Paul Fletcher (Bradfield, Liberal Party) Share this | Hansard source

by leave—I am pleased to rise to make some comments in relation to the minority report on the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012. This report, along with the majority report to which the chair of the committee has just referred, concerns a bill which forms part of the third tranche of legislation which purports to implement a recommendation of the Cooper review into Australia's superannuation system. The stated objective is to introduce a new low-cost superannuation product, known as MySuper, as a replacement for existing default superannuation fund products.

The minority report focuses on two principal recommendations. Firstly, the government should withdraw this bill pending further consultation across the superannuation industry to address the serious flaws that were identified in this inquiry. Secondly, should the government insist on proceeding with the bill in its current flawed form, it should at least amend the bill to, first of all, ensure that a member who has previously exercised a choice of fund, even if that choice happens to be for an option which is the default investment option of that fund, cannot be automatically transferred into a MySuper product by having his or her previous contributions defined as an 'accrued default amount'. That is the first amendment we recommend. The second amendment we recommend is one which will ensure that any product which qualifies as a MySuper product is able to compete freely in the default superannuation fund market.

I would like to take a moment to explain the thinking behind these two recommendations and, in doing so, make two principal points about what the dissenting report has highlighted. Firstly, the so-called consultation which has occurred in relation to this bill has been manifestly inadequate and is part of a truly terrible process. Secondly, I want to focus just for a moment on the provisions in the bill which mandate members' funds being transferred into a MySuper product and will have the effect, if they are not amended, that an active choice which Australians may have already made in respect of their superannuation will be overridden by government fiat if this bill passes into law.

Let me turn, firstly, to the terrible process we have seen in relation to a bill which is more than 100 pages long and which makes fundamental and controversial changes to Australia's superannuation system. Extraordinarily, the government has exempted the most contentious changes in this legislation from its own basic regulatory impact assessment requirements. Unfortunately, this committee process has been inadequate, rushed and truncated. Ms Michelle Levy of the Superannuation Committee of the Law Council of Australia had this to say to the committee:

I will spend one minute on process. We, the committee—

and she is referring there to the Superannuation Committee of the Law Council of Australia—

spend a lot of time trying to prepare careful responses to legislation and often the time period—and I know it is not just for us; it is for everybody—is just too short. It is not possible to prepare a well-reasoned and thought-through submission in a week. For the trustee obligations bill the submission timetable was shorter than the period within which the committee was meant to release its report. I suppose people have a lack of confidence in the system given this timing.

Specifically the consultation process in this case included a mere half a day of hearings, with witnesses limited to just 30 minutes for each organisation. Worse still, committee members have had only a couple of days in which to assess the very complex evidence presented and to draft reports. It is unfortunate that this rushed and inadequate process has been forced upon the committee by the actions of the government members of the committee.

Let me turn, secondly, to the essence of the provisions in schedule 6 of the bill which sets out the requirement that existing member balances in superannuation funds are to be transferred into a MySuper product. There were two principal concerns which were raised by a wide range of witnesses. The first concern is that the bill casts a very wide net as to which existing member balances held in existing superannuation funds will be required to be transferred into a MySuper product. Under proposed section 20B of the Superannuation Industry (Supervision) Act there is a new definition of 'accrued default amount'. It is that definition which determines which moneys of a member must be transferred into a MySuper product.

The first limb of that definition is relatively straightforward. It is an amount in respect of which the member has not exercised an investment choice. But the second limb is highly controversial because it extends to any amounts held in the default investment option of a superannuation fund. Critically, this limb will apply even if the member of the fund has made an active choice of that particular option.

All that is required for this definition to be engaged is that the option happens to be one which is also labelled as the default option of that fund. So members who believe, correctly, that they have made an active choice are to be deemed by this legislation as not having done so, and therefore their balance will be automatically moved into a MySuper product which may have a very different allocation of risk assets than they have chosen, which may compromise the continuity of their insurance cover and which may have other unforeseen consequences. All that is to happen because of the expansive drafting of the kinds of funds which are captured.

The second concern that was raised by many witnesses is that the way this bill operates is through an opt-out mechanism—that is, all so-called accrued default amounts will be automatically transferred into a MySuper account unless the member actively responds in writing within a designated 90-day period to a notification from the trustee which says, 'We are about to move your funds into a different kind of product, not the kind of product you are presently in.' The consequence will be that if members happen to overlook that communication—and we all know how easy it is to overlook the regular and extensive communications we all receive from our financial institutions—they will have their moneys compulsorily transferred into a MySuper product, even when they have actively exercised a conscious choice to be in the particular product that they are presently in. This means that many Australians who have exercised an active choice are going to have that choice overridden.

It also means that the effect of this legislation will be considerably broader than what was proposed or contemplated by the Cooper review and considerably broader than had previously been disclosed in prior ministerial statements. In fact, I think it can be argued that this is a quite deceptive approach. It is certainly an approach that, if taken by a private sector company seeking to implement by a change to its terms and conditions in its contract with a customer, would attract the scrutiny of the ACCC. That is the nature of what is occurring here.

It is very important to point out that a major not-for-profit fund, First State Super, with $32 billion in funds under management and more than 770,000 members, raised these very concerns in their submission to the inquiry. They are concerned about the risk of member claims against the fund where members have previously made and lodged an explicit instruction. They say:

… the Fund believes there is increased risk of a claim against the Fund in the event of a future change to these members' investment options, counter to their explicit instructions and acknowledgement.

They go on to note their concern that automatic movement of balances where members have not made an explicit choice will confuse members and they will 'not respond favourably' to the changes. First State Super had this to say:

First State Super considers it more appropriate that the legislation allow for recognition of members who have made a full or partial investment choice, regardless of whether the investment option is also a default / MySuper option, continue to be treated as Choice members.

I want to highlight this point. First State Super is not a retail fund, yet the majority report claims, at paragraph 4.5, that there are two perspectives on this bill. One is the perspective of the retail funds and one is the perspective of the industry and public sector funds. As the submission I have just quoted demonstrates, that is wrong. It is simplistic to say that there is one perspective from one segment of the industry and another perspective from another segment of the industry. That is a clear piece of evidence that a fund which is not a retail fund is very much emphasising the concerns which coalition members have drawn attention to in our dissenting report.

There are many other concerns that we have which are highlighted in the dissenting report. I close by reiterating our core recommendation, which is that this bill ought to be withdrawn to allow for further engagement with the industry and, if it is not withdrawn, at the very least there must be significant amendments made.

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