Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

The Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 is part of the government's Stronger Super reforms package. The bill amends the Superannuation Industry (Supervision) Act 1993 and the Superannuation Guarantee (Administration) Act 1992. The bill was referred to the Joint Standing Committee on Corporations and Financial Services on 3 November and the committee report was handed down on 19 March. The coalition members of the committee concluded there were several significant deficiencies in the bill which I will detail later in the speech.

The bill defines a MySuper product and provides a framework to allow registrable superannuation entity licensees to apply to the Australian Prudential Regulation Authority for authorisation to offer a MySuper product. The bill prohibits a regulated superannuation fund from offering more than one MySuper product except, in limited circumstances, to large employers. Large employers are defined as those having more than 500 members of a particular fund. The bill sets out rules on the payment of contributions and account transfers for MySuper products. The bill also sets out the nature and type of fees that can be charged by a MySuper product and the basis on which those fees can be charged to members. The bill provides that MySuper products will be offered from 1 July 2013 and that, from 1 October 2013, employers must make default superannuation contributions to a fund that offers a MySuper product for employees who have not chosen a fund.

A big deficiency in this bill is that it does not make any alterations to the existing contentious closed shop, anticompetitive arrangements for the selection of default funds under modern awards. The MySuper initiative was one of the key recommendations of the Cooper review into Australia's superannuation system. It was incorporated into the government's package of reforms which are called Stronger Super. The government describes MySuper, in typical spin, as:

MySuper is a new, simple and cost-effective superannuation product that will replace existing default products. MySuper products will have a simple set of product features, irrespective of who provides them. This will enable members, employers and market analysts to compare funds more easily based on a few key differences. It will also ensure members do not pay for any unnecessary 'bells and whistles' they do not need or use.

The coalition supports the intent of the MySuper products. However, there is a disconnect between the aims of the reforms and their implementation by this Labor government. The coalition has consistently supported any changes which make our superannuation system more efficient, transparent and competitive and which improve value for fund members. But, because of its compulsory nature, the coalition is acutely aware our superannuation system needs to be accountable, accessible and transparent. Australians must have confidence in their superannuation fund. The coalition members of the PJC have a number of concerns. Chief among these is the treatment of default funds—specifically, how choice for consumers could be improved. The coalition members are also concerned that charging members for intrafund advice is allowed as part of MySuper—which is seemingly at odds with the Future of Financial Advice reforms currently before the House.

Coalition members made a number of well-considered recommendations to improve the MySuper bills and these include, firstly, changing the definition of 'large employer' to be any employer with 500 or more employees; secondly, removing the need for individual registration for each tailored MySuper plan; thirdly, calling on APRA to release standards and forms required for the MySuper registration process at least 12 months prior to commencement; and, finally, providing a comprehensive definition of intrafund advice in the MySuper and FoFA legislation to ensure such advice is general only, and that any personal or financial advice provided through a super fund is paid for by the person accessing this advice with transparency of fees and without forcing fund members to pay for the personal advice of others for which they have no need.

The MySuper proposal has already been through a number of changes. The initial MySuper proposal, to design a basic superannuation product and to impose uniform pricing through legislation, would have created unnecessary inefficiencies and left many consumers worse off. Research into the initial proposal by Chant West found that under a one-fee, government mandated model over 750,000 Australians would be forced to pay higher fees than they are currently paying. In other research, Chant West concluded that a small reduction in fund performance on the back of a lower performance by MySuper funds would very quickly wipe out any gain from lower fees. There has been extensive debate in the sector around these issues in the past 12 months and the government has now backed down from its original proposal to impose a uniform fee structure as part of MySuper. The government's proposal under consideration today is to allow MySuper funds to offer differentiated fee structures.

We are still concerned that the creation of a MySuper product through legislation is an unnecessary interference with an existing, highly competitive market for low-fee, no-frills superannuation products. However, what is proposed now is certainly better than where we started out a year ago. The coalition have three outstanding issues with this bill. The first outstanding issue relates to default funds. The bill mandates that, from 1 October 2013, only MySuper products can be used by employers to make default superannuation contributions for employees who do not have a chosen fund. In doing this, the government has made no attempt to address the current closed shop, secretive, anticompetitive arrangements for the selection of default funds under modern awards. Whilst every default fund has to be a MySuper product, not every MySuper product will be available as a default superannuation fund. The decision on which funds are selected as default funds remains with that august body Fair Work Australia, through a secretive, non-transparent and non-competitive process. Nontransparent—similar to the investigation into the member for Dobell.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

I was just going to commend the member for North Sydney for being relevant up until that point.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

This is at odds with the government's own Cooper review into superannuation. Recommendation 1.2 of the Cooper review in relation to MySuper and modern awards states:

The SG Act should be amended so only a MySuper product is eligible to be a ‘default’ fund nominated by an employer.

In recommending universal eligibility of default funds for industrial purposes, recommendation 1.3 states:

(b) all MySuper products are able to be nominated,

for ‘default fund’ purposes in awards approved by Fair Work Australia.

The coalition is of the view that, in creating this new default superannuation product, all MySuper funds should be allowed to be an eligible default fund for any workplace and should be able to compete freely. Not allowing MySuper funds to compete on a level playing field fails to address the existing competition issues in the default super industry and undermines these reforms. Even the government had to recognise before the last election that the current process, which heavily favours industry superannuation funds, is not open, transparent or competitive.

In August 2010, the government promised that a re-elected Gillard government would ask the Productivity Commission to design a transparent, evidence based and competitive process for the selection of default funds under modern awards. Finally, in January 2012, Labor made good on its promise—that was a rare moment—and sent a suitable request to the Productivity Commission. This is too little too late, independent Madam Deputy Speaker.

The second issue concerns intrafund advice. The explanatory memorandum indicates that superannuation funds will be able to charge for expenses incurred in the provision of intrafund advice as part of their overall administration fees charged to all fund members of a product. Intrafund advice is clearly a type of financial advice yet there is no precise definition of intrafund advice inside this bill, nor is there a definition in the government's FoFA legislation. There is no limitation on what may constitute intrafund advice and there are no provisions determining who should pay for such advice in any of the proposed legislation.

The coalition considers that the lack of definition and lack of restriction on charging for intrafund advice within both the MySuper and the FoFA legislation is a mistake that must be rectified. In order to address these concerns, the coalition will propose an amendment to the bill to ensure that the purposes of the MySuper product— no financial advice fees—can be bundled into an administrative fee and automatically charged to all fund members. Specifically, this amendment will call on the government to, firstly, provide a comprehensive definition of the term 'intrafund advice'; secondly, ensure that intrafund advice is general in nature only; thirdly, ensure that any financial advice accessed within a superannuation fund beyond such general advice will be expressly subject to the best interests duty contained in the proposed FoFA legislation; fourthly, ensure that any financial advice accessed within a superannuation fund beyond general advice will be paid for by the person accessing this advice without any cross-subsidy from other fund members; and, fifthly, repeal the existing ASIC class order exemption as it would be superfluous once intrafund advice is properly defined in legislation.

The third issue of concern relates to the benchmark set for the tailoring of MySuper funds for large employers and the process to obtain a tailored large employer super fund plan. When an employer contributes to a fund on behalf of 500 or more members, the MySuper plan can be tailored to the needs of the employer and employee. Tailoring of MySuper plans makes sense. However, the coalition believes the benchmark requiring a minimum of 500 members per fund is too high and will create confusion among business. The coalition favours a simpler system, whereby a firm is classified as a large employer if it has 500 or more employees as opposed to members. This will provide certainty for business and for consumers. It will mean that MySuper plans tailored to the needs of employees are more readily available.

The process of tailoring MySuper plans for large employers is also problematic. The provision in the core provisions bill require prior authorisation of each tailored MySuper employer plan, rather than simply providing a reporting mechanism. The process of yearly reporting of compliance with MySuper licensing conditions for large employers makes much more sense. A solution proposed by the Financial Services Council suggested that MySuper plans could be reported to APRA on an annual basis. APRA would within 30 days be able to disallow a tailored plan where the tailored plan is not compliant with the licence conditions. This compromise will ensure that MySuper plans will be compliant with their obligations at law and would allow the regulator, APRA, to disallow a non-compliant fund. It would improve the ability of employers to tailor plans to the requirements of employees.

In conclusion, Madam Deputy Speaker, and I am grateful for your close attention to my speech, I can say that the coalition supports the introduction of a MySuper product in principle but believes the bill before the House can be improved. I indicate to the House that I will be moving a number of amendments to the bill when we come to the consideration in detail stage.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

I thank the member for North Sydney and those who may have helped in his speech for being relevant to the bill before us.

Chris Hayes (Fowler, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011. The bill amends the Superannuation Guarantee (Administration) Act 1992 and the Superannuation Industry (Supervision) Act 1993. The main purpose of the bill is to introduce a new, simple and low-cost superannuation product—that is, MySuper. The main purpose of this reform is to promote lower fees and a more efficient superannuation system, with the members of the fund in mind. MySuper will ensure that Australians have a fair system of accumulating superannuation. The standard will be required by regulation and will set the types of fees that may be charged. In fact, there are only six types of fees which will exist under the MySuper product, compared to the variety of fee scales that apply in the superannuation market at the moment.

The bill will make it mandatory for employers to make contributions into a superannuation fund that offers this product. This is part of a large-scale revolution for the Australian superannuation system and it complements this week's historic passage through the parliament of the minerals resource rent tax, which is intended to spread the benefits of the mining boom across the nation. In addition to tax breaks for small business and funding the development of critical infrastructure, the mining tax paves the way to building on the superannuation guarantee and increasing superannuation from nine per cent to 12 per cent. This is where MySuper becomes very important.

The increase will be transitioned over the next decade, increasing the nation's $1.3 trillion superannuation savings pool by another $550 billion to the year 2035. Those national savings will be able to be invested in capital-intensive and social infrastructure which will go to the benefit of all Australians. The minerals resource rent tax will certainly increase superannuation savings for almost 8.5 million Australian workers, who are seeking better opportunities in their retirement. There is no doubt that this is a historic move that will enable more Australians to enjoy a better retirement income in their senior years. People who have worked hard all their lives to build this nation will have certainty and will be able to live with respect, dignity and comfort on their contributions to their superannuation savings, when they retire.

For those Australians on a low income, below the tax-free threshold, many of whom I represent in my own electorate, this will also enable a superannuation contribution to be made, effectively on a tax-free basis. They will therefore not be required to provide the 15 per cent entry fee for superannuation contributions. This will ensure a much fairer taxation of their superannuation and will be an encouragement for people of low income to use superannuation as a preferred saving model.

We on this side of the House are very proud to be further enhancing superannuation through MySuper. After all, it was a Labor government back in 1986 that took the first steps to allow award based superannuation to be developed. Many may recall the government's Prices and Incomes Accord with the ACTU at that stage. Those of us of a certain age and above will no doubt recall that the union movement sacrificed wage increases at that stage to offset a three per cent compulsory award based contribution to retirement income through the development of award based superannuation. For many blue-collar people, that represented their first opportunity to experience superannuation.

According to the Australian Bureau of Statistics in its first national survey of superannuation coverage, in 1974 only 32 per cent of the workforce was covered by superannuation. Madam Deputy Speaker Burke, you will not be surprised to learn that that was made up of mainly white-collar employees, managerial staff and particularly state and Commonwealth public servants.

Following those reforms of the Accord process of 1986, in 1988 the superannuation guarantee came into effect and applied to all Australian workers. That is something that we on this side of the House are particularly proud of. It ensured that all workers, regardless of whether they were covered by an award or not, were subject at that stage to a three per cent superannuation guarantee. Apart from establishing a system for every Australian worker to benefit from superannuation in their retirement, it also set the platform for an enhanced national savings regime for all Australians. I have already indicated that the pool of national savings through superannuation currently stands at $1.3 trillion.

This bill addresses the challenge of Australia's ageing population. The fact is that, as baby boomers are growing old gracefully, they are nevertheless living longer than ever before. In fact, the ABS indicates that, by 2050, 25 per cent of Australians will be at retirement age. So it is paramount for our nation's future and long-term sustainability to plan ahead to ensure that we are prepared for those days and to make appropriate plans for the ageing population and to be able to sustain people through their retirement years.

It is in the interests of all of us, including the generations yet to come, to encourage working Australians to plan for and save for their retirement. Because it is in our national interest to secure the retirement income of our ageing population, it is only right that individuals should be given a hand in looking after their retirement savings. As a nation, we should make the job easier, and that is why the government, through this bill, through MySuper, intends to minimise the unnecessary and unfair fees and charges which often make significant deductions from the savings pool of people who, quite frankly, work all their lives with a view to accumulating their retirement fund.

Australians on average pay $85 a month in superannuation fees. Those on low incomes, including a large number of the people, as I indicated, in my electorate of Fowler—

Debate interrupted.