Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

Mr Deputy Speaker Scott, may I take the opportunity to congratulate you on your recent election to the high office, which I am sure you will accomplish with distinction.

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services I present the committee's advisory report, incorporating a dissenting report, on the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012

In accordance with standing order 39(f) the report was made a parliamentary paper.

by leave—I first want to take the opportunity this morning to thank the secretariat for the work it does in terms of the committee's work more generally but particularly with regard to the production of this report, which has been extremely challenging. I particularly commend Richard Grant and his staff assistants Ruth Edwards and Erin East. Many of our secretariat staff do incredible work, and they do not really seem to get as much recognition as I think they deserve, so I wanted to put that on the record firstly.

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services, I present the committee's report on the provisions of the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012, together with evidence received by the committee. On 20 September 2012 the House Selection Committee referred the bill to the PJC for the inquiry. The bill is the third tranche of legislation implementing the government's MySuper and governance reforms. This tranche establishes various rules relating to the operation of MySuper products. In March this year the committee tabled its report into the provisions of the first two tranches of these reforms. These bills established the framework within which the MySuper products will operate.

The introduction of the MySuper product will commence on 1 July 2013. From this date, superannuation funds will be able to offer a simple, low-cost default superannuation product called MySuper. This product is intended to improve the simplicity, transparency and comparability of default superannuation products. From 1 October 2013 employers must make contributions for employees who have not made a choice of fund to a fund that offers a MySuper product in order to satisfy its superannuation guarantee requirements. Importantly, we know from the minister's second reading speech on the MySuper core provisions bill that around 60 per cent of Australians do not make active choices in relation to their superannuation. I just want to state that again, for the record, to emphasise the point: 60 per cent of Australians do not make active choices. This government believes that Australians should not be charged, as the minister put it, for valet parking when they are catching the train.

The reality is that there is widespread support for this change to make sure that Australians have access to superannuation at a very, very low cost and a high gain to them. In his speech to the Australian Conference of Economists, Dr David Gruen said that one of the key principles driving MySuper is that people who do not actively choose an option for their superannuation saving are people for whom we need to make a public policy to mandate a default option with carefully defined features that we believe will create wellbeing for those participants in MySuper.

Already, the proposed legislation has been seen to have a positive effect on competition for low-cost superannuation products. Last month the Minister for Financial Services and Superannuation officially launched ING Direct's new simple a cost-effective superannuation product. This is the first time in Australia that there will be a product available that is free of administration, contribution and management fees. They are three different kinds of fee that this new superannuation product will be free of.

The government estimates that, by placing downward pressure on fees, the MySuper reforms will save Australian superannuants $1.7 billion in fees, annually, in the longer term. The committee draws attention to the extensive consultation undertaken by the government on this third tranche of MySuper reforms. The Australian Institute of Superannuation Trustees told the committee that there had been a significant and extensive consultation process over a period of about 20 months. They are the words of the Australian Institute of Superannuation Trustees: significant and extensive consultation processes over a period of 20 months, dating back to the start of 2011.

Mr Andrew Bragg of the Financial Services Council told the committee:

I think, to be fair—

and that seems a reasonable goal to me—

we have had a long period of consultation and the government has been very reasonable in providing basically 2011 to have a process, which was led by Paul Costello, to look at how the elements of the reforms should be crafted in legislation.

In terms of the work that has been undertaken by Mr Costello, as the chair of the Stronger Super Peak Consultative Group, I am very pleased to report that that consultation process and the work of the sector, with Mr Costello and his consultative group, has issued no fewer than 10 issues papers in that time on data collection and disclosure, defined benefits, exempt public sector superannuation schemes and MySuper products, the transition to MySuper retirement, income products, eligible rollover funds and member protection rules, fees and costs, insurance, defining MySuper, and advice and insurance commissions within super.

These are hardly things that have been prepared in a short period of time. They are things that have been prepared as a consultative document. The inquiry we have just undertaken has certainly added to the consultations. The committee held a public hearing into the provisions of the bill, in Sydney, on 5 October. Government members of the committee strongly support the government's time frame for the consideration of this tranche of legislation in the parliament. It also believes that the proposed commencement date of 1 July 2013 for the MySuper reforms is both reasonable and appropriate. Indeed, we were given evidence to that effect, last Friday, when we met in Sydney.

This report has recognised various stakeholders, particularly with provisions in schedules 1, 3, 6 and 7 of the bill. The committee believes that some of the concerns have some legitimacy but they are not grounds to amend or delay the passage of this legislation. As the majority report emphasises, the provisions in the bill are based on important principles that should not be diluted. There is an expectation that the regulators and stakeholders will develop sound practices that adhere to the provisions.

The so-called product dashboard is a good example of one of the issues we considered in some detail last week. Under the provisions of the bill, superannuation funds must publish a product dashboard for each of the fund's MySuper and choice products. This must contain information on the investment-return target, the number of times the current target has been met in the last 10 financial years, the level of investment risk, the liquidity of the product and other costs. This information must be made available on the fund's website. It must be accessible to the public at all times and be updated as required. Essentially, that will enable people to compare different products. Currently, they are unable to do this.

There seem to be various issues of a technical nature that need to be resolved if the dashboard is to work effectively. It is now up to the Australian Prudential Regulation Authority, APRA, in consultation with stakeholders, to develop a system that enables participants to view and compare the key performance information of MySuper and choice products.

Another issue of concern for some stakeholders related to proposed provision 20B of the Superannuation Industry (Supervision) Act. This section would require that those who are in default superannuation funds have their accrued default amounts transferred to a MySuper product. Some witnesses expressed concern that, as the bill is drafted, fund members who have chosen a default fund would be required to opt out, in writing, to avoid being transferred to a MySuper product. They foresaw consequences such as the loss of insurance and being transferred to a fund with a riskier profile.

The committee believes that these concerns are exaggerated. Firstly, in most cases, members who are currently in a default fund and do not opt out will be transferred to a MySuper product managed by the same superannuation fund. This has implications for trustees, who must design a MySuper product that does not disadvantage their members.

Secondly, where a member currently in a default fund does not opt out and is transferred to a MySuper product that is managed by another superannuation fund, that fund too will have to comply with requirements set out in regulations and relevant APRA prudential standards. This is another layer of protection.

Thirdly, superannuation trustees will have until 1 July 2017 to transfer amounts to a MySuper product. Let me restate that date. We are sitting here discussing this in 2012. We have had consultation since 2011—as acknowledged by the industry—and we have superannuation trustees who have until 1 July 2017 to transfer these amounts. That date was extended in consultation with the sector. This is a considerable and appropriate period of time to ensure that trustees communicate properly with members who need to be notified that they will be moved to a MySuper product. Government members of the committee are confident that the 4½-year time frame will enable trustees to develop clear and effective communication strategies with these members to ensure that the difficulties foreseen by some stakeholders are minimised.

I am aware that there will be further speakers on this report and I know that, in the way that we have seen in the last few days, with a dissenting report there can be some confected agitation. The agitation, I expect, will be particularly about the timing of the length of these inquiries. We have for a very long time had the Senate doing this work, and it is very common for bills to be referred to the Senate and for it, within one or two weeks, to take evidence, gather submissions and report back. We have been following exactly the same sort of time line. I think our inquiry has, indeed, enhanced the legislation and enhanced understanding. I am very pleased to be putting it forward.

To conclude, government members of the committee emphasise the goal of minimising fees for superannuation members and ensuring that consumers can clearly compare the performance of superannuation products. Considering 60 per cent of Australians do not do anything with their superannuation, this is a critical reform. This is the essence of the MySuper reforms. It is unfortunate that the coalition members of the committee have not seen these goals as paramount.

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

by leave—I am pleased to rise to make some comments in relation to the minority report on the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012. This report, along with the majority report to which the chair of the committee has just referred, concerns a bill which forms part of the third tranche of legislation which purports to implement a recommendation of the Cooper review into Australia's superannuation system. The stated objective is to introduce a new low-cost superannuation product, known as MySuper, as a replacement for existing default superannuation fund products.

The minority report focuses on two principal recommendations. Firstly, the government should withdraw this bill pending further consultation across the superannuation industry to address the serious flaws that were identified in this inquiry. Secondly, should the government insist on proceeding with the bill in its current flawed form, it should at least amend the bill to, first of all, ensure that a member who has previously exercised a choice of fund, even if that choice happens to be for an option which is the default investment option of that fund, cannot be automatically transferred into a MySuper product by having his or her previous contributions defined as an 'accrued default amount'. That is the first amendment we recommend. The second amendment we recommend is one which will ensure that any product which qualifies as a MySuper product is able to compete freely in the default superannuation fund market.

I would like to take a moment to explain the thinking behind these two recommendations and, in doing so, make two principal points about what the dissenting report has highlighted. Firstly, the so-called consultation which has occurred in relation to this bill has been manifestly inadequate and is part of a truly terrible process. Secondly, I want to focus just for a moment on the provisions in the bill which mandate members' funds being transferred into a MySuper product and will have the effect, if they are not amended, that an active choice which Australians may have already made in respect of their superannuation will be overridden by government fiat if this bill passes into law.

Let me turn, firstly, to the terrible process we have seen in relation to a bill which is more than 100 pages long and which makes fundamental and controversial changes to Australia's superannuation system. Extraordinarily, the government has exempted the most contentious changes in this legislation from its own basic regulatory impact assessment requirements. Unfortunately, this committee process has been inadequate, rushed and truncated. Ms Michelle Levy of the Superannuation Committee of the Law Council of Australia had this to say to the committee:

I will spend one minute on process. We, the committee—

and she is referring there to the Superannuation Committee of the Law Council of Australia—

spend a lot of time trying to prepare careful responses to legislation and often the time period—and I know it is not just for us; it is for everybody—is just too short. It is not possible to prepare a well-reasoned and thought-through submission in a week. For the trustee obligations bill the submission timetable was shorter than the period within which the committee was meant to release its report. I suppose people have a lack of confidence in the system given this timing.

Specifically the consultation process in this case included a mere half a day of hearings, with witnesses limited to just 30 minutes for each organisation. Worse still, committee members have had only a couple of days in which to assess the very complex evidence presented and to draft reports. It is unfortunate that this rushed and inadequate process has been forced upon the committee by the actions of the government members of the committee.

Let me turn, secondly, to the essence of the provisions in schedule 6 of the bill which sets out the requirement that existing member balances in superannuation funds are to be transferred into a MySuper product. There were two principal concerns which were raised by a wide range of witnesses. The first concern is that the bill casts a very wide net as to which existing member balances held in existing superannuation funds will be required to be transferred into a MySuper product. Under proposed section 20B of the Superannuation Industry (Supervision) Act there is a new definition of 'accrued default amount'. It is that definition which determines which moneys of a member must be transferred into a MySuper product.

The first limb of that definition is relatively straightforward. It is an amount in respect of which the member has not exercised an investment choice. But the second limb is highly controversial because it extends to any amounts held in the default investment option of a superannuation fund. Critically, this limb will apply even if the member of the fund has made an active choice of that particular option.

All that is required for this definition to be engaged is that the option happens to be one which is also labelled as the default option of that fund. So members who believe, correctly, that they have made an active choice are to be deemed by this legislation as not having done so, and therefore their balance will be automatically moved into a MySuper product which may have a very different allocation of risk assets than they have chosen, which may compromise the continuity of their insurance cover and which may have other unforeseen consequences. All that is to happen because of the expansive drafting of the kinds of funds which are captured.

The second concern that was raised by many witnesses is that the way this bill operates is through an opt-out mechanism—that is, all so-called accrued default amounts will be automatically transferred into a MySuper account unless the member actively responds in writing within a designated 90-day period to a notification from the trustee which says, 'We are about to move your funds into a different kind of product, not the kind of product you are presently in.' The consequence will be that if members happen to overlook that communication—and we all know how easy it is to overlook the regular and extensive communications we all receive from our financial institutions—they will have their moneys compulsorily transferred into a MySuper product, even when they have actively exercised a conscious choice to be in the particular product that they are presently in. This means that many Australians who have exercised an active choice are going to have that choice overridden.

It also means that the effect of this legislation will be considerably broader than what was proposed or contemplated by the Cooper review and considerably broader than had previously been disclosed in prior ministerial statements. In fact, I think it can be argued that this is a quite deceptive approach. It is certainly an approach that, if taken by a private sector company seeking to implement by a change to its terms and conditions in its contract with a customer, would attract the scrutiny of the ACCC. That is the nature of what is occurring here.

It is very important to point out that a major not-for-profit fund, First State Super, with $32 billion in funds under management and more than 770,000 members, raised these very concerns in their submission to the inquiry. They are concerned about the risk of member claims against the fund where members have previously made and lodged an explicit instruction. They say:

… the Fund believes there is increased risk of a claim against the Fund in the event of a future change to these members' investment options, counter to their explicit instructions and acknowledgement.

They go on to note their concern that automatic movement of balances where members have not made an explicit choice will confuse members and they will 'not respond favourably' to the changes. First State Super had this to say:

First State Super considers it more appropriate that the legislation allow for recognition of members who have made a full or partial investment choice, regardless of whether the investment option is also a default / MySuper option, continue to be treated as Choice members.

I want to highlight this point. First State Super is not a retail fund, yet the majority report claims, at paragraph 4.5, that there are two perspectives on this bill. One is the perspective of the retail funds and one is the perspective of the industry and public sector funds. As the submission I have just quoted demonstrates, that is wrong. It is simplistic to say that there is one perspective from one segment of the industry and another perspective from another segment of the industry. That is a clear piece of evidence that a fund which is not a retail fund is very much emphasising the concerns which coalition members have drawn attention to in our dissenting report.

There are many other concerns that we have which are highlighted in the dissenting report. I close by reiterating our core recommendation, which is that this bill ought to be withdrawn to allow for further engagement with the industry and, if it is not withdrawn, at the very least there must be significant amendments made.