Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Hansard source

I am keen to take up the invitation from my esteemed colleague opposite, the member for Fisher, to look at some of the issues around, in particular, independent directors on superannuation boards. I do want to make some other remarks in this debate on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, but, given that the member has extended the invitation to talk about this, I will. When you look at this issue of the value of having independents, you have to put it in the context of the broader reform process, as you call it, that has been launched in this space by this government about the way in which super funds are governed.

If for a moment we had evidence that by changing the ratio of representation on the boards of superannuation funds there would be a distinct lift in return rates or an improvement in the performance of these funds, then I would be all ears to receive that evidence. If there was proof that the post-retirement incomes of those superannuants would be improved by this reform, I would be very keen to see it. But the fact is that there has not been much evidence of that. I have no issue with us having independents on superannuation boards. My issue is that this reform process is not evidence based, that the evidence itself is very light on and that this is more reflective of an ideological determination to not have a particular group of people sit on superannuation boards at the same representation level that they currently do, and that group of people is union officials. That is basically the argument. What is driving this is not evidence; it is ideology. That is a problem for me and it is a problem for others on our side. This is not about improving governance in a way that will reflect in the rate at which the investments held in superannuation funds for the benefit of members will be improved.

This is all about ideology. If you look at it on the evidence, on the basis of facts, the numbers do not lie: industry super is much stronger in performing its job than are retail funds. That is not seeking in any way to besmirch or undermine the value of retail funds or self-managed superannuation funds by any stretch. But, as the saying goes, if something ain't broke, then don't fix it. And the fix here is claiming to improve the way in which these funds are run by putting more independents on. The existence of more independent directors will not of itself improve the running of those funds. There is nothing there to say that. That relies purely on a numerical reflection of the number of independents on a board. There is nothing in this that will improve the quality of decision making by the independents on that board or in fact by the entire board. There is nothing to say that when you put these people on they will, by virtue of their very existence, change the way in which decisions are made on those funds and therefore lift the return rates. There is none of that here.

It will not achieve its stated goal of improving super fund governance. Rather than focusing on the behaviour or the skills of those directors, it will just basically focus, as I said, on the issue of quotas. It will not address any of the governance challenges in superannuation. In fact, if it does change the governance of the most successful super funds—the representative model—it will fail to address the governance issues associated with consumer losses in, for example, the bank and wealth management industry. What does it do, for example—as we have raised questions about in times past—about the way in which banks that might offer superannuation products in a retail capacity might offer a subsidiary product to lure people in, quite separate to super? Maybe they would give them a discount on some of the other products the business uses in the superannuation offering to its employees. It is that type of questionable practice where you sign up to a bank to provide superannuation products to a business's employees but also get a discount on some of the other banking services you use. This is not a decision based on the best interests of the member; this is a decision based on the best interests of the business that is contracting a financial institution or a bank to provide superannuation.

This is simply wrong. You will not hear anyone on that side of the House raise that issue, but it is a serious one. And we are here talking about this bill, which is supposed to improve governance, while these other practices that we know about out there are occurring. But there is no movement whatsoever to look at that. At the moment we have a supervisory system in place through APRA, which is recognised internationally as being very solid and very robust. There have been very few instances of breakdowns in that system around governance within the superannuation space. If they are there, then put forward a regime that will actually deal with it in an evidentiary way, or rely on the evidence itself, to lead to a series of mechanisms that would improve governance.

Again, I come back to the point that this legislation is not based on evidence; it is based on an ideological obsession driven by some of those opposite. I have seen it at play within the House of Representatives Economics Committee when we have had APRA before us and there has been question after question after question about union involvement on the boards of superannuation bodies—trying to pick one little thread here and one bit of string there to see whether it brings down the entire framework and superstructure of superannuation in this country and the way the governance is managed within it. And there is very little evidence to support it. But the evidence is clear: when you look at the returns received by members of industry super funds compared with others, industry super fund members have a reason to have a big smile on their face, because they are getting stronger returns.

We are also being invited to embrace a proposition whereby we will see a massive turnover in director numbers. The cost of changing those directors on superannuation boards is estimated to be fairly significant—and a push for red tape at the desire of the coalition to see this change through, not because of evidence or demonstrated problems in the system; rather, they cannot stand unions and they do not want to see unions involved in superannuation. When it comes superannuation, those opposite see superannuation as the preserve of those on stronger incomes and are working out how to have a post-retirement income scheme that benefits higher income earners.

From my perspective, I am happy with that for higher income earners who have had to manage risk in their lifetime, been involved in senior positions, been involved in companies where their jobs can go at a moment's notice if they make the wrong call or started up their own businesses and have been managing them—I totally get it. But, from my point of view, if we are particularly focused on making sure we have a post-retirement income system that is not heavily dependent on the pension, we need to have a system in place that delivers returns for the bulk of Australian employees not just for one end.

One of the best commitments we have been able to see to the superannuation system is to have the people who represent working Australians—unions—sitting on those boards. It is also broadening their view. This is the other thing too. When union officials sit in a director's role, they are very conscious of the fact they have to make decisions in the best interest of members. Unless there is evidence to demonstrate otherwise, that decisions have been made and a vote taken on those boards that runs counter to the interests of fund members, which there is very little evidence of, those directors put themselves in a serious position. They would be making decisions against members' interests.

For those union officials who sit on boards—in full disclosure, and I have been one of those directors—it certainly does open the breadth of vision about the way business operates in this country. I would have thought that it would be far better to involve people to get a much more holistic view about the nature of our economy and the investment decisions made within it, rather than having a bunch of independent directors—and I can just imagine it will be the same small group of people doing the rounds. It is not like we are creating an industry that will pump out independent directors and it will be easy to make selections to these boards to help in governance arrangements. That will not be the case whatsoever. We are requiring a wholesale change that will require greater costs to be embraced by superannuation funds to change the representational arrangements that exist at the moment—all for ideology, not because evidence dictates that this should be the case. This is a big problem.

So we have had the issue of no evidence. We have had the issue that super funds perform much stronger. We have had the issue that related party arrangements will not deal with this in any shape or form—something left unsaid, unspoken and undealt with by those opposite. We have the issue that this will require a lot more cost to be borne by superannuation funds. When we look overseas, there is no like movement to embrace the type of change that is being foisted on us by this legislation—none whatsoever. In fact, when you look overseas and see, for example, research on American public pensions funds, the proportion of outside trustees has no significant relationship with the excess performance of the funds.

As the member for Rankin and shadow minister has observed, this government have basically said that independent directors are better. Based on international experience, there is absolutely no evidence that that will be the case. If no-one overseas is doing this, if the local funds are performing stronger with a balanced representation between employers, employees or their representatives and independents, if there is no evidence to suggest that they are underperforming relative to retail funds and there is no evidence that this government are serious about tackling some of the other issues that we have concerns about in terms of related party transactions, then you have to ask the question again: why are we doing this, other than for ideology? We should be a lot more responsive and a lot more responsible about how we set policy in this space than what is currently being forced upon this House and ultimately the other place in accepting this legislation.

If we are expecting directors to make decisions that represent the best interests of members, that is certainly not the type of behaviour that is being reflected right here, right now by this government. They are not asking us to make decisions in the best interests of the members of those superannuation funds. They are not asking us to make decisions that will improve the rates of return and therefore the post-retirement incomes of those people being represented. This government are asking us to do something that we would not allow existing board members of funds to do—that is, to make decisions on things other than fact or evidence. They are asking us to make decisions quite contrary to the way that existing directors have to made decisions. They are asking us to make decisions based on their ideology, not on evidence, not on proof, not on the wellbeing of the people being represented. That is the biggest hypocrisy. At its heart, the great hypocrisy of what we are doing here, we are being asked to support legislation that runs counter to a decision-making process that we would require of independent board directors. That is what sticks out in this and it is wrong. For that reason, we raise a series of objections about this bill. It is not about proof; it is about ideology and that is simply wrong.

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