Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011. The proposed bill implements the core elements of MySuper, the government's election commitment to introduce a simpler, cost-effective superannuation product that will replace existing default products. The bill will enable authorised APRA-regulated superannuation funds to offer a MySuper product from 1 July 2013 and will make it mandatory for employers to make contributions to superannuation funds that offer MySuper products from 2013 in order to meet the superannuation guarantee requirement.

MySuper is a major reform stemming from the landmark Cooper review into superannuation. Part of the terms of reference of the Cooper review was for a comprehensive examination and analysis of the governance, efficiency, structure and operation of Australia's superannuation system, including both compulsory and voluntary aspects. It was conducted around the concept of the best interests of the members and maximising the retirement incomes for Australians. Every member of this House knows how important superannuation is in achieving maximum retirement incomes for Australians. Particularly in a society where we have an ageing population, superannuation is becoming more and more important.

Also in the review's terms of reference was a major emphasis on improving the regulation of the superannuation system, reducing business costs within the system, a systematic examination that included all superannuation fund sectors, having regard to the communique of principles for superannuation, and comparatively examining international jurisdictions and consulting with experts as needed.

The final report recommendation was provided to the government in June 2010. There has been ongoing consultation in relation to the report, which made the case for reform. The report contained 177 recommendations, including MySuper and choice of fund default arrangements, trustee governance, investment governance, transparency of fund operation, insurance arrangements and fees, prudential requirements, retirement products and advice, self-managed superannuation funds, and back office industry arrangements.

At the conclusion of the Cooper review and consultation, the government indicated that further consultation would be undertaken with stakeholders before the implementation of the reforms. So this legislation before us today has been developed following on from a review and in an environment where there has been maximum consultation with all parties. There have been some areas where there has been some disagreement. Obviously those on the other side of this House will always find something to disagree with, even when the legislation is going to really benefit the majority of Australians. On this side of the parliament we listen to what constituents say to us. We are very interested in designing products, policies and systems that are going to maximise the benefits to the people we represent in this parliament.

MySuper is one of those pieces of legislation. The bill before us today introduces the core elements of the MySuper reforms which the government committed to during the 2010 election. Many problems had been identified with the default system that had been in place. Being a government that was committed to reform and a government that wanted to maximise retirement benefits for Australian workers, we set about putting in place the MySuper reforms. The MySuper products will be simple, cost-effective default superannuation products that will replace existing default products. This has been shown to be needed, because the current default products have many problems with them, and at the end of the day superannuation, as I mentioned earlier, is about maximising income in retirement. We believe that putting in place the MySuper products will maximise returns to those people that are currently being disadvantaged in relation to superannuation in their retirement years.

I might just take a moment to mention that in Australia we have an ageing population. The electorate I represent in this parliament is one of the oldest electorates in the country, and I know how important it is to a person when they retire to know that they are going to have a decent income on which they can enjoy a good quality of life and be able to do all those things that people dream about doing in their retirement. This is not possible if you have superannuation products that are not delivering the returns that people need in order to achieve this standard of living, particularly as we are moving more to a system with the compulsory superannuation that has been in place for some time now, where we are hopeful that people will be able to rely on their superannuation to finance their retirement.

So it is very, very important that we get this right, and I believe that the legislation we have before us today is good legislation that will help us do just that. Under the legislation, authorised superannuation funds will be able to offer MySuper products to members from July 2013. That gives superannuation funds a lead-in period of 12 months to be able to develop the products that not only will be attractive but will deliver the income stream that people require when they retire. All default superannuation contributions from employers will be required to be paid to a fund that offers a MySuper product from 2013 so employees can be confident that their superannuation contributions are being put into a product that is secure and that has been designed to benefit them. Funds will not be able to accept default contributions after this time unless they either offer a MySuper product or are a defined benefit fund. In other words, contributors to superannuation and employers that contribute to superannuation on behalf of their employees will not be able to use a default fund other than one that is a MySuper product after July 2013. Trustees will be required to apply to APRA for authorisation for each super product they wish to offer. I should just correct that default date; it is after 1 October 2013, not July 2013. I just correct that for the record. Before receiving authorisation, trustees will need to ensure that the governing rules and trustees of the fund are changed to reflect the enhanced trustee obligation required for MySuper products, which once again is delivering surety to those workers whose superannuation is being put into those funds that the product is a sound product, as well as ensuring that MySuper products will comply with the MySuper characteristics introduced in this bill, including the requirement of diversified investment strategy. That may be for the life cycle.

Trustees will be restricted to one MySuper product per fund unless they meet a branding goodwill exemption or a large employer exemption. The branding goodwill exemption will allow merger superannuation funds in which there was material branding goodwill prior to the merger to maintain their existing brand names and continue offering different MySuper products. The large employer exemption will allow funds to offer a tailored MySuper product to employers that contribute to the fund for the benefit of at least 500 employees and associates to suit the needs of a particular workplace. Funds will be required to charge all members the same set of fees in regard to MySuper products. However, some employers will be able to negotiate a discount administration fee for their employees in the generic MySuper product. This will allow trustees to provide more flexibility to certain employees and employers and will result in some members not being forced to pay higher fees as a result of the introduction of MySuper. The remaining elements of MySuper reform, including enhanced trustee duties, insurance arrangements and disclosure, will be introduced in subsequent pieces of legislation. MySuper products will have a single diversified investment strategy. They will be able to offer standard sets of fees generally available to all members. However, funds will be able to offer discounted administration fees to employees of particular employers, reflecting the administrative efficiency of the funds. I have already been through the timing of the implementation. The basis of the policy commitments is that the legislation is about ensuring that MySuper is a product that will benefit employees whose superannuation goes into a default fund. It is about making sure that the MySuper products that are being offered are products that will deliver on the expectation that has been established in the Cooper review into superannuation. This is legislation that has been developed after widespread consultation with all sectors: employers, providers of superannuation and employer groups. I commend the legislation to the House.

Steven Ciobo (Moncrieff, Liberal Party) Share this | Link to this | Hansard source

It is a pleasure to get up and speak after the member for Shortland's very passionate speech on the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011. It is clear the member for Shortland has a great and abiding interest in MySuper and I congratulate her on the passion with which she delivered that speech.

More broadly, I want to talk about MySuper and what it is the government is attempting to do. We know that at the core of this issue is the government's consistent approach to what it has been doing lately with the array of websites and government initiatives that are all about 'my health', 'my education' and these kinds of things. We know that this reflects an approach to policy development consistent with the big government approach of this government, which places it at the epicentre of every decision that an Australian family or indeed a single person would ever need to make.

This is the latest iteration, and it deals with MySuper, which is this government's way of saying, 'We're going to provide a single whole-of-government approach to dealing with superannuation so that people can know that they can go into a so-called low-fee, low-frills superannuation package which will provide for their retirement.' At least, that is what the packaging says. In reality it is important to read the fine print, and this proposal, like most of those we have seen from the government, actually betrays the best interests of Australians when it comes to the development of superannuation. The question is: 'Why?'

There are a number of reasons. First and foremost, this legislation in no way addresses the single biggest betrayal of Australian workers when it comes to their superannuation, which is the entire way that the government has structured the industrial relations system and, in particular, the awards system so that there are non-transparent approaches adopted by Fair Work Australia when it comes to default funds.

Superannuation is not a particularly sexy issue. Most Australians are not that interested. I do not know why, because I think superannuation is kind of interesting—but that's me. That notwithstanding, many Australians do not take an interest, on poor advice, about what is going on with their superannuation when they should. It is clear that they should, because for 30 or 40 years of their working lives—and who knows, maybe even 50 years—they will be making contributions as mandated by law into a super fund, or into super funds, with the expectation that when they retire they will able to draw out an annuity from those funds and provide for their retirement.

That is a laudable policy goal. On both sides of the political aisle we support that notion. But the fundamental difference is this: at a time when many Australians lose track of their superannuation as they shift between different jobs, and end up with four, five or six different superannuation accounts—and we consistently see advertisements from both industry and the government highlighting how much money is lost in unclaimed superannuation that should be consolidated—we see the government's approach in this particular bill is to say, 'We're going to require that there be a MySuper product.' Essentially, this seeks to deliver to Australian workers a default fund proposal. I expect, from a policy rationale point of view, that the government's rationale for this is to say, 'We will, hopefully, achieve consolidation in the industry so fewer Australians will have multiple accounts and, in fact, will end up with only one superannuation account.'

Again, on the surface that sounds laudable. But the reality is that is not what is going to occur under this legislation. The reality is that under this legislation we will continue to have Fair Work Australia, under our once again heavily regulated industrial relations framework, making decisions in a non-transparent way about what the default funds will be when it comes to so-called modern awards. We already know that fewer Australians will have jobs under this government—and I contend that fewer Australians have jobs under this government, and that is why the unemployment rate has gone up—because it has been forcing up labour costs under its so-called modern awards program. But rather than dealing with increased labour costs, or with the fact that there is still no transparency when it comes to default funds—despite running 180 degrees in the other direction to the government's focus under the so-called future financial advice legislation—the government is not tackling that issue when it comes to this particular bill.

What is it the government has to hide? Why is it the government will not allow a situation to arise where there can be transparency when it comes to a choice of superannuation funds and when it comes to the default funds that apply under modern awards? Why is that too much to ask? Why should Australians, who are forced in many instances to operate under award conditions, not know that the choice of superannuation fund that their contribution is being paid into is, in fact, the best value fund for them? Why should it be a decision taken behind closed doors? Why should it be a decision that is not readily transparent and that people can then make an assessment about? The government should provide a policy rationale for that but it has failed to do so.

It is my contention that the reason the government does not do that is the single biggest stakeholder group, which is a beneficiary of the current system and has indeed benefited more than just about anybody else as a consequence of the heavy reregulation of the labour market, has been the industry superannuation funds. We also hear many rumours about the significant extent to which industry superannuation funds make contributions to the Labor Party. On that basis, I certainly do not agree with the generic approach that has been adopted with respect to default funds, because it is unfair to Australian workers and especially to the lowest-paid Australian workers. It is unfair that they should not be able to have transparency when it comes to their choice of superannuation fund.

In addition to that, what we see under these provisions in this piece of legislation is the opportunity for funds to provide intrafund advice. Amazingly intrafund advice is not defined in the bill. Likewise under the Future of Financial Advice there is no definition of intrafund advice. Intrafund advice is an interesting issue, because under the bill that is before the House there is opportunity for intrafund advice to be charged for—that is, 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 MySuper product. In other words, if you are in a MySuper product, even if you do not take advantage of obtaining advice from that fund, you will still be paying for it and you will still be cross-subsidising other fund members who are obtaining advice.

On the one hand the Labor government has taken the policy approach under Future of Financial Advice, FoFA, that beneficiaries of advice when it comes to financial services should have to pay for it and there should be transparency under FoFA. But on the other hand, when it comes to the Industry SuperFunds network, when it comes to those who are big supporters of the Australian Labor Party, the Australian Labor Party turns a blind eye. It is not interested in transparency and it turns a blind eye. It is not interested in making sure that only those who are obtaining advice are paying for advice. No, instead the Labor Party deliberately leaves it as a very grey, murky area, so that people are able to obtain financial advice within the fund and have that cross-subsidised by others who are not beneficiaries of that advice.

Again this is not the kind of issue that is going to get people rioting on the streets, and I acknowledge that. They are not going to be chanting up and down George Street complaining about the fact that under this piece of legislation they are going to be cross-subsidising others, but it does not make it right. It does not make it right that the government would implement legislation which says, 'You're not accessing financial advice from a super fund, but we don't care about that and you're still going to cross-subsidise somebody else's.' The sheer hypocrisy between the positions of FoFA and this piece of legislation is glaring.

I think it is important that the government is pulled up for it, because its inconsistent approach with respect to FoFA and MySuper could not be any more obvious. Industry knows about it, talks about it and is concerned about it. The only ones who do not are the Australian Labor Party and the Australian Industry SuperFunds. That is the reason why Australians have the right to be very cynical about this government's approach to MySuper and in particular to intrafund advice.

The coalition is also looking at moving amendments with respect to other aspects of this bill. In particular the coalition amendments will look at clarification of the charging of fees for the provision of intrafund advice, because we want to address the very issue I have just spoken about. We will look at improving the definition of the large employer threshold. We will also look at replacing the additional authorisation requirement for large employer funds with a reporting requirement to APRA. The reason we are dealing with the second limb, improving the definition of large employer threshold, is that significant concern was expressed to the Parliamentary Joint Committee on Corporations and Financial Services, which undertook the inquiry into this bill, about the benchmark as it is currently envisaged above which large employers can tailor funds for their employees. The provisions of the bill allow for such tailoring when an employer contributes to a fund on behalf of 500 or more members. Yet the submissions from many industry participants made it clear that they were concerned about the operation of these provisions. They contend the current threshold is complex, unworkable and may have a large number of unintended consequences.

The coalition is simply seeking to amend the bill by replacing the complex and unworkable threshold with a simple, easily quantifiable and effective test that defines the large employer threshold as any employer that has 500 or more employees at the relevant time. This is a much more straightforward approach and one that industry is happy with, both those that are Industry SuperFunds and those that are other private superannuation providers, as are employees. We urge the government to adopt this approach, because it is a much more straightforward approach.

Likewise the coalition's approach with respect to the reporting of large employer funds to APRA is that you only need to be licensed to operate in an industry once. We find it ludicrous that the government would seek to have large funds applying to APRA each and every time they seek to approach a large employer. It is entirely inconsistent with the so-called bread-and-butter approach of APRA, which is as a regulator and not as a rubber stamp that superannuation funds have to approach prior to approaching a large employer. In the coalition's view, what is needed is that we simply have those superannuation funds being required to report that information to APRA and not having to seek approval from APRA in the first instance.

In summary, the most concerning aspect of the current Superannuation Legislation Amendment (MySuper Core Provisions) Bill is the fact that it does not deal with the most glaring aspect of the inconsistent approach of the government with respect to FoFA and MySuper legislation—that is, the selection of default funds. Australians should not have to tolerate this government's heavily re-regulated approach to the labour market and the selection of default funds for employees behind closed doors. Australians should have the right to know the basis upon which default funds are selected. We should never lose sight of the fact that if one of the so-called MySuper funds, the so-called low-frills funds which are meant to provide cost savings for employers, is performing poorly then the actual reduction in return to a member's money might very easily exceed any so-called advantage that flows from being a low-frills, low-cost approach to the administration of the fund. The government is concerned about the costs associated with fund administration. The government is concerned about not having too many bells and whistles if they need not be there, and yet the government simply does not recognise that a reduction in return in a fund like that could actually very easily result in members of that fund receiving a lower return on their invested money. And that lower return could easily outstrip the so-called extra administration expenses and fees associated with a more tutti-frutti fund rather than a plain vanilla fund, which is what the industry jargon would be for a MySuper fund.

I think that government members have an obligation to spell out to the Australian people why they continue to hide behind Fair Work Australia's approach to the selection of default funds and why they continue to not require transparency and why they continue to have such a gross discrepancy between their approach to MySuper and FoFA.

Mike Symon (Deakin, Australian Labor Party) Share this | Link to this | Hansard source

I speak in support of the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011. This legislation will introduce a new simple, low-cost default super product called MySuper. Treasury projections show that the superannuation system is expected to grow to $6.1 trillion by the year 2035. The future of Australia's retirement savings is bound up in the superannuation system, a system of course introduced by a Labor government. The intent of this bill is to ensure that this money is managed effectively and efficiently on behalf of members and in their interests. This bill is based upon the recommendations of the Cooper review into superannuation, a review that was instigated by the federal Labor government in 2009.

As we know, compulsory superannuation was introduced in 1992. This review was designed to check on the progress and effectiveness of the architecture of the current system. The review investigated a number of key aspects of Australia's superannuation system including governance solutions, back-office arrangements, commissions, fees, lost superannuation and default funds. In its final report, the Cooper commission recommended the establishment of a low-cost default fund for workers who did not identify choice in their superannuation. In making its case for this reform, the Cooper review noted there were a number of issues in Australia's superannuation system that needed to be addressed.

The Cooper review said members' interests were not always paramount in system design and regulatory settings. Efficiency was left in the hands of market participants. Members perceived superannuation as too complex and opaque and there is an overall lack of transparency and comparability of superannuation products. Default members are not adequately protected and can find themselves paying for services they do not need or request and, on some occasions, that they may not receive. Trustees may not always be focused on acting for the benefit of members and maximising members' retirement incomes in an efficient and cost-effective way.

The final report of the Cooper review contained 177 recommendations covering 10 broad areas of reform. The government response to the final report of the Cooper review is to support or support in principle 139 of the 177 recommendations. Further consultation was undertaken with the stakeholders on the implementation of reforms and the government announced its final response to the Cooper review on 21 September 2011.

This bill takes one of the key recommendations of the Cooper review—that is, to establish a low-fee default fund for Australia's superannuation system and make it a reality. By creating a simplified super product, MySuper, into which contributions are paid if the employee does not express a choice about which fund their superannuation contributions are paid, the full benefits of the long-term accrual of super can be enjoyed by more working people. MySuper is proposed to have specific parameters with respect to investment strategy, administration and other fees, trustee obligations and disclosure. MySuper will have a single diversified investment strategy and a standard set of fees generally available to all members. New standards will be put in place that providers of MySuper products must meet including no entry fees, entry or exit fees limited to cost recovery, a ban on commissions and conflicted remuneration structures in retail distribution, and advice in line with the government's financial advice reforms. Also new duties that require super fund providers to deliver value for money or be stripped of their licence by the regulator—a single, simple and easy to understand investment option designed to maximise a person's retirement income, which is what super should always be about. Finally, there is a standardised reporting requirement so that super reports come out in plain English.

From 1 October 2013, employers must make contributions to a MySuper product for employees who have not chosen their fund. All new superannuation payments in this default situation will be commission-free from that date. By 1 July 2017, funds will need to transfer existing default balances to a MySuper account.

Very often a member does not choose the fund to which they belong. New employees typically become a member of their employer's default fund. In most cases this is a standard balanced superannuation option. Roughly 80 per cent of members are in such a default option. The Cooper review made the recommendation to establish a low-cost default superannuation fund based on the evidence that the vast majority of superannuation members were in their default funds and were not necessarily aware of the different fee structures of funds. In some cases, fund members may be paying substantially more in fees than is necessary and that can have an enormous impact on the balance of the member's fund when retirement does come around. For example, someone at the age of 30 with a $20,000 super balance and currently earning $50,000 a year would have an extra $51,000 at retirement if they switch from a fund with a two per cent annual fee to a fund with a one per cent annual fee.

Compulsory contributions do not come directly out of members' pockets and nor do the fees or charges. As such, it is likely that people receiving super under the super guarantee are much less price aware and much less likely to make a decision based on price or cost as to where their super goes. In addition, the level of product complexity, the lack of information and transparency about fees and performance means that it is a major challenge to choose a fund based on fees. MySuper will create a default fund that precludes practices such as hidden commissions and excessive exit fees. By referring to the Morningstar superannuation database it can be seen that a number of superannuation funds have exit charges of somewhere up to three per cent, four per cent or, in some cases, five per cent. Exiting a fund with a five per cent exit fee has a substantial impact on retirement. An example would be a $500,000 nest egg. That could be as high as $25,000 on exiting the fund. MySuper will preclude exit fees that are based above actual costs. I struggle to think that it would cost that much to exit from a fund, but of course every fund is different. Some may say that is the case.

There are also annual fees charged by superannuation funds to administer the funds under their control. At the moment it is a real challenge even for those who do know a bit about the subject to compare fees and charges. The Midwinter Fee Index can be used to compare funds. This index is a calculation that determines the average impact of fees on a platform over a common period, taking into account all the ongoing fees and entry fees to calculate the average cost. On comparing the annual fees using this index, some retail funds charge as much as 2.37 per cent per annum. A particular fund that charged that amount was the IOOF MultiMix balanced growth fund, which charged that amount in the 2010-11 year. This figure compares with other superannuation funds charging as little as 0.45 per cent per annum. That example is a UniSuper balanced fund.

For those who say that higher fees are paid as retail funds generate better returns, the facts do not actually substantiate this. APRA, the Australian Prudential Regulation Authority, in examining the issue of fees and returns found that over the period 1996-2006 retail funds provided average returns 1.4 per cent lower than industry funds and 2.2 per cent lower than all not-for-profit funds. APRA found that differences in fees and commissions were the single largest factor contributing to the different level of performance.

Treasury has estimated that the net impact of MySuper on the superannuation balance of a typical member will be around an additional $32,000, but for some superannuation members the benefit of being in a MySuper fund will be substantially more. This reform to introduce MySuper is supported by the industry. For instance, the Industry Super Network noted:

… the introduction of the first tranche of MySuper legislation was an important milestone in protecting the super savings of millions of Australian workers who are losing savings as a result of excessive fees and poor net returns.

The Association of Superannuation Funds of Australia adds to this:

ASFA sees merit in the intended objective of delivering a simple, cost-effective product with a diversified portfolio of investments that delivers good performance designed to cater for the large number of Australians who prefer to delegate the task of investing their superannuation to fund trustees.

The Australian Chamber of Commerce and Industry, in their submission to the Parliamentary Joint Committee on Corporations and Financial Services—the committee that conducted the inquiry into this bill and reported in March 2012—said:

ACCI supports the MySuper goals of reducing account costs, making costs more transparent, improving the basis for inter-fund comparison, and providing improved member protection. ACCI recognises that many employees are not well positioned to be actively engaged in making investment decisions, and an appropriate superannuation system must recognise this.

The introduction of MySuper is one of several superannuation related changes either proposed or implemented by the federal Labor government. Other significant changes include progressively lifting the superannuation guarantee rate from nine per cent to 12 per cent by 2019-20. This increase will occur over a seven-year period starting from 1 July 2013, when superannuation will rise to 9.25 per cent and reach 12 per cent by 1 July 2019. This initiative will mean that a 30-year-old on an average income will retire with an additional $108,000 in their superannuation balance and a 20-year-old on an average income will retire with an additional $200,000.

The SuperStream package of measures will improve the efficiency of back office administration of superannuation funds through the use of data and payments standards. An automatic consolidation of superannuation, which will see lost and inactive accounts with balances under $1,000, will consolidate into the member's current active account. This will help to ensure workers are not missing out on their total superannuation amounts or have multiple funds with fees eating away at their retirement balance.

It has been estimated by Treasury that there is around $13 billion of what is called 'missing superannuation'. This government initiative will reduce the amount of superannuation balances that are not being used as effectively as they could be. If a worker has lost track of superannuation gained whilst working in a previous job then it is common for this superannuation to sit idle and gradually be reduced over time as fees make their mark on it This reform will mean that people are more easily reunited with their lost superannuation.

It was in 1992 the federal Labor government introduced the superannuation guarantee, which established what is now the national compulsory superannuation scheme. Super contributions started at three per cent and increased gradually up to nine per cent by 2002. Today, because of the introduction of compulsory superannuation, the total savings pool in superannuation is worth more than $1.3 trillion to the nation.

Australia's superannuation system is the world's fourth biggest pool of funds under management. Compulsory superannuation has not only provided for Australians in their retirement; it has also provided a pool of funds for investment to create jobs and in some ways help protect our country from global shocks such as the global financial crisis.

MySuper products will have a single diversified investment strategy. They will have to be offered at a standard set of fees generally available to all members; but this will not stop businesses from getting a better deal. Employers will be able to negotiate with funds for discounted administration fees for their employees, reflecting the administrative efficiencies for the fund in dealing with the one employer. Any discounted fees will have to be reported to APRA and disclosed by the fund. In addition, funds will be able to offer employers with more than 500 employees a MySuper product tailored to the needs of the particular workforce, including the investment strategy, member services and fees. The details of all separately tailored MySuper products will be required to be reported to APRA.

MySuper will reduce high fees but retain enough flexibility in the system for workers to find low prices in products that suit them. By 2017 the vast majority of super balances will be commission-free and low-fee funds based in a MySuper account. This new MySuper reform will make super simple as it is a straightforward and cost-effective superannuation product that can be easily compared with other products. Research by Deloitte estimates that by 2030 there will be around $6 trillion of assets within the superannuation system. This massive pool of funds will be better managed with lower fees and better returns due to MySuper.

But most importantly, MySuper will help Australian workers maximise their retirement balances. As I said at the start of this contribution, that is what super is really all about. It is about making sure that working people, when they finish their working lives, have a decent income in retirement. I commend this bill to the House.