Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

by leave—I move amendments (1) to (10) as circulated in my name:

(1) Schedule 1, item 6, page 4 (line 4), after "29T", insert "or satisfies the provisions of section 29TB".

(2) Schedule 1, item 9, page 9 (line 14), omit "or 29TB".

(3) Schedule 1, item 9, page 9 (line 19), omit "or 29TB".

(4) Schedule 1, item 9, page 10 (line 33) to page 11 (line 5), omit paragraph 29TB(1)(b), substitute:

  (b) that employer is a large employer in relation to the fund (see subsection (2)); and

(5) Schedule 1, item 9, page 11 (line 28) to page 12 (line 4), omit subsection 29TB(2), substitute:

(2) An employer is a large employer in relation to a regulated superannuation fund if there are 500 or more employees of the employer, or an associate of the employer, at the time the beneficial interest in that class is first issued and at the end of each annual reporting period.

(6) Schedule 1, item 9, page 12 (after line 4), at the end of section 29TB, add:

(3) An RSE licensee with a MySuper authorisation must report the details of MySuper products for large employers to APRA on an annual basis. APRA may disallow a large employer MySuper product at any time where it does not comply with subsection 29TB(2).

(7) Schedule 1, item 9, page 14 (line 25) to page 15 (line 3), omit paragraph 29U(2)(b).

(8) Schedule 1, item 9, page 18 (after line 24), after subsection 29VA(2), insert:

(2A) An administration fee must not include any fee for personal advice (as defined by subsection 766B(3) of the Corporations Act 2001) except for personal advice solely in relation to a member's beneficial interest in the fund.

(9) Schedule 1, item 9, page 21 (line 10), omit "sections 29TB and", substitute "section".

(10) Schedule 1, item 12, page 25 (line 12) to page 26 (line 15), omit the item.

As was indicated by the Shadow Treasurer, my friend and colleague the member for North Sydney, the coalition has three batches of amendments encapsulated in those circulated in my name. The series of amendments that we are putting forward have been outlined by Mr Hockey in his speech during the second reading debate. The first of those relates to reporting responsibilities of large employer funds to APRA—and these are amendments (1), (2), (3), (4), (6), (7), (9) and (10) that have been circulated in my name. The bill as drafted would require a superannuation fund with a MySuper licence to apply to APRA prior to providing superannuation services to large employers. Five organisations—BT, Mercer, the Corporate Super Specialist Alliance, the Association of Superannuation Funds of Australia and the Financial Services Council—all argued strongly at the Parliamentary Joint Committee on Corporations and Financial Services hearing that this additional authorisation process for tailored MySuper products for large employers is unnecessary. This is because all funds offering such tailored plans are already authorised to provide a MySuper product.

The superannuation industry made the strong point that this additional process would be cumbersome, time consuming, unnecessary and costly. They also expressed strong concerns that this additional authorisation process would move APRA away from its proper and very important role as prudential regulator focused on risk and governance into areas of commercial interest between funds and large employers which have nothing to do with APRA's regulatory role. If this provision is not amended, fewer Australian workplaces will have super arrangements which reflect their employees' needs. Australians will have a reduced suite of products in a less competitive market, and further unnecessary cost and regulation will be introduced into the financial services industry. The coalition amendments will require superannuation funds to report the existence of these arrangements rather than apply to APRA prior to issuance. We believe one licence to operate a business in any industry is sufficient.

The amendments would still allow APRA to disallow a non-complying fund. Such a process would address the public policy concern that APRA must be able to track the existence and number of employer plans. It would achieve this without undermining the efficiency, competitiveness and commerciality of tender processes. The coalition amendment would also ensure that APRA continues to fulfil its proper role as the prudential regulator, which should be focused on risk and governance, without entangling it in commercial matters.

The second set of amendments, relating to the definition of 'large employer', comes under amendment (5) circulated in my name. There is significant industry concern about the benchmark above which large employers can tailor MySuper funds for their employees. The provisions of the bill allow for such tailoring where an employer contributes to a fund on behalf of 500 or more members. Many participants in the superannuation industry submitted to the parliamentary joint committee inquiry that the threshold in its current form is complex, unworkable and may have a number of unintended consequences. The organisations expressing these strong concerns included the Financial Services Council, the Corporate Super Specialist Alliance, Mercer and the Association of Superannuation Funds of Australia. This coalition amendment replaces the complex and unworkable threshold with a simple, easily quantifiable and effective test that defines the large employer threshold as an employer that has 500 or more employees at the relevant time.

The final area of amendments falls under amendment (8), relating to intrafund advice. Intrafund advice is the provision of financial advice by superannuation funds to their members. Currently, the term 'intrafund advice' and the advice provided by various superannuation funds can include very general advice, product-specific advice, advice on retirement options or even more specific or individualised 'holistic' financial advice. (Extension of time granted)

The committee inquiry into the bill received evidence from a number of participants expressing strong concerns about how intrafund advice would interact with the MySuper legislation, particularly given that it is only briefly referred to in the explanatory memorandum of the bill currently before the chamber. These concerns included a risk that such intrafund advice could lack transparency, could lead to some super fund members cross-subsidising others through the fees they pay, and also the risk of secret commissions.

At the committee hearings even Treasury appeared uncertain as to how intrafund advice would be treated under MySuper. The coalition considers that if intrafund advice is to continue to be provided in the future it should be provided under the same legislative and regulatory framework as all other financial advice. Despite intrafund advice clearly being a type of financial advice, there is no definition or scope of such advice provided in either the MySuper legislation or the government's Future of Financial Advice, FoFA, legislation. There is no limitation placed on what may constitute intrafund advice and there are no provisions determining who should pay for such advice in any of the proposed legislation.

The coalition considers that the complete lack of consideration, definition or restriction of intrafund advice within both the MySuper and the FoFA legislation is a serious omission on the part of the government that exposes consumers to severe risks. This is particularly the case because intrafund advice would not be subject to the best-interests duty being introduced by the FoFA legislation and because many industry super funds currently fund such intrafund advice by levying fees for this advice on all fund members. This would not be permitted if the FoFA legislation applied, as FoFA essentially bans the provision of advice in circumstances in which the cost of providing the advice is not met by a direct and transparent payment from the recipient of the advice. Given the reliance of many industry super funds on the provision of intrafund advice for marketing advantage and the attraction of new members, we are concerned that the government has avoided defining and limiting the scope of intrafund advice because it has bowed to the interests of the union dominated industry super funds.

The coalition members of the committee strongly recommended a number of changes. First, that intrafund advice should be defined in both the MySuper and the FoFA legislation; second, that there should be express limitations included in the legislation to ensure that such advice is general in nature only—similar to the provisions relating to basic banking products; third, that any financial advice accessed within a superannuation fund beyond such general advice should be expressly subject to the best interests duty and be paid for by the person accessing this advice without any cross-subsidy from other fund members. The coalition amendment achieves this by ensuring that any financial advice provided within the context of a MySuper product which is considered to be personal advice, as defined in the Corporations Act, cannot be bundled into the administrative fee of the MySuper product. The sole exception is, of course, where the advice relates specifically to the member's interest in the fund.

The coalition amendment ensures that MySuper members who do not seek to access such advice do not end up cross-subsidising those members who do access advice through their fees. It also gets rid of any secret commissions bundled into the advice fees charged as part of the administration fee. The amendment does not prohibit MySuper funds from providing advice; in fact, it actually assists them to do so by providing clear boundaries on what fees they can charge and who pays those fees. In the case of personal financial advice, it will be the person who accesses that advice, and not those members who do not use the advice, who will pay for the service.

I commend to the House the coalition amendments, and I hope that the parliament is persuaded by the strong logic that supports them.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

At the outset I say that I do acknowledge the quality of the advocacy of the member for Dunkley but that there are some concerns I have to express. The opposition has moved three substantive amendments. The first opposition amendment would mean that a tailored MySuper product for a large employer would not have to be authorised by APRA. This would allow a trustee to accept contributions even if APRA had not assessed the product. Such an approach would be unique. Most licensing regimes generally do not allow anything to commence until the regulator has made a decision; there is no reason put forward by the opposition that authorisation for a MySuper product should be any different. APRA has said repeatedly that authorisation is an important entry control for MySuper products. It ensures that there can be an upfront assessment that the MySuper product meets the legislative criteria before members' contributions are placed in the product. This reasoning applies equally to tailored MySuper products established for a large employer. A tailored MySuper product for an individual large employer can differ in every respect from the main MySuper product that a fund may offer—including in its fees, administration, services, financial advice and investment strategy. Therefore it is important that tailored MySuper products meet all of the same requirements as other MySuper products, including authorisation.

Up-front authorisation of tailored MySuper products will provide certainty for employers and employees that the MySuper product will not be disallowed by APRA after it has been put in place and started to receive contributions. This would be very disruptive and cause the employee to find another default fund. APRA has already indicated in draft guidance material that, where a trustee has been authorised to offer a MySuper product, authorisation of subsequent tailored MySuper products will only need to focus on key differences from the fund's main MySuper product. As such, where there are few differences in a tailored MySuper product, the authorisation process is expected to be relatively quick.

The second set of opposition amendments aims to amend the bill to base eligibility for a tailored MySuper product on 500 employees. At one level I can understand why the opposition advocates this, but the reality in the real world is that a test based solely on employees would allow an employer to obtain a tailored MySuper product for substantially fewer than 500 members—for example, where the employer is required to contribute to a different default fund under the relevant award. This would undermine the purpose of the test, which is to ensure that each MySuper product has sufficient size and is viable. That is why the government's bill requires an employer to contribute to the fund, and for 500 of their employees to be eligible. Initially I was attracted to the idea of 500 employees, but the research and due consideration shows that the 500 members test is a much more pragmatic and workable test and that it will ensure that there is sufficient scale for each MySuper product. Furthermore, the opposition amendments on eligibility just do not work. They would in fact appear to prevent APRA from disallowing tailored MySuper products if they fail to satisfy any of the other legislative criteria.

It is unclear what the opposition is trying to achieve through its third set of amendments, which are on intra-fund advice. Limiting a trustee in charging for personal advice that relates to the member's beneficial interest in the fund is already achieved by the government's model for intra-fund advice. That said, if the opposition amendment is trying to prevent intra-fund advice covering personal advice, the ability of Australians to access advice about one of their most important financial assets in a cost-effective manner would be significantly and unfairly inhibited.

For these reasons and after due consideration of the case by the opposition, the government has concluded that it does not support the amendments moved by the opposition.

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

The question is that the amendments moved by the member for Dunkley be agreed to.

Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

by leave—I move amendments (1) to (5) together:

(1) Schedule 1, page 3 (after line 2), after Part heading, insert:

Corporations Act 2001

1A At the end of subsection 1017B(1A)

Add:

  ; and (c) without limiting paragraph (a) or (b)—any replacement of a kind specified in regulations made for the purposes of this paragraph of a beneficial interest of a class that is a MySuper product with a beneficial interest of another class in a superannuation entity.

(2) Schedule 1, item 9, page 12 (line 34) to page 13 (line 2), omit paragraph 29TC(1)(g), substitute:

  (g) a beneficial interest of that class in the fund cannot be replaced with a beneficial interest of another class in the fund, unless the person who holds the interest consents in writing to that replacement no more than 30 days before it occurs; and

(3) Schedule 1, item 9, page 13 (lines 6 to 8), omit subparagraph 29TC(1)(h)(i).

(4) Schedule 1, item 9, page 13 (line 9), omit "otherwise".

(5) Schedule 1, item 9, page 13 (line 12), after "new interest", insert "no more than 30 days before it occurs".

I will be supporting the MySuper legislation. It is a very good way of offering better protections for Australians. There is one issue, though, which could do with some improvement, and it is to address the situation where a worker leaves their employment and has not made arrangements to take their MySuper fund with them. At the moment, there is nothing stopping the fund flipping them into a higher fee account without their knowledge, and this would mean that it is quite possible that a person, by the time they find out that their superannuation fund has been moved into a higher fee fund, may have lost several hundred dollars of their savings in fees. In fact, some research has suggested that it could be somewhere in the order of $300 per year. The amendments will stop that process happening without the employee's consent. It will still be possible for the fund to switch them from one MySuper account to another, but it would need the employee's consent first to do that.

These are, I think, fair amendments. They will not stop superannuation funds changing products if that is found to be necessary, but they will mean that, for the many thousands of people who shift jobs—and, with higher turnover in the workforce, there are many people who are in that situation of shifting jobs—without having made prior arrangements about their super, their super will be protected in the fund they were in, and it will be protected in the fund they were in unless they decide otherwise. So they are sensible amendments, and I commend them to the House.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

The Greens amendments seek to prohibit moving an individual's investment from a tailored MySuper product into another without their consent. This means that, if an employee who is defaulting into their employer's superannuation fund leaves a large employer, then the superannuation fund will no longer be able to switch them out to another public MySuper product. We understand the government is planning to support these Greens amendments, and the coalition has no objection to them.

Question agreed to.

Bill Shorten (Maribyrnong, Australian Labor Party, Minister for Financial Services and Superannuation) Share this | Link to this | Hansard source

I present a supplementary explanatory memorandum to the bill and seek leave of the House to move government amendments (1) to (6) on sheet BG233, as circulated, together.

Leave granted.

I move amendments (1) to (6) on sheet BG233:

(1) Clause 2, page 2 (table item 2), omit “1 October 2013” (wherever occurring), substitute “1 January 2014”.

(2) Schedule 1, item 9, page 21 (after line 15), at the end of section 29VA, add:

Lifecycle differentiated investment fees

  (9) This rule is satisfied if:

  (a) the fee is an investment fee; and

  (b) the fee would satisfy one of the charging rules in subsections (2) to (4) if the rule were applied to an age cohort identified in the governing rules in relation to the MySuper product for the purposes of this subsection, rather than in relation to all members of the fund who hold the MySuper product; and

  (c) the governing rules identify no more than 4 age cohorts in relation to the MySuper product for the purposes of this subsection; and

  (d) the investment fees for the age cohorts reflect a fair and reasonable attribution of the investment costs of the fund between the age cohorts.

(3) Schedule 1, item 12, page 26 (line 1), omit “1 October 2013”, substitute “1 January 2014”.

(4) Schedule 1, item 12, page 26 (line 6), omit “1 October 2013”, substitute “1 January 2014”.

(5) Schedule 1, item 12, page 26 (line 10), omit “1 October 2013”, substitute “1 January 2014”.

(6) Schedule 1, item 13, page 26 (line 18), omit “1 October 2013”, substitute “1 January 2014”.

The amendments defer the date from when employers must make contributions to a fund that offers a MySuper product from 1 October 2013 to 1 January 2014. While funds will still be able to offer MySuper products from 1 July 2013, the amendments will provide an additional three months transition before it becomes mandatory for contributions to be made to a MySuper product. This will provide more time for funds and employers to prepare for MySuper, facilitating a smoother transition to the new regime. In particular, the amendments will benefit employers in the case where their superannuation fund may have been unable to obtain a MySuper authorisation by the 1 October 2013 deadline.

The amendments also relate to investment fees for life cycle investment strategies. The amendments respond to stakeholder concerns by allowing trustees that operate a life cycle investment strategy for their MySuper product to charge more than one investment fee. APRA must authorise MySuper products with different investment fees within a life cycle investment strategy if it is satisfied that certain criteria are met. In order for them to charge different investment fees, APRA must be satisfied that the following conditions are met: the investment fee charged to each member of an age cohort is the same; there is a maximum of four age cohorts and therefore no more than four investment fees; and the investment fees for the age cohorts reflect a fair and reasonable attribution of the investment costs of the fund between the age cohorts.

This will ensure that members invested in assets with lower investment costs do not cross-subsidise members invested in assets with higher investment costs because they are in different stages of the life cycle. This amendment means that members can be treated fairly and will only have to pay the investment costs that relate to them. This is consistent with a key tenet of MySuper, which is to ensure that members do not pay greater fees than they need to.

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

Government amendments (1), (3), (4), (5) and (6) relate to delaying the start date of the legislation from 1 October to 1 January 2014. The coalition views this as a sensible move and will support this. Government amendment (2) relates to life cycle differentiated investment fees and seeks to make the parameters around provisions for those fees more flexible. This additional flexibility relates to age cohorts for investment fees, as the Minister for Financial Services and Superannuation has outlined, and allows the MySuper product to apply differentiated fees to individuals depending on their age cohort. The coalition will support this measure, as we recognise the need for flexibility when dealing with differing investment strategies and in turn the fee structures involved, particularly when considering the stage of life cycle and an individual's appetite for risk when it comes to planning for their superannuation. The coalition also acknowledges that the government has been receptive to industry representations.

Question agreed to.

Bill, as amended, agreed to.