Tim Watts (Gellibrand, Australian Labor Party) Share this | Hansard source

I rise to oppose the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. At its core, this bill is proof that nothing has changed amongst those opposite. The Liberals may have overthrown their former Prime Minister, but bills like this show that the underlying fundamentals of the government, the rotten policies that caused the public unrest that triggered the spilling of the Prime Minister, remain. This bill is ideologically driven. I noted the comments of the previous speaker, repeatedly emphasising that what is really important amongst super fund board members is not who they represent or what their background is but their capacity, skills and experience. It is the skills and expertise that board members bring, not their representation or their background. But that is not what this bill is about. This bill does not require specific skillsets or expertise. It prohibits certain classes of people from forming a component of boards.

This bill is really all about dismantling the government's model of the highest performing superannuation funds in Australia: industry funds. So many Australians choose industry funds to save for their retirement. The Superannuation Legislation Amendment (Trustee Governance) Bill makes amendments to the Superannuation Industry (Supervision) Act to require trustees of registrable superannuation entities to have a minimum of one third independent directors and an independent chair on their boards. Schedule 2 amends the Governance of Australian Government Superannuation Schemes Act. It will restructure the trustee board for the Australian government's main civilian and military superannuation schemes, the Commonwealth Superannuation Corporation board, to comply with these new governance requirements. The bill seeks to amend the definition of 'independent' in a way that all but denies employee representation on industry boards within that definition. This is specifically the case with independence of association from trade unions, where a trustee would not be eligible if they had had an association with a trade union within the last three years. Further, the bill proposes a process whereby the Australian Potential Regulation Authority, APRA, can assess whether a person is independent, regardless of the definition and regardless of whether an individual has met that statutory definition.

The small print on what constitutes an 'independent' person muddies the waters even more. The pages of this bill that seek to characterise what it is to be independent make one thing clear: this bill wants to eliminate from their boards officials of trade unions representing people who invest in these funds. From a corporate governance perspective, 'independent' traditionally refers to independence from the management of the company. This bill changes that. For industry funds, third, the common trustee framework is for there to be an equal number of employer and union appointed members. This does not mean that so-called 'independent' trustees are not eligible to join these boards. In fact, a review of industry funds shows that around half of the major industry funds have at least one independent trustee on their boards.

The equal representation between employers and employees is a strong and effective governance arrangement that promotes transparency, accountability and appropriate risk management. This bill would seek to remove this central pillar of industry super governance and replace it with an inferior model. The bill is not proposing the replacement of the fifty-fifty split with a third, a third, a third model—one third of boards being made up of independent trustees; rather, the government is proposing that the boards be made up of at least a third independent appointees and then nothing. There are no mandated levels of employer and employee representatives. We have strongly opposed the repealing of the guarantee of employer and employee representation, a governance structure that has worked well for decades. Contrary to the proposed aim of this bill, removing these employee voices from super boards will weaken accountability and transparency.

Industry super funds are run as not-for-profits, meaning that they are run solely to benefit members. They were created in the 1980s to protect workers' superannuation from the high-fee and commission funds that were originally set up to cater for white-collar workers' retirement. Industry super funds do not pay commissions to their staff or financial advisers or planners. They are designed and structured to benefit members. The boards of representative trustees are generally required to make decisions by a two-thirds majority, making them risk averse. There is a particular regard and reverence for workers' retirement savings that comes strongly through the trade union movement. When you have worked your life as a representative and, indeed, as a trustee of the interests of workers, you learn a very healthy respect for that money. The boards of industry super funds are generally considered to be more focused on long-term growth, investing large amounts in infrastructure and long-term investments and benefiting their members indirectly through sustained economic growth as well.

Their governance structures mandate boards that have both employer and employee representation. This is in contrast to retail funds, which, unlike industry funds, use superannuation funds to create profit, which is then returned to their shareholders, not the fund members. While they regularly make significant profits, that money benefits shareholders and not necessarily the fund members. Indeed, over the last 10 years the average retail super fund has delivered $16,000 less to their members than the average industry super fund, despite their often significant profits. They are able to make significant profits because they are inherently more speculative than industry funds.

The chief economist for Industry Super Australia, Stephen Anthony, argues that the culture of deep and long-term investment in infrastructure, brought on by the representative governance models of industry super funds, has had a positive and lasting impact on the economy. Stephen Anthony cites APRA statistics from March this year saying that industry super funds held an average seven per cent of their investments in infrastructure, and 20 per cent in unlisted equities overall, compared to one per cent in infrastructure and three per cent in unlisted equities overall for retail funds.

In 2014, the McKell Institute released a report titled The success of representative governance on superannuation boards. This report found that the available evidence shows a strong relationship between non-for-profit governance and a higher return for members. A 2012 Productivity Commission report into default superannuation funds found:

… 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.

Contrary to what the government is suggesting, and contrary to what those opposite are suggesting in their contributions in this chamber, there is already stringent governance oversight of all superannuation funds. In 2013, under the then Labor government, governance obligations were introduced requiring all funds to regularly evaluate, through a third party, the effectiveness of their board and directors. This includes disclosures of conflicts of interest, and ensuring directors are fit and able to adequately make the decisions that are expected of them.

The prudential regulator, APRA, has significant enforcement powers to ensure these governance practices are enforced. APRA also has the power to set and supervise the funds to ensure they meet the financial promises they keep. To ensure directors meet the skills and have the experience to make informed decisions, APRA funds are required to report on the makeup of their boards. This is the nub of what the previous speaker was talking about. But this bill does not go to that. It fixes a non-existent problem.

Currently, boards are also required to conduct ongoing performance reviews. These requirements, many set or updated in 2013, should be given further time to be fully bedded down and implemented. They should also be reviewed to assess their effectiveness, before we introduce another change in legislation.

The bill wants to give further, unprecedented powers to APRA, including the ability to determine whether or not a person is sufficiently independent, even after they have met the statutory definition. In short, this bill is about ideology, not evidence. It is huge government overreach and it is aimed at reducing employee and union voices in super funds. That is the only objective of this legislation.

In Australia, at June 2015, superannuation assets totalled just over $2 trillion. It is a staggering amount of money, which must be carefully managed. However, this bill does nothing to enforce stricter standards amongst directors, only to mandate quotas that will see qualified and capable people prevented from joining super funds because of their background. If the government were serious about implementing stricter standards for trustees, this would be a very different conversation. However, removing employee and employer representation on boards does not constitute a change in behaviour, only an attempt to weaken representation.

Independence is a method of achieving good governance, not an end in itself. Currently, the ends are higher returns and trustees who act in the interests of fund members. These objectives clearly are being met at present. This government cannot be trusted to make decisions about superannuation, because deep down the Liberals simply do not believe in it and do not value it. The last two Liberal prime ministers distained superannuation. John Howard infamously called it a 'job killer'. Tony Abbott called it 'one of the biggest con jobs ever foisted by government on the Australian people'. Last year, the now former Treasurer announced that the scheduled increase of the compulsory superannuation contribution from nine to 12 per cent would have to be postponed, blaming Labor for failing to allow them to keep their election commitments. They also scrapped the low-income superannuation contribution, a policy targeted at helping the lowest earners in Australia save for their retirement. A similar story can be told about the Howard government, which, after less than six months in office, scrapped the proposed increase in compulsory superannuation from nine to 12 per cent, after running on it as an election promise.

The bill also goes against the mantra of those opposite about red tape reduction. We know this government talks a good game on red tape reduction—we have all seen the cuttingredtape.gov.au marketing site set up by the member for Kooyong. It is a bizarre site—now much neglected and little updated—where the little red line of efficiency savings continues to rise every time the government changes the word 'facsimile' to 'fax' in the next round of legislation, but never seems to move backwards every time this government implements regulations that imposes direct costs on industries and businesses.

The bill will add more regulatory burden to industry super funds. The government has already admitted that this added regulatory burden will cost $8.5 million in start-up costs and a further $12.3 million in ongoing costs annually. There will be increased remuneration costs associated with the new governance requirements, as well as other significant costs, including search and engagement costs and legal costs. These costs will have to be absorbed by fund members.

Industry super is a low-cost, low-fee super option. Enforcing costly regulations will have a direct impact of less money for people when they retire. The bill does not come close to meeting its proposed objectives. It is inappropriately heavy handed, forcing a 'one size fits all' approach, regardless of a respective fund's business model or membership. Our super system intentionally provides for alternative governance models, which has delivered undeniable benefits for competition since their implementation.

Industry super funds are popular because they have both employer and employee representation on their boards. It is a system that has worked for decades. It does not make sense to abandon the industry fund model of equal representation when it has worked so well for so long. The bill does not try to implement an additional quota of so-called 'independent' positions on boards, but plans to replace equal representation with a third 'independent', and then leave the rest to open slather. It could have disastrous consequences for industry funds, and for competition in general.

APRA cannot interfere in a bank like the government is proposing it can interfere in industry super funds. Giving power to an authority to decide whether a person is independent even if they comply under the statutory definitions really reveals the government's true intent here. Superannuation trustees are already regulated by corporations law, financial services law, state and territory trustee laws and superannuation industry statutes.

The new Prime Minister told the Australian people that things would be different, but this legislation was proposed, written and prosecuted by the former Prime Minister. It has the former Prime Minister's ideological obsessions written all over it, and its continuation in this parliament gives us a glimpse into the real member for Wentworth—someone who is just as keen to prosecute similar ideological attacks on the union movement as his predecessor.

This is bad legislation—plain and simple. The bill calls for the arbitrary application of government intervention, the removal of employee and employer representation, and illogical quotas. It will do nothing to influence the behaviour or competence of board members; it will only weaken employee representation. People who hoped that a change in leadership would see an end to the government's agenda will be saddened by the Prime Minister's decision to continue with the policies of his predecessor and the prioritisation of short-term ideological objectives over long-term gain for everyday Australian workers. Of the top 50 performing super funds, 19 are industry super funds and only two are retail funds. Of the bottom 50, seven are industry funds and 40 are retail funds.

The facts are there for everyone to see. This is just another coalition attack on not only the trade union movement but the retirement savings of all Australians. That is why Labor will oppose it.

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