Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Hansard source

Thank you for this opportunity to speak on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. Superannuation is a subject that I have long held an interest in, and I am pleased now to be able to represent this policy area from our side of the House.

The government tries to claim that this bill is about improving the performance and accountability of superannuation funds, but in actual fact the bill represents nothing more than a change to our superannuation system, which is badly motivated, ideologically driven and unwarranted.

I have personally the greatest respect for the retail funds and the banks, but it is an observable fact that the industry super funds are among the most successful and highest-performing funds in the sector year on year. I think it is important when we debate these important issues that we do not descend into two warring tribes—the retail funds on one side; the industry funds on the other—replicated in this House and in the other chamber. It is important that we deal in the facts.

I am just as interested in the academic and independent analysis of this situation as I am in either side of the argument. I am interested in Ian Ramsay from Melbourne university who said:

Skills, expertise, and experience were more relevant criteria than 'independence' per se.

I am interested in Sam Wylie from the Melbourne Business School who said:

The industry fund sector as a whole has been well governed and has delivered tremendous value to its members .

I am interested in what Fiona Reynolds had to say from the Australian Institute of Superannuation Trustees. She said:

We think there should be flexibility in the system that allows you to appoint independents if you want, but you are not forced to.

The sad reality here is that the government is attacking a model that works. It is seeking to dismantle industry super funds' successful representative model of governance, which has seen them have higher returns for their members who retire more comfortably as a result—and that is the most important thing. In other words, as my colleague the member for McMahon said, they are proposing a solution to a problem that does not exist.

This ideological crusade was started by the member for Kooyong in his time as Assistant Treasurer, and it has been disappointing to see the new Assistant Treasurer continue in this way. Labor will support policies that make our superannuation system stronger, fairer and more sustainable. This bill will achieve none of those goals. For this reason, as my colleagues have indicated, we will be opposing this bill in its entirety. We call on other members—particularly, those on the crossbench in the other place—to support the representative model for industry super funds as well, because it works.

Members here know that Australia's superannuation system is the envy of the world—not just a proud Labor achievement but a proud national achievement. The total assets of Australian superannuation funds, as my colleague on the other side of the House mentioned, are more than $2 trillion as at the end of June this year. This was a 9.9 per cent increase on the same time last year.

Millions of Australians will rely on these funds to fully or partially finance their retirements. This fact alone is enough for us to take the issue of superannuation governance very seriously. We must ensure that our superannuation funds continue to perform and provide for Australian people as they entire retirement.

That is why we already have very strong regulatory oversight of superannuation funds by APRA. APRA has the power to set and enforce prudential standards for superannuation funds. They have set minimum foundations for good governance of superannuation entities, requirements for super funds to make sure that directors are fit and proper and manage conflicts of interest effectively.

The existing prudential standards are relatively new, having come into effect from July 2013. Importantly, super funds are required to continuously report on the composition of their boards, and whether boards and directors have the required mix of expertise and skills—something that both sides can agree is important. These regulatory requirements are what APRA has determined to be appropriate for superannuation funds to ensure good governance, and we strongly support their efforts and these measures.

Most industry super funds go above and beyond APRA's regulatory measures. In addition, the Superannuation Industry (Supervision) Act 1993 requires super funds to have equal representation of employer and employee groups among their trustees, or to have a policy committee comprising equal numbers of employer and member representatives. That is the so-called representative model.

Many analysts point to the representative model of super fund governance as one of the key factors of the success of our superannuation system. Funds with representative directors perform substantially better than retail funds, as I have said. That is a fact that cannot be disputed by anyone in this debate. By the numbers, the average performance of industry funds for the year was 10.2 per cent compared to 9.6 per cent for retail funds. Industry funds are also more likely to change asset allocations more often and put more money into unlisted investments like infrastructure—another welcome practice.

According to APRA, in March this year industry funds had six per cent of their funds in unlisted equity, seven per cent in infrastructure and seven per cent in unlisted property. In comparison, retail funds had three per cent in unlisted equity, one per cent in infrastructure and two per cent in unlisted property.

One of the main reasons given for this disparity is that representative industry funds' trustees are more likely to feel obliged to their members to get the best possible returns. The representative model has been proven a success for Australian industry funds, and there has been no cause to make substantial changes to the model.

The government has proposed changes which will radically change the face of the Australian superannuation system. There are a few key components of the government's amendments. Others have dealt with them in detail; I will mention them briefly: one-third of super boards must fit their definition of an 'independent director'; the chair must be independent; the equal representation requirement has been entirely removed; and they have introduced an 'if not, why not' disclosure of majority independent directors.

As I said, we will be opposing all of these amendments to the act for these five reasons: one, there is no evidence in favour of independent directors; two, the current representative model is working well, as I said; three, there are governance safeguards in place already; four, the proposed changes are overly prescriptive; and, five, the amendments will cost millions of dollars for fund members.

When it comes to no evidence for independence, the government has not been able to stack up the claim that maintaining independent directors on not-for-profit superannuation funds would improve fund performance. A study looking at the governance and performance of APRA-regulated funds found no evidence that board independence and chairman independence affect that performance.

Empirical research on American public pension funds indicates that the proportion of outside trustees on the board has no significant relationship with funds' excess outperformance. The government have just asserted that independent directors are better. They have made an ideological case but not a case based on fact or observation or in the best interests of the members of the funds, which should be our main concern. They have not provided evidence in their speeches or in the explanatory memorandum that these changes are necessary.

That is because, as I said before, the representative model is working. This is a solution to a problem that does not exist. Of Chant West's top 10 performing superannuation funds for the last financial year, eight of them were not-for-profit funds. These are under attack. The Grattan Institute found that not-for-profit funds have lower fees and higher returns across a variety of investment options. There is so much evidence of this. The McKell Institute found a direct relationship between the representative boards—the model that is being attacked—and higher returns. Why would we legislate to ban a model that is working for the Australian people?

There are already substantial safeguards and regulations in place in the hands of the good people at APRA. Superannuation fund members are already protected by a system of APRA regulation. APRA have the power to intervene where they do not believe that a super fund has the ability or willingness to rectify serious weaknesses. They have the power to suspend or remove a director of a superannuation fund. There is just no reason to mandate a fixed regulatory structure when APRA already have the power to intervene when there are issues.

These changes are overly prescriptive. They do not take into account the differences between superannuation funds. They do not give superannuation funds the ability to determine the ways that best fit their model and their members. Super funds are not all the same. They should not necessarily be treated in the same way either.

Governance experts around the world agree that there are a complex set of factors that determine what makes up a good board. In 2012, the Productivity Commission said in their report on default superannuation funds in modern awards that there is 'a lack of compelling evidence to suggest that any one model of board structure should be viewed as clearly preferable in all cases'. Those opposite come in here and quote the PC to us all the time. This is the Productivity Commission saying that there is no evidence that one type of board structure is better than another in all cases.

On top of that, a whole lot of qualified and experienced people could be disqualified from being independent directors under the government's model. For instance, directors would be unable to serve on the boards of wholly owned subsidiaries of super funds, even where the subsidiary is established only to serve the interests of the fund and for the profit of members. No employee or employee representatives will be able to serve as a chair of a board at all, even when they are the most qualified and suitable person for the job. That is not just a thing about employee representatives but about employers as well. They will be disqualified, even if they are the best for the job. This bill seeks to make radical changes to the superannuation legislation which deprive APRA and individual funds the right to determine the suitability of boards.

Finally, the changes will be costly. The amendments to the superannuation legislation will be costly for governments but also for the individual members of a superannuation fund. The explanatory memorandum to the bill suggests that these measures will cost government $8.5 million in start-up costs and a further $12.3 million in ongoing costs annually. These costs understate the real impact that the amendments will have on the broader superannuation sector. Immediately after this legislation is in force there will be costs associated with finding new directors, including search costs, due diligence, induction and training. Industry data has also found that the premium for independent chairs, which is something like $41,000 on average, is 70 per cent higher than for representative chairs, averaging something like $24,000. These salary costs could be even higher, with some professional directors currently on the boards of retail funds being paid in excess of $100,000.

Industry Super Australia has calculated that the director churn resulting from the government's new rules for super boards, if they get up, could be up to S168 million. These costs will have to be borne by fund members, meaning the changes will cost the retirement funds of average Australians. Average Australians out there in Middle Australia should not have to pay higher fees on their super because of this government's ideological bent against representative super funds.

As I said, this side of the House will be opposing the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. The representative model used by industry super funds today is part of what makes them the largest and most successful funds around the world and in a superannuation system that is, as I said, the envy of the world. It was an economic policy creation and innovation of the Australian people that was proudly made by the Australian Labor Party, which represented them at the time and represents them now. We are proud of this creation. We should be looking for ways to make it stronger, fairer and more sustainable, not conducting this kind of ideological crusade that says that anything that involves employee and employer organisations working together is somehow bad.

This legislation is badly motivated and poorly designed. We want to make policy. We want to work with anyone who wants to work with us to make the superannuation system better and not with people who want to divide and diminish it, with the ultimate costs being worn by the Australian people. The bill fails to acknowledge the real differences between super funds and their ability to determine their own governance procedures in the interest of members, under the watchful eye of APRA. Labor is taking the view on this issue, 'If it ain't broke, don't fix it.'

Mr Fletcher interjecting—

The cranky member for Bradfield sits at the table and makes our arguments for us, as so many others on that side have made our arguments for us. Every time he looks up from his comics and opens his mouth he reveals what this is. It is just a cranky, ideological crusade by a government that are a leopard that has not changed its spots. They are still the same as they were before their leadership changed hands. They still have the same policy to diminish super in this country and to use the Australian government in the House of Representatives to conduct this ideological crusade. My message to the government is that the ideological crusade that they are pursuing should be ditched. They should own up to the evidence that the representative super model is working and does not need to be changed. (Time expired)

Debate interrupted.

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