Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012. This bill introduces additional powers for the Australian Prudential Regulation Authority, APRA, to create prudential standards. It amends the Superannuation Industry (Supervision) Act 1993 in order to expand the duties for registrable superannuation entity licensees. It applies new trustee duties to RSE licensees who offer a MySuper product and applies duties to the directors of corporate trustees.

The additional powers provided to APRA will enable the authority to make prudential standards in superannuation which will improve the clarity and certainty of prudential regulation by providing further detail on the prudential matters as set out in the enabling legislation. This is consistent with APRA's current ability to make prudential standards in the finance industries and is a sensible application of their experience to a different industry sector—the superannuation industry.

The new prudential standards can apply to an APRA-regulated superannuation fund, connected entities, specified classes of super funds or any individual fund or connected entity. 'APRA has successfully established prudential standards in banking and insurance for many years,' the authority's Ross Jones said on 28 September 2011, 'and the establishment of such standards in superannuation will provide clear benefits to the superannuation industry as a whole and to its members.' I agree. This legislation is about extending peace of mind to all Australians and ensuring the responsible management of their superannuation funds, which they will reply upon in their retirement.

The ability to make prudential standards will give APRA greater flexibility to essentially adapt to industry developments as they happen and give the authority the ability to provide regulated entities with clearer and more suitable legal requirements, tailored to their unique needs. This industry is far too complex in nature for a one-size-fits-all approach. Current regulations governing the superannuation industry are certainly not flexible enough. They are unable to be amended in a prompt manner in order to respond to the various changes that occur within the industry.

The diversity within the superannuation industry and the varying character and size of entities demonstrates the need for flexibility, which is what we are introducing with this bill. As disallowable legislative instruments, prudential standards must adhere to the Legislative Instruments Act 2003. This would include suitable and appropriate superannuation industry stakeholder consultation, ensuring that there is a degree of transparency and adequate process when it comes to making any changes.

This bill will also require that trustees who elect to offer a MySuper product meet the new stringent obligations to support and ensure that the financial interests of its members are put first. This is a common-sense and fair approach. It is the same approach that we adopted in the financial advice legislation, which is soon to be debated in the House. Trustees will have increased responsibilities for default members, the members who more often than not delegate majority of the responsibility for their superannuation through the trustees. Furthermore, under this legislation APRA must also be satisfied that a trustee will comply with new enhanced obligations and that individual directors comply with the enhanced obligations when authorising an RSE licensee to offer a MySuper product.

The duties required of fund trustees will be expanded to: give priority, first and foremost, to the interests of beneficiaries where any conflicts arise; develop strategies for insurance and risk; and require trustees to give regard to valuation information, potential and expected tax consequences, and costs in investment strategies. These measures are all designed to ensure that responsible, informed decisions are made and that fund boards are managed in an effective and accountable way. Our government is committed to protecting the money that hardworking Australians have accumulated over their working lives and providing certainty for them in retirement.

Under this legislation, the duties required of individual directors will be further clarified and separately identified. Directors must act honestly, exercise appropriate care and management of funds, and give priority to the interests of beneficiaries. While this all seems a common-sense and rational approach, best practice within the industry is not always evident. These reforms are necessary reforms. Certainty is required. As a federal Labor government, we strive for the betterment and protection of working Australians and their families, and this legislation is about ensuring that their entitlements—their superannuation—is looked after well.

As with the vast majority of bills that this federal Labor government has put forward, this bill is about fairness and protecting working Australians. It was a federal Labor government that first introduced compulsory superannuation savings in 1992, and it is again a Labor government that is building upon that legacy. We are committed to strengthening superannuation through the minerals rent resource tax legislation, which has now passed through the Senate to fund our historic increase to the superannuation guarantee, from nine to 12 per cent, a change that will benefit 8.4 million employees across Australia. According to BT Financial Group, within 10 years, Australia's superannuation pool will double from $1.4 trillion to $2.8 trillion. This is too significant an amount of national savings to take a half-measured approach when it comes to industry regulation.

As Minister Shorten has highlighted, for the majority of Australians superannuation is their second greatest source of wealth after their home. However, all too often Australian families do not know all that much about the people they have entrusted with this considerable asset. Australians should not have this unnecessary burden—this uncertainty—hanging over their heads throughout their working lives. They should be assured that governance across the superannuation industry is of an adequate standard with quality assurance measures in place. They should be assured that money they have earned through fair and honest work in their lifetime, saved away and growing for their retirement, is being looked after adequately in a prudent and responsible manner.

As good governments like ours know, it is always important to keep up with developments in industries and to initiate appropriate reforms. It is necessary that governments review operations within key areas such as the superannuation industry. The Stronger Super package represents our Labor government's response to the review into the governance, efficiency, structure and operation of Australia's superannuation system—the Cooper review —which was first handed to the government in 2010. As the review found, standards of governance have not managed to keep pace with developments within the superannuation industry. Among several key findings in the Cooper review was the finding that trustees and directors of trustee boards had difficulty in understanding the nature of their roles and the expectations placed upon them. The review also highlighted the rate at which conflicts of interest could arise due to the consolidation of the superannuation industry. For these reasons, it is important that we keep governance measures up to scratch and assist with the modernisation of this important industry, protecting national wealth and securing Australians' retirement.

The Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 follows and builds upon the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012, introduced in November 2011. It is the second component of legislative reform that our government is introducing to implement our MySuper and governance reforms as part of Labor's Stronger Super package. These were first announced by Minister Shorten, the Minister for Financial Services and Superannuation, and I am very pleased to witness the ongoing work towards delivering these reforms. I note that there are two members in the House who have very much been part of audits and audit committee work with the Taxation Office, where we saw too many times that standards were not being upheld and that peoples' savings were at risk. Extensive industry, employer and consumer consultation have informed the development of these improvements. This is best practice and our government is to be commended for its engagement with industry stakeholders. With these reforms designed to achieve the protection of and assistance to the growth of member superannuation entitlements, who could actually say 'no' to greater returns or greater security for working Australians in their retirement?

In my electorate of Newcastle, there are over 15,627 lost superannuation accounts worth $60 million waiting to be found. Of course, that data is now available for the whole country—and it is staggering. Along with many of my colleagues, I have done all that I can to inform constituents of the Australian Taxation Office's SuperSeeker website, to help them find and reclaim their lost super. But this figure is just one small indication that there remains the need for continued reform in superannuation. There is a need for people to be informed about the decisions they make in regard to their superannuation, and certainly there is a requirement for the people who manage superannuation funds to keep communicating with their members.

Labor's commitment to reforming and modernising the industry aims to assist with these important tasks. I look forward to the government building on these superannuation reforms, with subsequent tranches of legislation due in the near future. These will include reforms to arrange the transition of member accounts from existing default superannuation products to MySuper products, prohibit the deduction of commissions from MySuper member accounts, introduce new rules for the payment of performance based fees by RSE licensees to investment managers relating to the assets of a MySuper product, introduce rules for the fair and reasonable allocation of costs between MySuper products and each choice product within a super fund, create additional governance measures relating to selective service providers, enhance data collection and data publication powers for APRA and create new disclosure requirements in relation to MySuper and choice products.

Our government's agenda when it comes to superannuation is clear. As the minister has highlighted previously, superannuation assets in Australia are expected to reach $6.2 trillion by 2036. We are protecting the retirement savings of working Australians and their families. We are ensuring that their funds are managed responsibly and managed fairly. Our Labor government is strengthening superannuation with these many reforms, and I would say that many of these reforms have come from the work of some wonderful committees of this parliament. I congratulate all the backbenchers who work very tirelessly on committees to bring about reforms and hope that governments will respond to their recommendations. Of course, that is exactly what has happened in this case. We are also lifting compulsory super from nine to 12 per cent through the minerals resource rent tax. Historically and contemporarily, we are the party that stands for stronger super. A multitrillion-dollar industry is far too significant to be taken lightly. Stronger super is what our government is committed to delivering and I therefore commend this bill to the House.

Jamie Briggs (Mayo, Liberal Party, Chairman of the Scrutiny of Government Waste Committee) Share this | Link to this | Hansard source

I rise to speak on the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012. I agree in part with the member for Newcastle, on the point that she made that Australians expect that their superannuation will be managed in accordance with the most appropriate modern corporate governance standards. That is where I diverge from the member for Newcastle. The current climate, with what has occurred and is continuing to occur in this place and outside it, raises the necessity for us to reconsider whether this bill does enough, particularly in light of many of the recommendations in the Cooper review which have seemingly been ignored or, at this point, passed over by the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation.

I think it is time for us to reconsider this because—and the member for Newcastle made this point—there is over a trillion dollars in Australian superannuation. A large portion of that, of course, is held in industry super funds, and in recent days we have seen several examples of concerns raised about the governance of industry super funds. This is an area where the minister is strangely silent in relation to industry super funds and the recommendations of the Cooper review. The first of the examples I refer to is a contribution yesterday in this House by the now Independent member for Dobell, where he said:

She—

meaning Kathy Jackson—

sat on the board of HESTA, collecting board fees for many years, rarely attending meetings. But when the union decided the board fee should go to the union, she left the board.

The second examples are two stories which appeared in the Australian newspaper. Last Friday there was an article by Hedley Thomas headed 'Unionist took cash from developer amid $30m super investments'. There was a follow-up story in the Weekend Australian by Hedley Thomas which was headed 'Strategy doubts as union super fund gets burnt'. Those stories raised several very concerning allegations about the use of workers' money which has been invested in industry superannuation funds.

We know from the statement by the member for Dobell yesterday that there are concerns that have come to light, I think to the surprise of nearly all members of this House. The extent to which workers' money has been used for inappropriate activities that has come to light has surprised all of us. In that sense, I think it is an opportunity for this parliament to reconsider the strength of this bill, and I call on the minister to indeed reconsider the strength of this bill and to reconsider whether he should look more deeply at the Cooper recommendations in relation to directors' obligations when it comes to industry super funds.

We know we have hit upon a bit of an issue because, when the Leader of the Opposition was reported to have made comments in the coalition party room earlier this year in relation to this issue, the following day the person who had benefitted more from industry super funds in their life than anyone in this country, Mr Garry Weaven, was reported as rejecting the comments as:

… mightily insulting and a slur on the employer groups equally represented on fund boards alongside union officials.

What's his implication: that the employer associations are being duped? It's like a return to the worst days of 1980s bigotry.

Indeed, it seems to me that, when there is a reaction from someone who has benefited so much from the current regulations relating to the matter, given what we have heard about the HSU in recent times, the HSU disease may have had a far wider effect than what people could possibly imagine. Therefore, it raises questions as to why the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation has not acted more quickly in relation to some of the recommendations made by Mr Jeremy Cooper as to the obligations of directors when it comes to industry super funds.

My colleague the member for Bradfield, who has been raising some of these issues in a very considered fashion in recent weeks, wrote in the Financial Review:

Of the 16 self-branded “industry super” funds, less than half disclosed fees paid to individual directors in annual reports.

We also know that, contrary to good corporate governance standards, directors can sit on multiple boards, and we know that does occur. We know that the Secretary of the AWU, who spoke at the Press Club today about his fantasies of taking Australia back to some socialist operation, sits on multiple boards, as does the former secretary of the ACTU and several others. We know that when Cath Bowtell, who was the Labor candidate in Melbourne, lost the last election to the member for Melbourne, she was then appointed CEO of an industry super fund. So there are quite a number of issues relating to the operations of industry super funds and their directors which are conveniently forgotten in this bill.

My erstwhile colleague the member for Bradfield also made a point in relation to this matter in another article he wrote in the Financial Review late last year, where he said 'in the federal cabinet reshuffle on Monday' the new Minister for Employment and Workplace Relations 'retained his responsibility for financial services and superannuation.' He continued:

This only makes sense if you understand the attraction to successive Labor governments of using the compulsory superannuation system to increase the power, influence and financial position of the union movement and its key personnel.

Given what we have heard in recent days, weeks and months about the questionable practices of some registered organisations—or one registered organisation in particular—in use of their members' money, it raises an increased need for us to reconsider what Jeremy Cooper recommended in that review. There is a litany of examples and much evidence around which says that this issue needs to be looked at with greater consideration.

I refer to another example, which relates to an article, on 17 July 2011, in the Sunday Telegraph, referring to the former head of the Electrical Trades Union, Mr Bernie Riordan. At one point I think he was president of the New South Wales Labor Party. He was being sued by his own members over $1.8 million in fees that he allegedly pocketed while serving on four boards connected with industry superannuation funds. Interestingly, he also had those claims settled just days before being appointed, coincidentally, to Fair Work Australia. In recent days we also heard that one of the people who the member for Dobell mentioned yesterday in his long statement—50-odd minutes worth—Mr Michael Williamson, of the HSU, continues to sit on industry super fund boards, even though a series of allegations have been made, including by the member for Dobell, about some of those issues.

This bill is conspicuous in its silence when it comes to dealing with the issues that Cooper raised in relation to industry super funds. It is the opposition's very strong view that these issues should have been addressed at some length some time ago. As Lyndon Baines Johnson famously said, 'Power is where power goes.' That is exactly what we suspect is going on in this respect.

The member for Newcastle just repeated at length that the Labor Party 'stands for good corporate governance when it comes to superannuation', but that is not backed up by the facts. The regulations relating to the industry super fund network and the directorships in that respect are of course very different to what you would expect with a retail fund. Different standards operate and, with respect to Mr Weaven's allegation against the Leader of the Opposition, of course we include all members of those boards. We say that good corporate standards should be applied to all representatives, whether they be employer representatives or employee representatives. I say again that some of these accusations, allegations and evidence that were presented in the Fair Work Australia report which was tabled just two weeks ago have raised to a new level the possibilities and suspicions about how money can be misused in these organisations and associated entities.

In that respect we think this bill is too weak and that it should be addressing those issues which Cooper raised, rightly, in relation to directorships of industry super funds. For instance, the Cooper review recommended a range of reforms relating to the governance of superannuation which have largely been ignored: that disclosure of conflicts of interest be mandatory, that directors properly disclose remuneration in line with the provisions that apply to publicly listed companies, that there be appropriate provision for independent directors on superannuation funds boards, and that directors who want to sit on multiple boards must demonstrate to APRA that they have foreseeable conflicts of interest.

As I said earlier, we now know that some very senior trade union officials and employer officials also sit on multiple boards. In fairness to Minister Shorten, after much pressure from the shadow minister for superannuation, Senator Mathias Cormann, he finally made some announcements in relation to this issue on 27 April, long after Cooper had found and long after this bill had been drafted. As I say, it was very scant compared to what Cooper demanded.

In that respect, the direct decision that the Prime Minister made, for the first time, allocating portfolios for ministers, which bucketed together the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation cannot be overlooked. That is the first time it has happened. Departments have never been linked before. The excuse given, of course, was that that minister had been responsible for that portfolio for some time. Indeed he had been responsible for that portfolio for some time. But it does just seem a coincidence that the minister who is responsible for regulating trade unions and registered organisations is now also the minister responsible for regulating one of the big income-earners for those organisations. I would put to you, Mr Deputy Speaker, and to the parliament, that there is an inherent conflict in those positions. The Prime Minister should address that conflict because the two should not run together—they have got two very different considerations. I do not think I am the only person who perceives this conflict.

I finish on this point: the coalition supports the best corporate governance structure and regulations that can possibly be in place to protect people's superannuation. It is important for our country that we have a strong savings arrangement for people to look after themselves in their retirement. As our population gets older, we must ensure that people are able to take care of themselves in the best way possible. It is not just through superannuation, of course. It is through a range of their own investments—their own home and so forth. But they must be in that position. So we do support, of course, the best modern corporate governance standards.

We are concerned that this bill is not doing enough. It is not doing enough to address what we see are inequities, are differences between the standards that are applied to other superannuation funds and those of industry superannuation funds. And we know, because of what has been reported by the Fair Work Australia report in recent days, that there has been a range of misuses of hardworking union members' money in respect of the HSU. We do not want to see the HSU disease inflicted on the industry superannuation network. It is a time for us to pause; it is a time for us to give greater consideration to what is in this bill. I urge the minister to give reconsideration to the recommendations that Mr Jeremy Cooper made, to amend this bill, to make the appropriate changes, to crack down on ever-increasing amounts of stories about misuse of workers' money and misuse of the superannuation money, and to do the right thing in this bill so that we can all have guarantees that our industry superannuation funds are governed in a modern and appropriate way.

Gai Brodtmann (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

That was an interesting contribution from the member for Mayo. It would be interesting to have a chat with him about what he thinks about industry super funds, actually, and what he sees as being the appropriate composition of a management board for a super fund. I wonder if it is white, Anglo-Saxon males that were educated at Geelong Grammar. The Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012, that we are debating today, is another example of Labor's commitment to ensuring we have a fair, regulated superannuation industry in Australia—a superannuation industry that Australians can have faith in as they work hard to save for retirement.

Superannuation is a Labor Party policy through and through. It was a Labor government that first introduced the compulsory superannuation guarantee, and it is a Labor government that is now reforming super to ensure the retirement savings of Australian workers are better protected. The Gillard Labor government is committed to strengthening super, and we are doing this through a historic increase in the superannuation guarantee from nine per cent to 12 per cent. Around 8.4 million Australians will benefit from the increase in this superannuation guarantee. For example, a 30-year-old on full-time average weekly earnings will now be around $108,000 better off at retirement. We are also working to make superannuation concessions fairer for up to 3.5 million low-income earners. Overall, our historic super reforms will lift retirement savings by $85 billion over 10 years and $500 billion by 2035.

But it is not just this increase in the superannuation guarantee that will benefit Australians in retirement. Labor will also provide an annual contribution of up to $500 into the superannuation accounts of workers earning less than $37,000, from 1 July this year. The majority of the people that that will benefit, 60 per cent, are working women, working mums. Next year we will also get rid of age limits on contributions for the first time since the introduction of compulsory superannuation.

We are also going one step further by creating a new low-cost superannuation product called MySuper, which is what this bill centres on tonight. The Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 is the second tranche of legislation implementing the government's MySuper and governance reforms. The first tranche of legislation was introduced to the parliament on 3 November last year as the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011. This latest bill implements the next stage of the reforms by amending the Superannuation Industry (Supervision) Act 1993.

This bill is a critically important element of the government's Stronger Super reform package and will help to improve the governance and supervision of our superannuation system. The bill also introduces the power for the Australian Prudential Regulation Authority, or APRA, to make prudential standards, which is in line with our banking and insurance industries. Ultimately this bill is important because it complements the government's reforms to boost superannuation savings.

Australia should be able to have confidence in those managing their money and in the regulatory framework. As I said, at the centre of this bill is MySuper, a new low-cost and simple superannuation product that will replace existing default funds. 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. Superannuation funds will still be able to offer different products and will not have to offer a MySuper product, but only a MySuper product will be eligible to operate as a default product. What this means is that a fund's default product must meet the MySuper standards to continue to accept contributions from employees who have not exercised choice and nominated a fund. I believe that this will encourage the industry to become more competitive and that people who benefit most will be young workers. We know that in order to maximise your retirement income it is important that your super fund, particularly if it is a default fund, is a low key, high performing fund. This legislation will maximise retirement incomes by making sure that only those super funds that deliver and continue to deliver for their members will be able to be included as a default fund option in modern awards and enterprise agreements.

It is estimated that 4.5 million Australians will hold a MySuper account once this legislation is fully implemented, and those people have the potential to be $40,000 better off in retirement. MySuper has been implemented in response to the Cooper review, a comprehensive review of Australia's superannuation system by the former deputy chair of the Australian Securities and Investment Commission, Jeremy Cooper. The final report highlighted that not everyone wants to make a choice about their superannuation and often default members are not adequately protected and will find themselves paying for services that they do not necessarily need.

Although I am a strong advocate for financial literacy, particularly for women and particularly when it comes to superannuation, I do believe there needs to be adequate regulation of the industry to protect the retirement savings of workers and encourage more confidence in the superannuation industry. Recently I held the first of what I hope to be a number of financial literacy seminars for people in my electorate. It was run by the Parliamentary Secretary to the Treasurer and we held it at the Tuggeranong Seniors Centre. The seminar was very well received; it was a pilot seminar; and it provided an opportunity for people to learn about the scams that are out there now. I have spoken in this House many a time on the scams my family and my husband's family have experienced in very minor ways and the scams experienced by people in my community. It was a really good opportunity for us to talk about these scams and educate the community on the scams and what to avoid—if it looks too good to be true, then it probably is. There were many good, positive take-away messages from that seminar and I look forward to conducting more in the future.

The Cooper review also found that superannuation governance standards have not kept pace with developments in the industry. It suggested there were difficulties for trustees and directors on trustee boards to understand what is expected of them. It also found that, as the industry consolidates, it becomes more integrated, leading to more conflicts of interest. And that is why we are focusing on reforming the governance and supervision of our superannuation system. By giving APRA the power to make prudential standards in superannuation, it will have greater flexibility to effectively adapt to industry developments. It will also have the ability to provide regulated entities with clearer and more tailored legal requirements. This bill will also strengthen our response to the Cooper review by imposing new obligations on trustees that elect to offer a MySuper product, in particular compelling them to promote the financial interests of members more thoroughly.

By introducing this tranche of legislation, the government is making it clear that trustees should have increased responsibilities for default members who generally delegate all aspects of their superannuation to them. APRA must be satisfied that a trustee will comply with the enhanced trustee obligations and that individual directors of corporate trustees will comply with the enhanced director obligations to authorise an RSE licensee to offer a MySuper product. These duties for individual directors will be clarified and separately identified, and will include acting honestly, exercising appropriate care and giving priority to the duty to, and interests of, beneficiaries. This change addresses the concerns raised by the Cooper review that accountabilities in the system had become obscured by the corporate trustee structure, and will clarify the standards expected of directors of corporate trustees. These changes, which will improve governance and supervision in the superannuation industry, are especially critical given the Gillard government's historic commitment to increase the superannuation guarantee to 12 per cent, which, combined with existing growth, is expected to see super assets reach $6.2 trillion by 2036.

As we raise the bar in areas such as financial planning, it is fair that we ensure there are improvements in other areas of our superannuation system, including in the operation of the funds themselves and the conduct of trustees. The Gillard government's reforms will make our superannuation system stronger, more efficient and will help to maximise retirement income for Australian workers. It is in our national interest to encourage more Australians to save more for their retirement and to understand how their superannuation works. I often see and often have conversations with women—and they are all women—coming into my electorate office or I meet them in mobile offices or just down at the shops who are really doing it tough. Many of them are in their late 50s or early to mid 60s; they feel compelled to continue to work and they are worried sick because often they are in the private rental market and they do not have enough superannuation to sustain a comfortable retirement. They realise that they will probably be on superannuation for a couple of years after they retire and then it is on to the pension.

When I am talking to groups of young women, I always underscore the importance for them to plan for their super and plan to put money away throughout the course of their life. If they plan in advance—when they get married or in their early 20s—and they understand the ebb and flow of their career changes and how their finances change, they can plan to ensure they have a comfortable retirement and the appropriate superannuation.

One of the things I am keen to do is to conduct a series of seminars—originally they were directed at women, but there has been a lot of interest from men too—about how to read superannuation statements. By understanding what is actually in your statement you can then work out how much money you have, and you can then go and speak to a financial planner or do some homework and some research through the range of online resources—particularly government resources—and work out, 'All right, I need this amount of money for my retirement. How am I going to plan to make sure I have that money for that comfortable retirement?'

Superannuation is a subject that is very dear to my heart, having spoken to these women who are really doing it tough and who realise that they do not have enough superannuation. That is why I am constantly underscoring, particularly to young men and women, to plan for their retirement and to do that through superannuation.

As you can see, Mr Acting Deputy Speaker, we have a very clear plan when it comes to superannuation and helping Australians save more for their retirement. But there is an onus on the superannuation industry to facilitate higher retirement savings through greater efficiency and lower fees. We are assisting lower paid workers and also helping older workers who want to contribute more to their super. We are raising the superannuation guarantee for everyone, which will have a huge impact on the nest eggs of 8.4 million Australians.

Unfortunately—and we heard a bit of it tonight from the member for Mayo—those opposite think superannuation is the greatest con job ever. While Labor is getting on with the job of increasing the superannuation guarantee, those opposite have no plan because they want to scrap the mining resources tax, which is funding this historic rise in super.

The coalition originally opposed Labor's introduction of compulsory super in 1992, and I do believe that they remain a threat to the future retirement incomes of Australians. They still do not have a superannuation policy because they do not believe in it; it is as simple as that. Thankfully, the Gillard Labor government is committed to superannuation in Australia and is working hard to strengthen and improve this important economic policy. And it is working hard to ensure comfortable retirements for all Australians.

This latest tranche of legislation will help make our superannuation system more efficient, transparent and fairer for the millions of people who have put their faith in it, and I commend the bill to the House.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

Before I get into the substance of the bill, I would just like to correct something that my colleague from Canberra has just touched on. The mining resource rent tax was never, ever going to fund the three per cent increase in superannuation contributions. It was going to fund a reduction of one per cent in the company tax rate. But, as we have seen from the budget that has just been handed down, that has been done away with. So now the three per cent superannuation increase is going to be entirely paid for by employers, and they are not going to get any tax offset at all.

It is wonderful that—

Tanya Plibersek (Sydney, Australian Labor Party, Minister for Health) Share this | Link to this | Hansard source

You should have supported the tax cuts!

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It is not a tax cut.

Bob Baldwin (Paterson, Liberal Party, Shadow Minister for Tourism) Share this | Link to this | Hansard source

Always against the employers!

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

Yes—always against the employers.

Tanya Plibersek (Sydney, Australian Labor Party, Minister for Health) Share this | Link to this | Hansard source

Why did you vote against the tax cuts?

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

You produced a pretty good budget that is punishing small business, so you have nothing to hang your hat on in that regard.

In 2010 the IPA put a report out, Keeping super safe, and in that they made the comment that some 12 people control approximately $190 billion out of $220 billion in assets in the industry super fund network. It is this web of cross-shareholdings and directorships that would not be tolerated in the retail super fund network. There is also a lack of transparency and information on the investments and their relevant strategies. Industry super funds also make up, interestingly, some 84 per cent of award default funds—a significant and powerful financial position.

This bill before us tonight is about addressing some of the issues raised in the Cooper review. But, again, the focus of this piece of legislation is more directed at the retail super fund market than at holding the directors and shareholders of the industry super fund network accountable. And, as I have just touched on, it does not deal with some of the issues that I have just raised from this report.

But the bill does seek to increase obligations on superannuation fund trustees and directors generally, and more specifically for MySuper trustees. It gives APRA the power to issue prudential standards in relation to prudential matters related to superannuation, and it contains provision for additional statutory duties for trustees of super funds—specifically MySuper trustees, where they must promote the financial interests of beneficiaries' returns in particular. They must assess annually the sufficiency of scale, or so-called scale test, and include in their investment strategy an investment return target and a level of risk for MySuper fund members.

Just these three points in and of their own raise a number of questions. In particular, how is the investment return target set? What is the appropriate level of risk for MySuper fund members? Who is going to determine those? And what are the consequences for the trustees and directors of those MySuper funds that do not achieve those targeted rates of return or exceed the level of risk?

Trustees of registrable superannuation entities must give priority to the interests of beneficiaries where conflicts arise. I think that probably is a much bigger risk in the industry super fund network than in the retail network. An explanatory memorandum makes mention of the fact that trustees must act fairly, but who defines what 'acting fairly' is? They are supposed to exercise the same degree of care, skill and diligence as a prudent superannuation trustee would. Who defines what a 'prudent superannuation trustee' is? They must have regard to valuation information, expected tax consequences and costs of their investment strategies, and offer a range of options sufficient to allow members to choose a diversified asset mix. Well-run funds already do all of these things to maximise the returns for their members. They must have an insurance strategy and meet additional duties in relation to insurance. They must formulate, regularly review and give effect to a risk management strategy, and maintain and manage the financial resources to cover operational risk. These are all sound ideals. The covenants of the default rules for the trustee governance in the super funds are similar to model rules for a company, and they would replace the existing, differently worded covenants contained within the Superannuation Industry (Supervision) Act 1993. It is always worthwhile to support things that are going to simplify regulation and make it easier and clearer for our trustees of super funds or in any manner of business to do their job. Schedule 1 of the bill also sets out a series of new covenants and obligations that will apply to individual directors or corporate trustees and imposes a personal liability on directors by deeming them to be parties to the governing rules of the trust.

Schedule 2 introduces the power of APRA to make prudential standards. As Australia's prudential regulator, APRA already has the power to issue prudential standards in relation to authorised deposit-taking institutions, life insurance companies and general insurance companies but, to date, not superannuation funds. The current powers for APRA do allow it to issue guidance material on expected standards. However, these materials are not legally binding. I think APRA has a reasonable track record over the years, and I think this is a sensible step in giving it this additional power. According to this amendment, the prudential standards will then be determined and drafted by APRA and they will become legislative instruments within the meaning of the Legislative Instruments Act 2003 and will be disallowable by parliament.

The Cooper review into Australia's superannuation system in 2010 recommended that APRA be given these standards-making powers. Additionally, the Cooper review made a range of recommendations relating to governance of superannuation, which has largely been ignored by the government. The recommendations include—and I have probably touched on these already—that disclosure of conflicts should be mandatory, that directors must properly disclose their remuneration in line with provisions that apply for publicly listed companies, that there be appropriate provision for independent directors on superannuation fund boards, and that directors who want to sit on multiple boards must demonstrate to APRA that they do not have any foreseeable conflicts of interest.

The coalition strongly supports genuine attempts to improve corporate governance and transparency for directors and trustees of super funds, as well as improvements and enhancements to prudential standards in superannuation. As has been mentioned in a number of contributions tonight already, superannuation is one of the key pillars that Australians use to accumulate wealth to fund their retirement, so it is important that that money be properly looked after. However, we do not support this bill in its current form, because it imposes a vague annual scale test on superannuation trustees which would be impossible to administer in practice. The coalition has serious concerns about the new scale test provided in this bill, which requires trustees of superannuation funds:

… to determine on an annual basis that there is sufficient scale, in terms of assets and beneficiaries, such as to not disadvantage the financial interests of beneficiaries relative to the financial interests of beneficiaries in MySuper products in other RSEs …

Who is going to determine what sufficient scale is? Industry experts such as the Financial Services Council have indicated that such an external comparison would be impossible to conduct in practice, as a trustee will not have sufficient knowledge of other registrable superannuation entities to meet this test. The scale test is based on a presumption that larger funds invariably provide lower fees and higher returns to members. There is no evidence to indicate that this presumption is correct in all cases. The scale test, if implemented in its proposed form, could be another potential source of advantage to the larger industry superannuation funds because they already have existing scale, and their ability to gain significant additional scale is then almost enshrined in law. The scale test would create a significant new barrier to entry for new funds by making it more difficult for them to achieve the required scale from the outset, which would lead to a reduction in competition in the superannuation market. It may also lead to further consolidation and mergers of super funds that are driven not by an assessment of the overall best interests of the members but by concerns about meeting this technical and arbitrary test.

Already industry groups have submitted that a better alternative would be an internal test based on a finite list of factors rather than the open-ended and poorly defined external test that the government has proposed. The government should withdraw this provision and embark on a proper consultation process with all participants in the superannuation industry to achieve a more appropriate and more workable outcome than the current flawed proposal. The coalition will move an amendment to remove proposed sections 29VN(b) and 29VN(c) of the bill, which impose the scale test. With MySuper not due to commence until 1 July 2013, we believe the government has ample time to engage in meaningful consultation with the industry if it wants to introduce a more practical test. This would assist in preventing potential negative consequences for members of affected superannuation funds.

In addition to the scale test, we are also concerned about a new provision in the bill which may impose personal liability on directors of superannuation fund boards for meeting the collective obligations of the trustee board by introducing a series of new covenants for directors and deeming individual directors to be parties to the governing rules of the super fund. Section 52 of the Superannuation Industry (Supervision) Act 1993 imposes a series of statutory obligations or covenants on trustees of regulated super funds. These covenants or obligations are exercised by the board of directors or the trustees, acting in a collective manner. This bill proposes to replace existing section 52 with a new section containing enhanced statutory covenants that will be imposed on all regulated super fund trustees, including MySuper trustees. The bill also contains a new section 52A which extends the covenants to individual directors of super funds. There is no equivalent provision in the current SI(S) Act. The new section would make individual directors personally liable for any breach of covenants by deeming them to be parties to the governing rules of the fund. The coalition strongly support enhancing and clarifying the law relating to the obligations of super fund trustees and directors. We also support introducing provisions that clearly deal with conflicts of interests of directors of super funds and ensure that, at all times, directors of super funds put the interests of fund members ahead of any other interests, including their own personal interest. However, there are some strong concerns about the mechanism that the government has used to attempt to achieve this. The bill attempts to introduce covenants that are imported into governing rules of every single super fund and then tries to bind directors to these covenants by deeming each director a party to the governing rules of the fund.

The provisions of section 52A appear to reverse the longstanding convention that boards of directors are jointly or collectively liable for decisions made by the board, including a trustee board, and that the directors are only personally liable if they breach their directors' duties, including their duty to act with reasonable care and diligence at all times. The provisions are so broadly drafted they may not provide certainty for directors who are trying to faithfully execute their duties that they are complying with the law.

In conclusion, the coalition will closely monitor the impact of these new obligations on directors of super funds when they come into force and will act to address any issues that may arise. The government continues to ignore many of the sensible and important corporate governance recommendations of the Cooper review because the government continues to put the interests of its mates in the union dominated funds ahead of those of Australians in the superannuation system. (Time expired)

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

I am pleased to rise to speak on the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012. This bill amends the Superannuation Industry (Supervision) Act and purportedly increases governance standards for superannuation funds. Unfortunately, as is often the case, the reality is somewhat different from the promise. In the brief time available to me this evening I want to focus on three aspects of the bill which, in the coalition's view, are deeply troubling. The first is that the government has cherry-picked a small selection of the governance reforms recommended by the Cooper review and has conveniently neglected reforms which do not suit the agenda of its union mates. Secondly, the scale test, which is one of the centrepieces of this reform, does not make good sense in economic logic or day-to-day practice. Thirdly, the provisions which impose additional obligations on directors are ill-conceived and go too far.

Let me turn to the first point, about the extent to which the government has cherry-picked certain changes recommended by the Cooper review into superannuation and has ignored other key recommendations, including the recommendation that the disclosure of conflict of interest should be mandatory and the recommendation that the so-called equal representation model should no longer be mandatory. Of course, I need hardly add that the equal representation model is code for union officials having a privileged role in the governance of superannuation funds. Another reform recommended by the Cooper review which is ignored in this legislation is that, where the equal representation model continues to apply to a superannuation fund, at least one-third of the directors on the board should be independent.

In light of the scandalously bad state of governance recently revealed in the Health Services Union, and the flow-on implications for superannuation funds, these governance issues are of urgent importance. Let me remind the House that the government's problems with the Health Services Union are so severe that the Australian Council of Trade Unions has cut its ties with the Health Services Union. Yet until recently a significant number of Health Services Union directors have been appointed to the board of major superannuation funds, and several Health Services Union officials remain directors of major superannuation funds.

Let me remind the House that Health Services Union boss Michael Williamson, a man against whom very serious allegations of corruption have been made, was until recently a union appointed director of First State Super, a fund with some $30 billion under management, funds which are there to provide for the retirement incomes of current and former New South Wales public servants. Just last month the chairman of First State Super complained that he had no power to remove Mr Williamson as a trustee of that fund despite the very serious allegations which had been made about Mr Williamson's conduct.

Other Health Services Union officials on superannuation fund boards include Mr Peter Mylan, who is still on the board of First State Super. He is the assistant secretary of the Health Services Union of New South Wales and was recently described in the Australian as a long-time Williamson loyalist. Rosemary Kelly and Lloyd Williams, two other HSU officials, are both directors of HESTA, which has $18.3 billion of funds under management. Those who listened carefully to the member for Dobell's statement yesterday would have noted with interest his allegations about another HSU official, Kathy Jackson. The member for Dobell alleged that she was recently on the board of HESTA but stepped down once it became the policy of the union that directors fees needed to be paid to the union. I have not tested whether the allegation is correct or not, but it is an interesting insight into the attitude of the member for Dobell, a former union official, about the way positions on superannuation fund boards are broadly seen as prizes to be handed out to union officials.

It is curious indeed that a union whose affairs have become a byword for mismanagement, corruption and failure of governance is in a position, by reason of design features of the superannuation system put in place by the Keating Labor government, to appoint its officials to the boards of major superannuation funds with responsibility for many billions of dollars. As the chairman of First State Super complained last month, if the conduct of the directors proves to be problematic or if there are other reasons why it might decide to remove them from the board, there is no capacity to do so because the appointment to the board is wholly in the gift of the relevant union.

This is not specific to the Health Services Union. This is a systemic issue. There are dozens of superannuation funds in Australia which have up to half of their directors appointed by a union. That means that if there are flaws in governance, if there are flaws in the organisational culture in those unions then there is a real risk of those cultural flaws being transmitted to the superannuation funds. That is a matter which should be of great concern to the millions of Australians, most of whom are not associated with unions at all, most of whom are not union members, who have their superannuation savings invested in these funds on which union appointed directors sit.

You would have thought that this bill before the House, dealing as it does with the governance of superannuation funds, purporting as it does to give effect to the recommendations of the Cooper review, would have dealt with the recommendation in the Cooper review to deal with the so-called model under which union officials have a privileged appointment position on boards of superannuation funds, the so-called equal representation model. You would have thought that this would have been the perfect opportunity to give effect to the recommendation of the Cooper review that the equal representation model should no longer be mandatory. But Minister Shorten has chosen not to implement that recommendation. I note in passing that Minister Shorten is a former union official and a former union appointed director of a superannuation fund. I note that Minister Shorten was quoted as saying about the Fair Work Australia report into the Health Services Union scandal that he was 'appalled'. I am reminded of Captain Renault in Casablanca who was 'shocked' to discover that there was gambling going on.

Let me turn to the second issue I want to raise, which is the scale test. This bill purports to impose a so-called scale test, which is fundamentally misconceived. It would impose upon directors a black letter law obligation each year to determine if there is sufficient scale in the fund—that is code for saying that the fund is big enough such that members are not disadvantaged. It is a bad idea for three reasons: it is deeply anticompetitive and serves the interests of the big funds while making it harder for smaller and newer entrants; the idea that scale is an absolute good is wrong; and the test as drafted is unclear, impractical and unworkable.

Firstly, it is deeply anticompetitive to say we will put into the legislation a criterion that the big funds can automatically meet and that the small funds are at a systemic disadvantage in meeting. It is hardly surprising in this context that the scale test has been pushed by the Industry Super Network, the lobby group that represents large industry funds such as Australian Super. Again, I remind the House it was a predecessor organisation of Australian Super that the present Minister for Financial Services and Superannuation was formerly a director of. I also remind the House that two other members of the parliamentary Labor Party, the minister for climate change and Senator Doug Cameron, were also former directors of Australian Super. In other words, there is a real concern that the policy agenda of the big funds is being pursued by this government. It is interesting that the Australian Institute of Superannuation Trustees, which represents the trustees of super funds across the board including industry super funds, is opposed to the scale test. They told the joint parliamentary committee:

While accepting that scale may provide benefits to members, AIST confirms the position we put before the Committee. That is, the pursuit of optimal net returns to members having regard to risk considerations and the safe stewardship of members’ benefits should the overwhelming obligation upon trustees … and this obligation should not be clouded, diminished or distracted by other considerations including scale.

The second reason why the scale test is a bad idea is that it is simply wrong that scale is an absolute good when it comes to investing money. It is well accepted, in fact, that investment funds that are too big compared to the size of the market will effectively be precluded from taking up many investment opportunities. They cannot easily invest in small companies because the size of the investment stake they need to make as a proportion of their large fund would swamp the size of the company they were trying to invest in. This is a well acknowledged problem in the whole area of funds management—that is, when the fund becomes too big certain investment opportunities, particularly in smaller companies, are precluded. And that is just one instance of the general proposition that to claim that scale is an absolute good, and that that is an uncontested matter such that it should be put into legislation, is fundamentally ill conceived.

Thirdly, the test as drafted is unclear, impractical and unworkable. As the financial services counsellors pointed out, it means that directors will be required to make a comparison with other superannuation funds when they may very well not have available to them the relevant information about the other funds. The nature of the agreement between a fund and its service providers may not be publicly known. So it is very bad policy indeed to put into legislation a provision which is so poorly drafted that in practical terms it is very difficult for directors of a trustee company to know what they have to do to comply with it.

The ill-judged provisions in this bill seek to impose additional obligations on the directors of a corporate trustee as well as upon the trustee itself, for example, the duty to act honestly in all matters concerning the superannuation entity and a whole range of others. They all sound very worthwhile in principle. But when we consider the practicalities, one of the issues which is troubling is that the Cooper review essentially recommended that there ought to be the merger of the office of director and the office of trustee. The government correctly rejected that recommendation because of the confusion that would result, and yet this bill is now taking up that suggestion again.

One of the things that is very troubling about these provisions is that they potentially make directors of a corporate trustee personally liable to beneficiaries. They materially deviate from the position in the current Corporations Law in which the obligations of a company are not ordinarily ascribed to directors. They will undoubtedly make it more difficult to recruit high-quality directors to the boards of superannuation funds, because they will find themselves bearing specific obligations which are not borne by directors under the general corporate law. So these provisions have been very poorly thought through. There is a great deal of angst about them amongst what might be called the community of professional directors. The coalition has stated that we will be moving amendments designed to remove the provisions which result in this additional liability.

I am sorry to have to tell the House that this bill, like much of what this government does, is not what it purports to be. This bill is purportedly motivated by a high-minded intention to improve the governance of superannuation funds, and as a principle that is one we can all sign on to. I strongly endorse the comments made by members of the House on both sides that superannuation is an extremely important savings vehicle. But it is very hard to overlook the clear fact that this bill fails, and conspicuously fails, to address the most important of the reforms which were recommended by the Cooper review, particularly reforms designed to break the union stranglehold on industry super funds. And the reason is undoubtedly the fact that the present minister, and those who put him into his position, like the current arrangements. The scale test is bad policy. There are key aspects of this legislation we oppose.

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

Since the former speaker has outed the minister, the member for Maribyrnong, and Senator Doug Cameron, as being for my trustees of Australian Super, I suppose I should declare an interest in this matter: I am actually a member of Australian Super. I have certainly no inhibition in being part of industry superannuation. It has certainly served this nation well and many of the workers out there.

In 1984 I was part of the campaign at that stage when I was an officer of the Australian Workers Union campaigning for superannuation for blue-collar workers. At that point in time those that had superannuation tended to be in the white-collar sector or public servants. The application of superannuation was a direct trade-off for a productivity increase. As opposed to a four per cent increase in productivity the union movement subscribed under the award based deal for a three per cent increase in superannuation. It was the first time award based employees had general access to superannuation. What followed that, of course, was that in 1988 the Labor government brought in superannuation for all workers. That was a three per cent increase of paid rates to all Australian employees. That was revolutionary. I thank the member for Bradfield in saying that superannuation is a good thing, and collective savings are a good thing. But go back and have a think about it: that was opposed by those opposite at that stage. This now represents $1.3 trillion which is under management in this country. This is a great Labor initiative.

As a consequence of those initiatives industry funds have flourished. But in terms of securing management, that has got to be an ongoing thing that causes all of us to have an interest in. We want to make sure that not only are the funds there well managed but also that the members are being appropriately serviced in the modern, dynamic environment in which we live.

The Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 is the second tranche in the legislation implementing the government's MySuper governance reforms. Trustees that elect to offer MySuper products will have to meet the new obligations, in particular to promote the financial interests of members. The government has decided to introduce enhanced trustee obligations for trustees of funds that offer MySuper products, recognising that trustees should have increased responsibilities for default members who generally delegate all aspects of their superannuation to them. Further, APRA must be satisfied that the trustee will comply with the enhanced trustee obligations and that the individual directors of corporate trustees will comply with the enhanced director obligations to the authorised RSE licence and offer a MySuper product.

These are pretty significant things. It is going to ensure that there is a default position for all Australian workers who do not go out there, particularly in the casual sector, and elect a product. The product that their superannuation will go into will be one that subscribes to those principles of MySuper.

The duties required of a superannuation fund trustee other than a SMSF will be expanded to give priority to the interests of beneficiaries. Where conflicts arise, the former strategies for insurance and risk will have regard to the valuation and information, expected tax consequences and the cost of the investment strategies. This is actually imposing those responsibilities directly on the trustee and APRA must ensure that that does occur. Trustees not complying with those requirements are not satisfying the conditions of MySuper and therefore are in a position of being in default of their responsibilities. These things are very important, particularly, as I say, where you have a situation where $1.3 trillion is now under managed funds. This is something that our economy is well and truly benefiting from and will continue to benefit from. It is not a matter of how we entice directors to invest in things such as national based infrastructure—

Debate interrupted.