the comments of Treasury when they appeared before the committee, where they said in evidence that there are some small funds that are not performing well and, in some of those cases, scale may be one of the reasons they are not performing well. This new obligation on trustees will require them to ask the question of whether the issue resulting in underperformance of the fund is scale. We think that that is a sensible approach for people who, in the words of the Cooper review, have a particular vulnerability with respect to their investment and retirement savings.

The bills have the support of the Australian Chamber of Commerce and Industry, the Financial Services Council, the Industry Super Network, all of the superannuation industry funds and a number of players in the industry. They are part of a suite of reforms that will improve financial accountability, integrity and delivery of financial services, particularly for people who are members of default funds moving forward. In that respect, they are reforms that the government is proud of. They are reforms that this Senate should and will support, and I commend the report to the Senate.

7:48 pm

Photo of Mathias CormannMathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | | Hansard source

I want to make a couple of comments on behalf of the coalition in relation to the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 inquiry by the Parliamentary Joint Committee on Corporations and Financial Services. Let me say upfront that, yes, we share the concerns of government members and senators with aspects of this legislation, but we go a little bit further. We support some of the recommendations for amendments that were made by government members and senators of the committee but we think that they do not quite go far enough.

Let me say at the outset that coalition members and senators agree that the default superannuation industry, like the superannuation industry overall, needs reform to enhance competition, transparency and comparability in the system. We recognise and acknowledge, of course, that the objective of the regulatory framework ought to be that the system will maximise retirement savings for Australians with superannuation and, in particular, matters before the Senate hearing in relation to default superannuation. Only the most efficient, the most transparent and the most competitive superannuation system will lead to a circumstance where returns and retirement savings for all Australians with superannuation will be maximised.

Having said that, it is the coalition's view that the current anticompetitive closed-shop arrangements in relation to default superannuation under modern awards must stop with MySuper. The government must use the introduction of MySuper to lock in the important benefits of competition for Australians in default superannuation funds now. The government should not use the current Productivity Commission review, which it finally got around to asking for, as an excuse to do nothing for another year. The current closed-shop anticompetitive arrangements for the selection of default superannuation funds through Fair Work Australia, set up by the Labor Party, are a national disgrace. The current process is not transparent, not competitive, inappropriately favours union dominated industry super funds and should be fixed as soon as possible.

Bill Shorten has been far too slow as minister to act, and it is Australians and default super paying the price for that. Not only did Labor have to be shamed into making a commitment to sort out this situation, which they created themselves, of closed-shop anticompetitive arrangements through a secretive and discredited process through Fair Work Australia, but Bill Shorten also took more than 18 months to start fixing it by the Productivity Commission review to get this process underway. The minister has been more focused on protecting the vested interested interests of his friends in the union movement for as long as he possibly could get away with it than on standing up for the public interest and the interest of Australians in default super.

Coalition members of the Parliamentary Joint Committee on Corporations and Financial Services recommend that any authorised MySuper product should be able to compete freely in the default fund market. Any authorised MySuper product by definition has to comply with the consumer protection requirements enshrined in law by the government. As such, there is no need for an additional, secretive and discredited process to further determine through Fair Work Australia which MySuper products should be included as default funds under various modern awards and which products, for some reason or another, should not be. Only with genuine competition in an efficient and transparent default superannuation market will fund returns and retirement savings for Australians in default super be maximised.

Those are just some of the conclusions that were reached by coalition members of the parliamentary joint committee which inquired into those two bills. The coalition also made a series of other well-considered recommendations to improve the MySuper bills, going beyond the recommendations of government members and senators. These include clarifying the definition of a large employer to be any employer with 500 or more employees and removing the need for individual registration for each tailored MySuper plan. We think that just imposes additional unnecessary red tape and costs. Once a provider has been licensed and registered to provide MySuper products then a reporting and auditing arrangement in relation to any specific tailored MySuper plans at a workplace level would be a more appropriate, more cost-efficient and less administratively burdensome way to go.

We also believe the government should remove the confusing and unnecessary scale test. The government clearly things that trustees of super funds have to be bullied into a position where they recognise that biggest is necessarily best. Biggest in super can be better, because there can be benefits of scale, but biggest is not necessarily better. To impose a very vague and very unclear additional obligation on trustees is not an appropriate way to deal with this particular issue.

We call on APRA to release standards and forms required for the MySuper registration process at least 12 months prior to commencement of the implementation of these provisions. We also call for the provision of a comprehensive definition of intrafund advice in both MySuper and FOFA legislation to ensure such advice is general only and that any personal advice provided through a super fund is paid for by the person accessing the advice, with transparency of fees and without forcing fund members to pay for the personal advice of others which they have not accessed. That is entirely consistent with the requirements the government says it is pursuing through FOFA; but, for some reason, for advice provided by industry super funds to their own members the government seems to believe that hidden fees are appropriate and that it is appropriate to force super fund members to pay for the personal advice of other members even though those members may not have access to that advice. We in the coalition do not think that is appropriate. We think there ought to be a very specific and very narrow definition of what intrafund advice constitutes—narrow in the sense that it should be limited to general advice.

The latest version of the MySuper proposal is an improvement on where the government started. The government started with a highly rigid, one size fits all default MySuper proposal which would have led to great disadvantage for many Australians. In fact, research by Chant West proved that many Australians would have been forced to pay higher fees and that a small drop in fund returns as a result of lower risk profiles, even for those superannuants who paid lower fees, would very quickly wipe out any benefit.

The government still has some way to go, and as an absolute minimum must address the current highly inappropriate, closed job, anticompetitive arrangements for default superannuation as soon as possible. If the government continues to delay actions to fix the highly inappropriate situation it has created it will prove once again that this government is more interested in looking after the best interests of its friends in the union movement rather than focusing on the public interest.

Minister Shorten is the most conflicted Minister for Financial Services and Superannuation in the history of the Commonwealth. He is the minister for unions and the minister for union super funds, and all of the actions that he is taking and all of the actions he is not taking on superannuation are driven by his vested interest in relation to his involvement with union dominated industry super funds. With those few words, I seek leave to continue my remarks.