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

I am pleased to follow the member for Throsby on this important motion and to pick up one of his closing comments, which is that this is an area which is so important that a bipartisan approach is called for. I note that the report of the Parliamentary Joint Committee on Corporations and Financial Services into the Trio collapse did produce a bipartisan set of recommendations. I do want to comment on his thoughtful motion. I do not agree with this policy recommendation but I want to make three points in the time available to me. First, we can all agree that Trio is a tragedy. Second, I think we should be careful of mis-characterising the role of self-managed superannuation funds. And third, I would like to come briefly to the measure which is contemplated in this motion.

Firstly, I think it is uncontentious that what happened in Trio was a tragedy, $176 million lost. A significant number of my constituents lost money investing through their self-managed superannuation schemes, particularly into the ARP Growth Fund. Because they are self-managed superannuation funds, they are not eligible for compensation, as the member for Throsby said. Quite large balances were lost, on average $700,000 per self-managed super fund investor. It is clear that there was outright fraud and criminality involved in this scandal.

I want to particularly mention Mr Paul Gresham, who subsequently changed his name to Mr Tony Maher, the financial adviser serving the northern suburbs of Sydney, who ripped off a number of my constituents. Some of them trusted him for nearly 20 years. At some point it seems that he went bad. He moved their money from professional pensions PST where it was invested in reputable funds managers like Maple-Brown Abbott, and put it into the ARP Growth Fund. It was then, as the member for Throsby describes, sent offshore and the money subsequently disappeared. It appears Mr Gresham was also involved in the original transaction under which, in 2004, a reputable funds manager in Albury was taken over by what we now know to be a criminal syndicate. This was unambiguously a tragedy. The policy issue we are wrestling with is: what is the right response?

The second thing I would like to come to in the brief time available is we ought to be careful of mis-characterising self-managed superannuation funds. For people who understand the nature of the vehicle, they are, in my view, a very good and flexible vehicle for people to accumulate retirement savings. I think the market evidence suggests that with now over $450 billion of the $1.5 trillion in superannuation in self-managed funds. They offer great flexibility and autonomy, and that I would suggest is why they are growing so rapidly. But people do need to understand the risks that are involved and the fact that, if you take on the responsibility for managing your retirement savings, you are taking on that responsibility. Quite a lot goes with that, including, as the member for Throsby has highlighted, the fact that you do not have the benefit of the provisions in the Superannuation Industry (Supervision) Act which apply to APRA regulated funds in the case of fraud and theft.

I do caution that there are a number of powerful players in the superannuation sector who are not too happy about the quantum of funds which is now moving into self-managed superannuation funds. It suits them to suggest that there is some flaw with the self-managed superannuation fund vehicle. As policymakers, we ought to be very conscious that there is a degree of self-interest involved on the part of some of those who make arguments which might lead to quite onerous regulation applying to self-managed superannuation funds and compromising their effectiveness as a retirement savings vehicle.

What I also think is very important, that we should draw as a conclusion from the Trio collapse, is that our $1.5 trillion superannuation savings pool is a honey pot for international criminals. We must make sure that there is adequate regulatory scrutiny and proactive action to protect against that threat. One conclusion of the committee's investigation in the Trio collapse is that our regulators have perhaps not been as proactive as they ought to be. Recommendation 14 of the report was that the Australian Federal Police should consider the options to create an organisational focus on matters pertaining to superannuation fraud, working in cooperation with the Australian Crime Commission.

Thirdly, let me now turn to the specific measure that the member for Throsby has proposed in his motion this evening. I am going to speak specifically about the wording of the motion, which talks about a member funded compensation scheme for self-managed superannuation scheme investors. I note that in his remarks the member for Thorsby talked about a levy on managed investment schemes. That would actually be a different type of policy measure that would apply to managed investment schemes into which self-managed superannuation funds and other kinds of investors invested. Let me restrict myself to what is described on the face of the motion—that is, the idea that if a particular self-managed superannuation fund loses money due to fraud or theft, then other self-managed superannuation funds should be in some way levied to compensate for that or potentially that there ought to be a levy across the entire sector. I think both of those are potentially contemplated by the kind of language that is in the motion. I certainly acknowledge the genuine policy intent to deal with this serious problem, but I do not think this is the right solution.

Firstly, the whole notion of self-managed superfunds, as I have referred to, is that you choose to take on, as an individual, the responsibility for managing your retirement savings—the pool of funds built up to fund your retirement income—together with the savings of up to four other people, usually members of your close family. That does bring with it greater risks. The policy basis that has applied for the last 20 years or so is that one of the risks is that you do not have the benefit of the last-resort compensation scheme that applies in the case of APRA regulated funds.

Secondly, for people who have consciously chosen to—as it were—go it alone rather than relying upon a professional investment manager, a corollary is that if it goes well you capture the benefits. If it does not go well, you bear the losses. Those are losses from making poor investment choices, as well as losses from fraud and theft. That is not a very palatable message if you do badly—it is quite an attractive message if you do well—but it is inherent in the nature of self-managed superannuation funds. If you do not want to take that risk, and I would argue that the majority of people are probably not well advised to take that risk and are probably not in a good position to do so, then do not choose a self-managed superannuation fund.

The third point I would make is that any such scheme must only be available in extremis, where there has been fraud or theft proven. As the member for Thorsby indicated, one of the real policy challenges in this area is moral hazard. In other words, if there is a last-resort scheme available then people who lose money will have a very strong incentive to take advantage of that scheme and they might also have an incentive to take risks or be less careful than you would be if such a scheme did not exist.

In the case of APRA regulated funds, where such a scheme does exist, the first resort is the professional skills and capacity of the management team which is running the fund into which individual investors have put their money. Therefore, a policy decision that says, 'We will have a last-resort scheme in the case of fraud or theft,' has that initial safeguard that you have a team of professionals managing the money in the first place. In the case of self-managed superfunds, it is by definition a collection of people who do not do this as their main job. This is, in essence, something they are choosing to do for themselves, but they are not generally professional investors.

Therefore, it becomes quite a challenging public policy notion to say, 'You can manage your own affairs, but a corollary of doing that is that you are liable—at least to some extent—if any one of the other several hundred thousand people who are also doing this ends up being defrauded or having money stolen from then. Then, you will have some of your own money taken to fund the compensation to that person.' That is a difficult policy approach.

I do not doubt the good intentions behind the member for Throsby's attempt to grapple with this serious policy problem. It is a problem we should have a continued focus on, but I do not think that the proposed policy solution of a scheme that applies across all SMSFs is a good one. In essence it really undercuts what is the core idea of a self-managed super fund—that you take responsibility with the ups and downs. If that is not something that suits you, you are probably better advised to be in a different investment vehicle.

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