Senate debates

Thursday, 14 February 2019

Bills

Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018; Second Reading

1:01 pm

Photo of Deborah O'NeillDeborah O'Neill (NSW, Australian Labor Party, Shadow Assistant Minister for Innovation) Share this | | Hansard source

I rise to make a contribution for the Labor Party—the party that believed in superannuation, the party that delivered superannuation for Australia and the only party that continues to prioritise protection of the benefits of superannuation for all Australians.

Labor will support the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. Labor is the architect of Australia's compulsory superannuation system. The Labor movement created super, and all of the increases in the superannuation guarantee were proposed and legislated by Labor. Labor introduced the low-income superannuation tax offset. Labor set up the Small Business Superannuation Clearing House and SuperStream. Labor created MySuper.

In contrast, for the past five years the Liberal government have done nothing—nothing!—to strengthen our superannuation system. They focused on attacking industry super funds, and more recently, distracted from that purpose, they've decided to attack themselves. They failed the millions of Australians who have been denied their retirement savings. This government have no desire to show up for work; they're a part-time government. They also have no desire to crackdown on unpaid super or dodgy employers. In fact, they want to reward them with an amnesty.

According to the Productivity Commission, in the default market alone about five million members' super accounts and $270 billion in assets are in underperforming funds. One of the biggest factors in underperformance is fees. High fees matter because they reduce members' returns and, ultimately, members' retirement incomes, and that matters to Labor. We know that fees are the biggest drain on long-term net returns across funds. Even a fee of just a small number, when you look at it at face value, of 0.5 percentage points higher, can cost a typical full-time worker up to $100,000 by the time they reach retirement. The Productivity Commission has also found that funds which charge higher fees typically do not deliver better net returns to members over time. Underperforming super funds—high-fee funds with poor returns—are not protecting members' best interests.

The bill before us today implements measures announced in the 2018-19 budget to protect members' superannuation savings from erosion. It does it in a number of ways: firstly, by limiting fees so that low-balance savings can grow and are protected from disproportionately high fees. It also saves erosion of superannuation by banning exit fees to remove a barrier to account consolidation. Further, it ensures that arrangements for insurance in superannuation are appropriate so that members are not paying for insurance cover they don't know about, or premiums that inappropriately erode their retirement savings. And, further, the legislation before us today strengthens the Australian Taxation Office's role in reuniting small, inactive balances to reduce the cost to members and to consolidate the accounts of members that have accrued multiple superannuation accounts.

We support the objective of this bill, which is doing the right thing in principle in that it's seeking to protect members' superannuation savings from erosion by fees and charges, but there are significant gaps in the government's proposal, which Labor will be seeking to address through amendments to the bill. We are deeply concerned about the blunt removal of default insurance for large groups of Australians. In its current form, the bill risks leaving younger members and low-income earners, predominantly women, without adequate insurance cover. Labor is the architect of Australia's compulsory superannuation system. We will always fight to protect it and strengthen it. That is the purpose of the amendments we will move today as this bill moves through the Senate.

We are pleased to see that this bill finally got a listing, even in the extraordinary circumstances of the reordering of business that's occurred here today. We will be supporting this bill and seeking to strengthen it. The Australian Labor Party, who stood up for in the establishment of superannuation and continues to stand up for ordinary hardworking people today, commits to protecting workers' superannuation and reuniting them with their superannuation faster.

1:06 pm

Photo of Jane HumeJane Hume (Victoria, Liberal Party) Share this | | Hansard source

I rise today to speak on the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. It is a very special honour and pleasure for me to speak about superannuation because I do feel like I come to this place with a level of both experience and authority in this particular area. I worked in superannuation for almost all of my professional career before coming to the Senate, both in retail and industry superannuation funds, which I think gives me quite a unique perspective on superannuation and its intricacies, complexities and vagaries.

On top of that, I have another interesting circumstance, which is that I started my professional career in 1992, which, of course, is the first year that superannuation was introduced in Australia. So I have actually had superannuation throughout my entire career. Yet the superannuation industry—all $2.7 trillion of it—is not yet a mature industry, because it has had that step-up in the percentage of superannuation guarantee between 1992 and where it is now. It started at two per cent, and now it's at 9.5 per cent. But it really won't be until people who are starting work now, and are getting their 9.5 per cent superannuation guarantee now, retire in 45 or so years time that, I think, is probably when we can actually call this industry mature. That's an extraordinary assertion, because with $2.7 trillion under management, that actually makes superannuation larger than Australia's GDP. It's an extraordinary claim and one of the reasons why superannuation in Australia potentially is considered the envy of the world. Our superannuation system is often called the envy of the world. I would actually go so far as to say that that is not, in fact, the case. Yes, it is a very important industry. Yes, it is quite a successful one. But I think we need to go back to superannuation's origins to understand exactly how it came about.

I heard Senator O'Neill say that this was a Labor introduction. Absolutely, it was a Labor introduction. In fact, if you cast your mind back to 1992, it was Paul Keating who initiated compulsory superannuation in Australia. But don't think that it came from an entirely altruistic place. At that stage the budget was in terrible strife, yet the union movement was putting undue pressure on the Labor Party to give a pay rise to unions, particularly to public sector unions. There was an unholy accord, for want of a better expression, between Bill Kelty and Paul Keating back in about 1991 when they decided to introduce compulsory superannuation, rather than a pay rise, for the unionised workforces. Two per cent would be added to people's salaries, but it would be withheld until they retired. That way people could get a pay rise, but it wasn't inflationary, so it didn't necessarily have a detrimental effect on the economy. Everybody was happy. That was, everybody except for the employers who had to pay that two per cent. Of course, it was very hard for employers. They weren't going to take money out of people's salaries to withhold and quarantine for 40 years, so they had to pay an additional two per cent.

That compulsory superannuation system actually put a lot of people out of work. That's ancient history. However, we should understand that the legacies of superannuation have actually been compounded and bandaided over so many decades that what we have now is a highly imperfect system. It is certainly not the envy of the world, as we like to say, but it is compulsory. So what we say now is that essentially we are going to quarantine nearly $1 in $10 of everybody's salaries. The government say we have to. If the government say that we are going to compulsorily take away nearly $1 in $10 out of your salaries, we as a government are also then morally bound to ensure your money is invested properly. It's not just properly; it has to be invested cost-efficiently and productively.

The objective of superannuation is to save enough so that you have an income in retirement that can either supplement or substitute the age pension. That is the objective of superannuation, according to David Murray, the author of the Financial System Inquiry. So, with that objective in mind, what can we do to ensure that Australians' money is saved and invested cost-efficiently, appropriately and productively? We saw just recently the Productivity Commission come out with some extraordinarily compelling evidence about the structural flaws in our superannuation system that are costing members dearly. They are: entrenched underperforming funds; unintended multiple accounts; unreasonable free structures; and unnecessary insurance. Just by eliminating those entrenched underperformers and multiple accounts, a 55-year-old today could earn an extra $79,000 in their retirement. That's an amazing amount—$79,000. That's potentially one or two years of tax-free income for a retiree. More importantly, though, if we just got rid of the multiple accounts, someone under 25 today could earn an additional half a million dollars towards their retirement. That would certainly make for a far more comfortable retirement.

This is evidence enough that reform is absolutely imperative. However, what we have seen in commentary from both industry and Labor is that any reform is not without its ideological hurdles as we make our way through the chicanes of vested interest. Inevitably, there is vested interest in the superannuation industry, particularly from the Labor Party. The Labor Party is in an unholy alliance with the union movement and the industry superannuation movement. So it's not ever going to be something easy to reform.

However, from a government perspective, the more people that we have who can adequately fund themselves in retirement, the lower the tax burden will be on future generations. This is particularly important. If I were 25 years old today and I heard that if my money were effectively invested I could have half a million dollars towards my retirement and, if the system were more efficient, I would have a lower tax burden throughout my working life, I would think that was an absolute no-brainer. However, there is a problem. That is that it's very rare to find a 25-year-old who has their eyes on their retirement. We have something called financial myopia—a short-sightedness where we can't imagine what we will be like at that age. So it's hard to make the most optimal decision at that age for life ahead. For that reason, it is the responsibility of government to be, essentially, the custodian of future generations' standard of living. That's why we take that role particularly seriously. That's why we include a fair tax system that respects hard work and policies that create growth and opportunities in competition and choice for the future.

But we also have to have an honest discussion about who the superannuation system serves. The most important person it serves is the superannuant, the investor, the end user. It's not the providers. It's not the industry superannuation funds that I used to work for or the retail funds. It's no-one else. It is the end user we have to stand up for.

Let's have a look at this package that the government has put together on protecting our superannuation. This important package came out of considerable consultation with industry, and it also went through the Senate Economics Legislation Committee, of which I am chair. I can walk you through some of the discussions and recommendations that that committee had. The most important aspects of this legislation are threefold. Before I get to that, can I say that the Protecting Your Super package will result in millions of Australians saving billions of dollars in fees and charges and a reduction of unnecessarily duplicated accounts. It will ultimately mean more money in retirement for those members. In particular, though, the package will benefit women, who on average retire with a significantly lower balance than men. Hopefully the plan of the game is to make sure that it is much easier for women to build their superannuation.

Let me take you through a couple of issues that have come up in the discussions about this particular bill. There was some concern about removing superannuation for under 25s. This is a sensible idea. The problem at the moment is that accounts for under-25s are being eaten up by insurance premiums. Poor under-25s, particularly those who have multiple accounts. They have life insurance and TPD insurance and income protection insurance, but the premiums that get charged every year eat up their low balances. So by the time they go to consolidate their balances there's hardly any superannuation. It takes longer for them to save superannuation because of the eating away by fees and charges, particularly insurance premiums.

What we've done is we've said that we will make insurance and superannuation optional—opt in—for people under 25. They don't have to have it. If they feel they need it they can have it, but on a default basis they don't get it automatically. There was some concern that there are a number of under-25s that are potentially in dangerous occupations. That was where some of the push-back came. But those individuals can always opt in if they are in a dangerous occupation. It's up to the superannuation fund to speak to their members and ask them whether they think that insurance is appropriate for them. Deciding what a dangerous occupation is is quite an interesting decision in itself. If you're a window cleaner, is that a dangerous occupation? It's not if you're only doing windows at ground level, but if you're doing windows on the 25th floor it is. If you are a construction worker, is that a dangerous occupation? Potentially it is, but it depends what type of construction work you do. Who is it up to to decide what is a dangerous occupation and what isn't? There are also some dangerous occupations that are white-collar, as well, so that does make for a level of confusion.

Senator Ruston interjecting

For instance a politician, I hear my colleague saying. The most important thing is that it's not up to us to define what a dangerous occupation is; it's up to the individual to work out whether they need insurance or not. At the moment, though, what is happening is that young people, because it is a group insurance policy, are subsidising the insurance of older Australians. There's nothing fair about that.

The other thing this legislation does is limit fees in superannuation. At the moment, if you change superannuation funds—if you decide to move from one fund to another—there might be exit fees on the way through. More importantly, there are exorbitant administration fees charged all over superannuation. This legislation limits the extent of fees charged on superannuation, to make sure your savings are being managed cost-effectively and most productively.

Of course, the other thing—I think this is the most important part—is to get rid of those multiple accounts. We want to see consolidation of accounts throughout the entire industry. Apparently there are literally millions of inactive or duplicate accounts out there. As the Productivity Commission has pointed out, to get rid of those multiple accounts would make the industry so much more productive. There is a disincentive, however, for the funds themselves to get rid of multiple accounts. If you are charging fees on each one of those accounts, the more accounts you have as a provider, the more money you make, which is why we've had to drag the industry kicking and screaming along to the reforms to encourage them to get rid of multiple accounts. I have worked for one firm, AustralianSuper, which actually got rid of its own multiple accounts. It has so many customers. It had some of its own customers with multiple accounts. That's terrific. That's fine. But what we want to do is get rid of multiple accounts across the industry. So, if you've got an AustralianSuper account, a Hostplus account and a Colonial First State account, the ATO will do the consolidation for you. It will identify those funds that are multiple and it will consolidate them on your behalf so that you don't have any inactive funds being whittled away by unnecessary fees and charges. Those are the three main objectives of this legislation.

According to the latest data, the changes that we're making to insurance will allow an estimated five million Australians who have paid a combined $3 billion in insurance premiums an opportunity to choose whether they will be covered rather than paying for it by default. That is particularly important. You can see how many Australians this legislation affects. Why have we picked the age of 25 for insurance rather than the age of 21 or not under 21? The change to default insurance to new members under 25 was chosen as an appropriate threshold for opt-in insurance based on the claims data. We went to the insurers and found out who was claiming for what. It showed that only one per cent of members aged 25 or under claimed on their insurance within a given year—one per cent. There is an actuarial firm called Rice Warner, and they have done some analysis on this as well. Their analysis has shown that some members under the age of 25 are paying over 300 per cent of their true premium for death, life insurance and TPD cover. In addition, the Productivity Commission has noted in its superannuation report that people under 25 generally have far less need for insurance. This is reflected in the decision, as I think I've told you, of AustralianSuper's superannuation fund—my old employer, who have got rid of their own multiple accounts—to make insurance opt-in for under 25s from November last year.

Accounts that aren't receiving superannuation contributions are at the most risk of erosion from insurance premiums. These are called 'inactive accounts'. Inactive accounts can be eroded all the way down to zero at the moment simply for premiums for cover that members don't know they have or can't actually claim on. Not receiving the contributions suggests that the member has either a duplicate account or isn't, in fact, working, which has implications for insurance eligibility. So you can find that, even though you've been paying for this insurance all this time, if something goes wrong, you can't claim on it anyway. What an extraordinary waste of money, particularly for the young. Why should members continue to pay indefinitely for insurance that they can't use? Moreover, the insurance measures for inactive accounts ensure that the consolidation regime that we have planned for the ATO is more effective and can be realised immediately.

When money is held by the ATO, it doesn't necessarily accrue interest. There has been some criticism that, potentially throughout the consolidation process, members might be worse off as opposed to keeping it in their superannuation funds where they would earn a return. That's not necessarily so. The ATO is quite clearly the best body placed to protect and consolidate loss in unplanned superannuation, because, unlike other industry participants, it has absolutely no vested interest in the process. It has no interest other than to ensure that people are reunited with their own money as quickly as possible. It should be quite a quick process. The ATO estimates that once it receives an amount for which its data matching has identified an inactive account that can receive the amount, it would take less than a month to transfer it from one inactive superannuation fund to an active one. In addition to that, the government has amended the bill to require the ATO to reunite amounts where possible within 28 days—so, under a month. While the money is held with the ATO, the important issue is that it's not charged fees and it will also receive indexation at CPI levels. That's a safeguard that wouldn't be bestowed on an amount that was in a fund, where, in fact, it could go backwards. The Productivity Commission's report into superannuation found that fees and insurance premiums charged by funds on unintended multiple accounts are the key driver to the erosion of funds and of retirement incomes.

I should also mention the inactivity period. What is the definition of inactivity? It is in fact 16 months. We originally said it was going to be 13 months. The original period of 13 months was chosen to provide a balance between the amount of time that account balances are subject to erosion through fees while held up in multiple rather than consolidated accounts. The Productivity Commission's recommendation and the Superannuation Voluntary Code of Practice both feature 13 months of inactivity; however, the government has heard concerns that 13 months might not help women on maternity leave, in particular. Multiple accounts are a widespread problem; many Australians are shocked to find their nest-egg eroded. This bill will most of all benefit young members, members with low balances, low income earners and members with multiple accounts. That is in the best interests of so many Australians. We must never forget that the most important foundation stone of superannuation is that your superannuation is in fact your money.

1:26 pm

Rex Patrick (SA, Centre Alliance) Share this | | Hansard source

I'm pleased to contribute to the debate on the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. The bill contains a number of measures designed to ensure members do not have their superannuation balances unnecessarily eroded. These are measures that Centre Alliance supports. The bill prevents trustees of superannuation funds charging certain fees and costs exceeding three per cent of the balance of MySuper or choice products annually, where the balance of the account is below $6,000. It also prevents trustees from providing opt-out insurance to new members aged under 25, members with balances below $6,000 and members with inactive MySuper or choice accounts unless the member has directed otherwise. Importantly, the bill also requires the transfer of all superannuation savings with a balance below $6,000 to the Commissioner of Taxation if an account related to MySuper or choice product has been inactive for a continuous period of 13 months. It enables the commissioner to consolidate accounts that have been paid as unclaimed money, inactive low-balance accounts and lost-member accounts into an active superannuation account where the reunited balance would be greater than $6,000.

The erosion of super accounts is a significant problem with long-term consequences. Multiple accounts and default measures are a structural problem and a problem that this bill intends to address. According to the Productivity Commission's report, over a third of all super accounts are unintended multiples, an unintended but problematic consequence of the current default arrangement. The Productivity Commission estimated that there are approximately 10 million unintended multiple accounts, which cost members $1.9 billion a year in excess insurance premiums and $690 million in excess administration fees. These are staggering numbers.

I note the bill has in-principle support from various stakeholders, with most criticism being levelled at the scope and application of the changes to the default insurance. The Bills Digest sets out some of the concerns raised by stakeholders, including Industry Super Australia, the ACTU, AIAA, TAL and Rice Warner. Some of these concerns include potential negative unintended consequences such as young people being underinsured, given people under the age of 25 are not likely to opt in; low-balance account holders who are still making insurance contributions and still have insurance needs being opted out; and people who work in high-risk occupations finding it difficult to obtain appropriate measures of insurance, because superannuation funds may be the only option for these people. Whilst I acknowledge these concerns, the bigger concern for me is the impact that the current default insurance arrangement has on people's retirement savings.

The erosion of members' balances through unnecessary fees, insurance premiums, delayed and unpaid superannuation, trailing commissions and suboptimal tax management was examined in detail by the Productivity Commission. As I mentioned earlier, the Productivity Commission found that unintended multiple accounts cost members $2.6 billion a year—that's what it costs the members. This is made up of $1.9 billion in excess insurance premiums and, as I said before, $690 million in excess administration fees. That's around $7 million a day being siphoned from workers' accounts to banks, super funds and insurance companies for pretty much nothing, certainly no benefit to the worker.

I would like to place on record my disappointment at the obstacles the Senate has had to overcome in order to pass this bill. It is clear that the status quo is indefensible. While the crossbench battle with amendments and intense lobbying in relation to the opt-out insurance charges—changes that are beneficial for the bulk of young workers—insurance companies are quite happily skimming millions of dollars in premiums.

Superannuation funds aren't innocent bystanders in all of this. They are raking in administration fees from unintended multiple accounts. Ironically, the funds are prohibited from charging different fees based on the account balance of the members, demonstrating why this bill needs to pass. I've seen analysis that shows that the 30 biggest superannuation funds in Australia are raking in $587 million in administration and investment fees from around 6.3 million accounts that have a balance of less than $6,000. That's a scandal. The figures are worth repeating: over six million accounts that have a balance of less than $6,000 are being charged over $587 million a year in fees. But wait—there's more! Of this, $405 million in fees is being deducted from the 4.6 million accounts that have a balance of less than $1,000 every year. That's an effective fee rate of over eight per cent across the 30 funds.

Not surprisingly, some of the worst offenders are retail funds. IOOF has around 77,000 accounts with a balance below $1,000 and collects approximately $10 million in fees from those accounts each year. With administration fees of $117 and 0.35 per cent of the account balance per annum, plus indirect costs of 0.74 per cent, you are left with an effective fee rate of over 12 per cent for an account with a balance of $1,000. Then we have AMP, which has around 1.1 million accounts with a balance below $1,000 and collects approximately $111 million in fees from those accounts each year. With administration fees of $90.84 and 0.29 per cent per annum, plus investment fees and indirect costs of 0.72 per cent, you are left with an effective rate of around 10 per cent for an account with a balance of less than $1,000.

Industry and not-for-profit funds aren't immune to collecting exorbitant administration fees from low-balance accounts either. Rest holds around 400,000 accounts with a balance below $1,000 and collects approximately $30 million in fees from those accounts each year. That's $30 million that could be in workers' superannuation funds. With administration fees of $67.60 and 0.1 per cent per annum, plus investment fees and indirect costs of 0.76 per cent, you are left with an effective rate of around 7.5 per cent for an account balance of $1,000. Hostplus holds around 278,000 workers' accounts with a balance below $1,000 and collects approximately $24 million in fees from those accounts each year—for some pleasure, I guess. With administration fees of $78 per annum, plus investment fees and indirect costs of 0.1 per cent, you are left with an effective rate of around 8.8 per cent for an account with a balance of $1,000.

I note the schedule relating to fee caps has the broad support of the industry, but I think it's most important to highlight just how much has been gouged from members' accounts that have low balances, and how much will continue to be gouged if this bill does not pass. Delaying this bill sends a message that it's okay for members to have their accounts raided with exorbitant fees and unnecessary insurance premiums. The reason for the delay is a change to the default opt-out insurance arrangements, arrangements that insurance companies and superannuation companies have been benefitting from quite comfortably since 2013. Schedule 2 is the most contentious part of the bill, but in my view it is not so contentious that it should be holding up the passage of the bill.

Insurance and superannuation dates back to the 1950s and has gradually changed to the arrangements we now have. The current default arrangements were introduced by the Labor government in 2013 following the Cooper review in 2010. The end result was a mandatory requirement for funds to provide life and TPD insurance on an opt-out basis in all MySuper products. The Productivity Commissioner found that these arrangements have led to 'a litany of problems, which is in part evidenced by insurance matters accounting for over a third of member complaints against superannuation funds'. Issues include a lack of awareness that insurance is included in superannuation—the kind of stealth operation I used to conduct on submarines; you do things and no-one knows what you're doing, except, unfortunately, the worker loses. Issues also include complexity and lack of comparability of insurance products, excessive balance erosion, and account proliferation resulting in many members holding multiple insurance policies, some of which they would be ineligible to claim against

I want to put on the record that I recognise the benefit of having insurance inside of superannuation, including on a default opt-out basis. However, default opt-out insurance must provide value for money for all members; not just a particular cohort. Inappropriate cross-subsidisation, not enough funds tailoring their insurance and multiple accounts are some of the factors that contribute to workers, especially young and low-income workers, not getting value for money from their insurance. Claims that the proposed changes to default insurance would lead to large increases in insurance premiums strongly suggest that young workers and those who have inactive accounts or small balances are cross-subsidising everyone else. I'm not convinced that a healthy, non-smoking 23-year-old female worker should be cross-subsidising a 53-year-old overweight male who smokes a pack of cigarettes a day, but apparently that's how insurance is meant to work.

As the Productivity Commissioner correctly pointed out, automatic life insurance cover for young members without dependants is difficult to justify. The Productivity Commissioner also made a draft finding that the younger members and those with intermittent labour force attachment—groups which commonly have lower incomes—are more likely to have policies of low or no value to them. I acknowledge that the Insurance in Superannuation Working Group has been proactive in developing a code of practice, and I welcome this as a first step, but it falls short of what is needed to effectively deal with deficiencies in the current arrangements for insurance in superannuation. The draft that was released for consultation in 2017 was substantially watered down and is no longer intended to be binding and enforceable. The code does not go far enough, and I'm sceptical that it ever will.

This is why legislative intervention is necessary. While the funds and insurance companies point to case studies where a worker aged under the age of 25 was injured and would not have been covered were it not for their insurance, it is important to remember that this is not a common occurrence. Default opt-out insurance should be designed with the majority, not the minority, in mind. This is exactly what AustralianSuper have done. And I think they sum it up best on their website:

We're changing the starting age that basic cover is automatically provided because we believe members under the age of 25 are at greater risk of super balance erosion—and generally have lesser insurance needs.

That's because younger members are less likely to have children or other dependants or significant debt. They generally have lower super balances and working patterns may be casual or part time. There is also the likelihood that younger members will earn significantly lower salaries than older members.

We believe that younger members may be better served by devoting all of their super savings to their retirement and having the option to apply for cover if they need it.

I think that sums it up well.

1:40 pm

Photo of Slade BrockmanSlade Brockman (WA, Liberal Party) Share this | | Hansard source

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.