David Coleman (Banks, Liberal Party) Share this | Hansard source

I'm very pleased to speak on this Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017. There are two main provisions of this bill which I'll speak on now, and I'll also make some more general comments about the importance of the superannuation system to Australian employees and the government's activities in this area.

This first issue, related to schedule 1 of the bill, is of course about enabling people to have the choice of fund that they want so that they can choose where their money goes. I think that the overwhelming majority of Australians would agree that people should not be forced to put their superannuation money into any particular fund; they should be able to choose. I think that a lot of Australians would be surprised to know that there are currently about a million people who effectively don't have the right to choose where their superannuation money goes—usually because they are in a federal enterprise agreement. I think that a lot of people would be very surprised to know that. Obviously, it makes sense: it's your money and you should be able to put it wherever you want. What this bill will do is to ensure that that's the case. Under a federal enterprise agreement or workplace arrangement it will still be possible to have a default fund, and if people are happy for their superannuation money to go there then that's fine. But what won't be okay is for people to have their money go into that fund when in fact they don't want it to.

When you think about it, there are people who are at all sorts of different stages of their careers and who have all sorts of different priorities when it comes to investment. Younger people might want to invest in higher-risk funds with potentially higher-returns, but people who are closer to retirement might want a more conservative asset allocation. There are people who might want to invest in particular asset classes, namely local shares, overseas shares or infrastructure—whatever it is. Or, indeed, they might want a self-managed superannuation fund, which of course is an increasingly popular option. But the bottom line is that people should be able to choose, and I think that is self-evident.

As the member for Mackellar said, it's good that a couple of years ago the member for McMahon made sensible comments in relation to this issue. He said:

… there's a relatively small number of circumstances where an enterprise agreement says you can only go to that fund: that fund alone. And the Government has said that they'd introduce more choice. Of course, that's something which would be fine. Who could argue with more choice for members?

Indeed, who could argue with that? It's a self-evident proposition.

Nobody wants a situation where particular funds are advantaged by these default arrangements, and this bill that has been introduced by the Minister for Revenue and Financial Services will ensure that funds receive members' money when those members have actually chosen for that to occur or they've been happy with their money going to the default fund. What it won't allow is for funds of whatever kind, whether it's an industry fund, a retail fund or whatever, to effectively acquire these huge volumes of assets without the proactive choice of the members. Because it doesn't make sense for, say, an industry fund to be acquiring potentially hundreds of millions or billions of dollars of members' funds unless those members have actually chosen to join that industry fund. That concept applies to not just industry funds; it also happens to be a particularly prominent feature of some enterprise agreements—that is, employees are required to put their money into that industry fund—and this bill will change that. This is a very positive development. It would be hard to find an Australian out there who would say that it's a bad idea that people should get to choose where their superannuation money goes, and so it's great to be able to support this bill today.

Another important part of the bill is schedule 2, which addresses an unfortunate loophole that exists in the system at the moment in relation to superannuation guarantee entitlements. As you know, Mr Deputy Speaker, the bottom line at the moment is that employers are required to put 9½ per cent of the value of an employee's salary into their superannuation fund. That fund then enjoys the various tax benefits associated with superannuation. That's a good thing, because it means that those employees will, over time, accumulate funds, which will give them a much stronger position when retirement comes around.

However, there are a couple of loopholes can be exploited by unscrupulous employers at the moment, and this bill fixes them. When an employee elects to salary sacrifice some of their salary and take some of the salary in another form, there are occasions where that reduced headline salary can be used to reduce the value of the superannuation that is paid. For instance, if you have an employee who earns $100,000 a year and salary sacrifices $10,000, there are circumstances in which an employer can say, 'We'll apply the 9½ per cent superannuation guarantee not to the $100,000'—which is the true salary of the employee—'but to the $90,000.' This would effectively mean that that employee would get 10 per cent less in superannuation than they are entitled to. It's good to see the government moving so decisively to end this scenario. There are also some scenarios where the employer—again, this would only occur in circumstances where the employer was acting in an unscrupulous fashion—actually uses some or all of the employee's salary sacrifice amount of money to say that that can be put towards the employer's superannuation guarantee. So the employee's salary sacrifice is effectively being used, in theory, to meet the employer's obligations. That loophole will also be fixed by this important legislation, so these two elements of the bill are both very important.

This bill exists in the context of the broader superannuation reforms that the government is putting in place in the parliament—here in the House and in the Senate as well—as we speak. More than $2 trillion is now invested in superannuation. I guess that's what happens when governments mandate that a large chunk of employee salaries are compulsorily placed into a particular savings vehicle. More than $2 trillion—an extraordinary amount of money, and one of the largest pools of retirement savings anywhere in the world. It is very important that when you have such a massive amount of money you have government standards that are commensurate with what people would expect of those looking after their retirement savings.

If you look at the statistics on household wealth from the Australian Taxation Office, you'll see that for most families their No. 1 asset is their home and their No. 2 asset is their superannuation. With each year that passes, the superannuation savings of Australians go up. This is a very, very big deal. We need to ensure these funds are governed with the highest standards of probity, that the people who are on the boards of the funds have appropriate qualifications and that there is a degree of independence, because you don't want a situation where all the directors are drawn from one particular cohort. You don't want the directors to come from, say, a union group or, indeed, to all come from an associated employer group. You want a degree of independence such as we see in best practice in public sector boards and in APRA-regulated entities.

What the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill, which is currently before the Senate, does is require that entities have a minimum of one-third independent directors, including an independent chair, on their boards. That is good news for people with money in superannuation funds, because what they would want is independence, an objective review of what is best for their savings. Certainly, the last thing people would want is for key decisions about that critical asset—the second most important asset that households have—to be made by a very narrowly focused group, whether it's a group associated with a various trade unions or other groups. Independence is a very good principle.

The APRA-regulated funds hold $1.4 trillion, with $2.3 trillion being held across the entire sector, but the trustee boards that manage these funds don't have governance arrangements that reflect the important role they have in ensuring the retirement savings of their members. It is important that that changes so that their governance arrangements are closer to what we would expect in private sector groups of similar size. In 2014, the Financial System Inquiry recommended that all public offer funds should have a majority of independent directors, including an independent chair. APRA, the regulator responsible, has indicated that independent directors improve governance, and that is why APRA requires a majority of independent directors for banks and insurers. APRA suggests that having at least some independent directors on boards best supports sound governance outcomes. In APRA's view, the diversity of views and experience that independent directors bring supports more robust decision-making. That is eminently sensible from the very strong organisation that we have in APRA. But, today, there's no requirement for the boards of superannuation fund to have any independent directors among their trustees—not one. That's wrong. That needs to change. That's what this government is doing in requiring that the chair and at least one-third of directors be independent.

If you look at different bodies and governance standards, you'll see that the superannuation industry is somewhat out of step with other areas. For instance, for ASX-listed companies the ASX corporate governance principles say that the chair should be independent and a majority of the directors should be independent. If companies don't have an independent chair or a majority of independent directors they're required to explain to the ASX why that is the case. That's obviously a very sensible piece of legislation. The same applies to banks, which must have independent chairs and a majority of independent directors. So for that bill which is currently before the Senate and which is an important part of the government's superannuation reforms, it is important that all of these issues and all changes are very thoroughly aired, because they are inextricably linked. All members of this House, undoubtedly, would support strong governance arrangements through the inclusion of independent directors on superannuation funds. It is good to have an opportunity to discuss these important measures in the context of the minister's superannuation reforms.

These are particularly important provisions existing across the whole spectrum of the superannuation reforms. The measures in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 are exceptional measures which should be supported. I commend the bill to the House.

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