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

I am very pleased to rise to speak on the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012, a bill which forms part of the third tranche of legislation which purports to implement the recommendations of the Cooper review of Australia's superannuation system. The stated objective of the overall set of arrangements is to introduce a new, low-cost superannuation product, known as MySuper, as a replacement for existing default superannuation fund products. The policy intention is that key elements of the MySuper regulatory framework will be introduced over a series of bills. What the MySuper regulatory framework is supposed to do is to provide for the wide availability of a low-cost superannuation product designed to be suitable, in particular, for those Australians who are not closely engaged with their superannuation.

If that is the broad intention of the legislative scheme and, indeed, of a key provision of this bill, the reality that I want to draw to the attention of the House is that a key aspect of the bill before the House this afternoon is to give effect to the ongoing agenda of the Minister for Financial Services and Superannuation to entrench and strengthen the position of certain parts of the superannuation industry—namely, the industry and public sector funds, which are the funds which typically have a heavy union representation on their board. And that, in turn, will tend to weaken the position of other types of funds, particularly corporate and retail funds, and I will explain why that is.

I should hasten to add that the coalition holds no brief for any particular part of the superannuation sector. What we want to see is a competitive industry and a level playing field, because we believe that that is the best way to deliver the best outcomes for members of superannuation funds, and that should be the overriding policy consideration. It is hard, however—when one looks at the range of measures which have been introduced in the MySuper framework and in other things which have been pursued by the Minister for Financial Services and Superannuation—to overlook the fact that that the minister is a former director of AustralianSuper. So, too, is Senator Cameron a former director of AustralianSuper, as is the member for Charlton. The Labor candidate for the seat of Melbourne in the 2010 election, Ms Cath Bowtell, is also a former director of AustralianSuper, the largest of the industry super funds. I put it to the House that there is very unlikely to be any other economic entity in Australia which has four former directors who are either currently Australian Labor Party members of the federal parliament or who have sought in recent elections to become Australian Labor Party members of the federal parliament.

I want to make three points in the time available to me. Firstly, this bill would introduce provisions which set aside active choices which many, many Australians have made for their superannuation. Secondly, it does so in a stealthy and deceptive way. Thirdly, I want to put to the House that what needs to be done is for schedule 6 of this bill to be deleted or, at the very least, amended—and the opposition has moved amendments to give effect to this view.

Let me turn firstly to the proposition that what this bill does is to set aside active choices which many Australians have made about their superannuation. The key operative provision of this bill that I want to focus upon would have the effect of mandating that if you have put funds into a product which happens to be a default product of your superannuation fund then the relevant provision of this bill will have the effect of overriding an active choice which you may have made in putting your moneys into that default option.

I refer to the provisions in schedule 6 of the bill. These are the provisions which set out the requirement that existing member balances in superannuation funds are to be transferred into a MySuper product. So the context we are talking about is the way that this bill sets out the limits as to the kinds of superannuation holdings of Australians which will be captured by the provisions of the bill, should it pass into law, and which will thereby automatically be moved from the existing product in which those moneys are held and moved into a MySuper product.

The relevant provision is proposed section 20B of the Superannuation Industry (Supervision) Act. This is a section which will be inserted into that act if the bill before the House this afternoon passes into law. That proposed section introduces the new definition of 'accrued default amount', and it is the definition of 'accrued default amount' which determines whether money that you hold in a superannuation fund is required to be transferred into a MySuper product.

The first limb of that definition is relatively straightforward. It is an amount in respect of which you have not exercised an investment choice. The second limb of the definition, however, 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 you, as a member of the superannuation fund, have made an active choice for that particular option.

Let me give an example to make the point clearer. Imagine your superannuation fund has five options, ranging from 'high growth' at one end down to 'capital stable' at the other end. And let us assume that the middle option is called 'balanced'. Let us also assume that it is the policy of that fund that if you make no active choice your money will go into the balanced option. The key point is that the provision of this bill we are speaking about today will operate in respect of any moneys held in the balanced option.

Some of the moneys held in that fund's balanced option will be there because the members of the fund whose money is in a balanced option have not made an active choice. But, in some cases, members will have made an active choice. They will have actively ticked the form and signed it. They will have ticked the form to choose the balanced option. Yet, as a consequence of the provisions in this bill, their choice will now be overridden. Their money will automatically be taken out of the balanced option and will automatically be put into the MySuper product which this fund is now required by law to provide.

The consequence of this is that people who believe, quite correctly, that they have made an active choice for their superannuation product are to be deemed by this legislation as not having made an active choice and, therefore, their balance will be automatically moved into a MySuper product. Why does this matter? It could matter for a host of reasons. The product into which they are moved may have a very different allocation of risk assets than the one they have chosen. Moving their money into the new product may compromise the continuity of their insurance cover under this superannuation scheme. It may compromise the continuity of their life insurance cover, their TPD, their total and permanent disability cover or their income insurance cover. It may expose them to transaction costs and fees as assets are sold and repurchased in the new fund. It may even potentially expose them to paying higher fees in the MySuper product than in the product they happen to be in right now. There may be all kinds of unforeseen consequences as a result of the policy decision this government has taken which we in the opposition fundamentally disagree with to actively override a specific and conscious choice which a fund member has made.

The second point I want to make is that the bill does all of this in a stealthy and deceptive way. It has been drafted in that fashion and, furthermore, the government has conducted itself in relation to this bill in a stealthy and deceptive way. I will turn firstly to the way that the bill has been drafted. It operates through an opt-out mechanism. That means that if your money is captured by the definition of an accrued default amount because it happens to sit in what happens to be the default allocation of that fund your money will automatically be transferred across to a MySuper account unless you actively respond in writing within a designated 90-day period to a notification from the trustee. In other words, the trustee will write to you and say, 'We are about to move your funds into a different kind of product unless you come back to us and tell us not to do that.' As we all know, it is very easy to overlook communications from your financial institutions. All of us receive many of them every month and every year. The consequence of the way this bill is drafted is that, simply by failing to respond within 90 days, you will have your money moved from an account that you have actively chosen into a product you did not choose. Many Australians who have made an active choice are going to have that choice overridden.

I want to emphasise the point that this provision operates with considerably greater breadth than was proposed or contemplated by the Cooper review into superannuation and with greater breadth than was previously disclosed in prior ministerial statements. I put it to the House that, if this approach were taken by a private sector company seeking to change fundamental terms and conditions of its contract with a customer by writing to the customer and saying, 'Unless you come back to us within 90 days, we will automatically make this change,' the Australian Competition and Consumer Commission would be giving very careful scrutiny to what was going on. I and the rest of the opposition think that the drafting approach that has been taken here is not one that can be defended.

The second way in which this bill is sneaky and deceptive relates to the way the government has acted in developing this legislation. There was a truly deficient consultation process through the Parliamentary Joint Committee on Corporations and Financial Services. This is a bill that goes for more than 100 pages and makes fundamental and controversial changes to Australia's superannuation system, yet the total amount of consultation that the government permitted was a mere half-day of hearings with witnesses limited to just 30 minutes for each organisation.

Ms Michelle Levy of the Superannuation Committee of the Law Council of Australia had this to say as she described the work of her committee in responding to the parliamentary inquiry:

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

Unfortunately, this kind of truncated and inadequate consultation process and very, very rushed approach is all too typical of bills brought before the House by the Minister for Financial Services and Superannuation.

I want to highlight one particularly deceptive claim in the report produced by government members of this committee. At paragraph 4.5 the claim is made that there are two perspectives on the bill that the House is debating this afternoon: on one hand, the perspective of the retail funds and, on the other hand, the perspective of the industry and public sector funds. That claim is not right, as is evident from reading the submission made to the committee by a major public sector fund, First State Super, which has $32 billion in funds under management. It safeguards the retirement savings of New South Wales public servants.

Here is what First State Super had to say about the opt-out mechanism I described earlier:

… 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 went on to note their concern that the automatic movement of balances where members have not made an explicit choice will confuse members and said they will 'not respond favourably'. They said:

First State Super considers it more appropriate that the legislation allow for recognition of members who have made a full or partial investment choice …

The third point I want to make very briefly is that this bill is deficient and the only way to solve it is either to expunge schedule 6 completely or to amend it heavily, and we will move amendments that will have that effect.

See this speech in context