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

I am very pleased to rise to speak on the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012, a bill which forms part of the third tranche of legislation which purports to implement the recommendations of the Cooper review of Australia's superannuation system. The stated objective of the overall set of arrangements is to introduce a new, low-cost superannuation product, known as MySuper, as a replacement for existing default superannuation fund products. The policy intention is that key elements of the MySuper regulatory framework will be introduced over a series of bills. What the MySuper regulatory framework is supposed to do is to provide for the wide availability of a low-cost superannuation product designed to be suitable, in particular, for those Australians who are not closely engaged with their superannuation.

If that is the broad intention of the legislative scheme and, indeed, of a key provision of this bill, the reality that I want to draw to the attention of the House is that a key aspect of the bill before the House this afternoon is to give effect to the ongoing agenda of the Minister for Financial Services and Superannuation to entrench and strengthen the position of certain parts of the superannuation industry—namely, the industry and public sector funds, which are the funds which typically have a heavy union representation on their board. And that, in turn, will tend to weaken the position of other types of funds, particularly corporate and retail funds, and I will explain why that is.

I should hasten to add that the coalition holds no brief for any particular part of the superannuation sector. What we want to see is a competitive industry and a level playing field, because we believe that that is the best way to deliver the best outcomes for members of superannuation funds, and that should be the overriding policy consideration. It is hard, however—when one looks at the range of measures which have been introduced in the MySuper framework and in other things which have been pursued by the Minister for Financial Services and Superannuation—to overlook the fact that that the minister is a former director of AustralianSuper. So, too, is Senator Cameron a former director of AustralianSuper, as is the member for Charlton. The Labor candidate for the seat of Melbourne in the 2010 election, Ms Cath Bowtell, is also a former director of AustralianSuper, the largest of the industry super funds. I put it to the House that there is very unlikely to be any other economic entity in Australia which has four former directors who are either currently Australian Labor Party members of the federal parliament or who have sought in recent elections to become Australian Labor Party members of the federal parliament.

I want to make three points in the time available to me. Firstly, this bill would introduce provisions which set aside active choices which many, many Australians have made for their superannuation. Secondly, it does so in a stealthy and deceptive way. Thirdly, I want to put to the House that what needs to be done is for schedule 6 of this bill to be deleted or, at the very least, amended—and the opposition has moved amendments to give effect to this view.

Let me turn firstly to the proposition that what this bill does is to set aside active choices which many Australians have made about their superannuation. The key operative provision of this bill that I want to focus upon would have the effect of mandating that if you have put funds into a product which happens to be a default product of your superannuation fund then the relevant provision of this bill will have the effect of overriding an active choice which you may have made in putting your moneys into that default option.

I refer to the provisions in schedule 6 of the bill. These are the provisions which set out the requirement that existing member balances in superannuation funds are to be transferred into a MySuper product. So the context we are talking about is the way that this bill sets out the limits as to the kinds of superannuation holdings of Australians which will be captured by the provisions of the bill, should it pass into law, and which will thereby automatically be moved from the existing product in which those moneys are held and moved into a MySuper product.

The relevant provision is proposed section 20B of the Superannuation Industry (Supervision) Act. This is a section which will be inserted into that act if the bill before the House this afternoon passes into law. That proposed section introduces the new definition of 'accrued default amount', and it is the definition of 'accrued default amount' which determines whether money that you hold in a superannuation fund is required to be transferred into a MySuper product.

The first limb of that definition is relatively straightforward. It is an amount in respect of which you have not exercised an investment choice. The second limb of the definition, however, 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 you, as a member of the superannuation fund, have made an active choice for that particular option.

Let me give an example to make the point clearer. Imagine your superannuation fund has five options, ranging from 'high growth' at one end down to 'capital stable' at the other end. And let us assume that the middle option is called 'balanced'. Let us also assume that it is the policy of that fund that if you make no active choice your money will go into the balanced option. The key point is that the provision of this bill we are speaking about today will operate in respect of any moneys held in the balanced option.

Some of the moneys held in that fund's balanced option will be there because the members of the fund whose money is in a balanced option have not made an active choice. But, in some cases, members will have made an active choice. They will have actively ticked the form and signed it. They will have ticked the form to choose the balanced option. Yet, as a consequence of the provisions in this bill, their choice will now be overridden. Their money will automatically be taken out of the balanced option and will automatically be put into the MySuper product which this fund is now required by law to provide.

The consequence of this is that people who believe, quite correctly, that they have made an active choice for their superannuation product are to be deemed by this legislation as not having made an active choice and, therefore, their balance will be automatically moved into a MySuper product. Why does this matter? It could matter for a host of reasons. The product into which they are moved may have a very different allocation of risk assets than the one they have chosen. Moving their money into the new product may compromise the continuity of their insurance cover under this superannuation scheme. It may compromise the continuity of their life insurance cover, their TPD, their total and permanent disability cover or their income insurance cover. It may expose them to transaction costs and fees as assets are sold and repurchased in the new fund. It may even potentially expose them to paying higher fees in the MySuper product than in the product they happen to be in right now. There may be all kinds of unforeseen consequences as a result of the policy decision this government has taken which we in the opposition fundamentally disagree with to actively override a specific and conscious choice which a fund member has made.

The second point I want to make is that the bill does all of this in a stealthy and deceptive way. It has been drafted in that fashion and, furthermore, the government has conducted itself in relation to this bill in a stealthy and deceptive way. I will turn firstly to the way that the bill has been drafted. It operates through an opt-out mechanism. That means that if your money is captured by the definition of an accrued default amount because it happens to sit in what happens to be the default allocation of that fund your money will automatically be transferred across to a MySuper account unless you actively respond in writing within a designated 90-day period to a notification from the trustee. In other words, the trustee will write to you and say, 'We are about to move your funds into a different kind of product unless you come back to us and tell us not to do that.' As we all know, it is very easy to overlook communications from your financial institutions. All of us receive many of them every month and every year. The consequence of the way this bill is drafted is that, simply by failing to respond within 90 days, you will have your money moved from an account that you have actively chosen into a product you did not choose. Many Australians who have made an active choice are going to have that choice overridden.

I want to emphasise the point that this provision operates with considerably greater breadth than was proposed or contemplated by the Cooper review into superannuation and with greater breadth than was previously disclosed in prior ministerial statements. I put it to the House that, if this approach were taken by a private sector company seeking to change fundamental terms and conditions of its contract with a customer by writing to the customer and saying, 'Unless you come back to us within 90 days, we will automatically make this change,' the Australian Competition and Consumer Commission would be giving very careful scrutiny to what was going on. I and the rest of the opposition think that the drafting approach that has been taken here is not one that can be defended.

The second way in which this bill is sneaky and deceptive relates to the way the government has acted in developing this legislation. There was a truly deficient consultation process through the Parliamentary Joint Committee on Corporations and Financial Services. This is a bill that goes for more than 100 pages and makes fundamental and controversial changes to Australia's superannuation system, yet the total amount of consultation that the government permitted was a mere half-day of hearings with witnesses limited to just 30 minutes for each organisation.

Ms Michelle Levy of the Superannuation Committee of the Law Council of Australia had this to say as she described the work of her committee in responding to the parliamentary inquiry:

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

Unfortunately, this kind of truncated and inadequate consultation process and very, very rushed approach is all too typical of bills brought before the House by the Minister for Financial Services and Superannuation.

I want to highlight one particularly deceptive claim in the report produced by government members of this committee. At paragraph 4.5 the claim is made that there are two perspectives on the bill that the House is debating this afternoon: on one hand, the perspective of the retail funds and, on the other hand, the perspective of the industry and public sector funds. That claim is not right, as is evident from reading the submission made to the committee by a major public sector fund, First State Super, which has $32 billion in funds under management. It safeguards the retirement savings of New South Wales public servants.

Here is what First State Super had to say about the opt-out mechanism I described earlier:

… 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 went on to note their concern that the automatic movement of balances where members have not made an explicit choice will confuse members and said they will 'not respond favourably'. They said:

First State Super considers it more appropriate that the legislation allow for recognition of members who have made a full or partial investment choice …

The third point I want to make very briefly is that this bill is deficient and the only way to solve it is either to expunge schedule 6 completely or to amend it heavily, and we will move amendments that will have that effect.

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

I rise to support the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012. Mr Deputy Speaker, as you have already been advised, this is one of three pieces of legislation that will be implemented by the government under its MySuper reforms as part of the Stronger Super program. The Stronger Super reform intends to make the process of everyday transactions in the superannuation system easier, cheaper and fairer, to improve the governance and integrity of our superannuation system and to increase community confidence in the self-managed superannuation funds within that sector.

This will be done through the MySuper default product, which all Australians will be able to rely upon. We have already introduced and passed two pieces of legislation necessary for the successful introduction of the MySuper product, the first being the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the second being the Superannuation Legislation Amendment (Trustees Obligations and Prudential Standards) Bill, which was introduced earlier this year.

This bill is the last remaining aspect in respect of superannuation. It will give Australians access to the MySuper product from 1 July next year. MySuper is a simple, low-cost superannuation product designed to promote lower fees and more efficient superannuation funds with a particular focus on the benefits accruing to members. Mr Deputy Speaker, as you would appreciate, MySuper ensures that Australians have a fair system of accumulating superannuation. The standard will be required by regulation and also the types of fees that may be charged. In fact there will be only six types of fees that will exist under the product, compared with the veritable plethora of fees and scales that apply in the superannuation market at the moment.

This is part of a large-scale change to the superannuation system as we know it operating in this country. This government has made many positive reforms in the area of superannuation, including those enabled by the introduction of the mineral resource rent tax, which will provide for the superannuation guarantee to be lifted from nine to 12 per cent. This increase will be transitioned over the next decade, increasing the national pool of superannuation savings from $1.3 trillion at the moment for 8.5 million Australian workers by another $550 billion over the next 20-odd years. That is a significant net increase in the pool of national savings and it is only right in those circumstances that we ensure that that pool is properly regulated and that employees whose money is being contributed to their retirement savings are protected. That is why MySuper is so critical at this point in time. With this pool of savings, we will continue to enjoy being able to invest in capital-intensive and social infrastructure into the future. This increased pool of savings will then go on to benefit all Australians.

Importantly, this superannuation savings pool works to address the issues of Australia's ageing population, assisting those who seek better opportunities in their retirement. After all, that was the very genesis of superannuation itself. I know it has had a rather tortuous history, and I might come to that a little bit later on, but superannuation is an ideal that has been sponsored for most Australian workers by a succession of Labor governments.

Mr Deputy Speaker Georganas, I will not comment on your age, but I put you in the category of baby boomers such as me. We are taking steps to live longer than our forebears may have done. The truth of the matter is that by the year 2050, according to the Australian Bureau of Statistics, 25 per cent of Australians will be at retirement age. Therefore it is important that we have a pool of savings that provides for retirement. Otherwise, provisioning for the aged will simply fall to the remaining 75 per cent of taxpayers. So it is paramount for our nation's future and for our long-term sustainability to plan ahead, to ensure that we are prepared for those days. We must make appropriate plans for an ageing population and take appropriate steps to ensure that people are able to plan for sustainment in their retirement years. People work hard all their lives. They deserve to have the peace of mind of knowing that they will be able to retire with respect, dignity and comfort.

Low-income earners—and there are many in my electorate—will also significantly benefit from these provisions. In Fowler, some low-income earners fall even below the tax-free threshold, which has now been increased to $18,000. Those people, who are often working in a part-time capacity, will significantly benefit from this. For people who choose superannuation as their preferred saving model, this will ensure that their superannuation contributions are tax free. They will be exempt from the 15 per cent entry fee for superannuation contributions, which ensures fairness for them. This is a much fairer system of taxation on their superannuation. It will also act as an incentive for people on low to middle incomes to use superannuation as their preferred saving model.

I have said that the topic of superannuation is probably foreign to those on the other side, because after all it has been successive Labor governments that have championed it, going back for some time. Labor sponsored superannuation in 1986, when it was a Labor government that took the first steps to allow for award based superannuation. You would recall that, Mr Deputy Speaker. People were able to negotiate with their employers, but this freed up those who were covered by awards so they could go and get provisions and orders out of the Industrial Relations Commission to ratify contributions being made into superannuation. At that stage, it was three per cent. Back then it was effectively only the trade union movement, which was ostensibly covering award based employees, that was in a position to go out and get benefits for those employees in that respect. It did it by offsetting projected pay rises against superannuation. In those days, going back to 1986, various trade unions decided to forgo wage increases with a view to getting compulsory superannuation of three per cent established into their awards.

What followed was that the processes of the Accord established a pattern of superannuation guaranteed for all Australian workers. The significance of that was that it did not matter whether you were in a trade union or not, whether you were a white-collar worker or not; you were going to get the benefits of superannuation. For many, that was probably the first time they had seen anything about a retirement fund being set up in their name. Apart from establishing a system that would allow every Australian worker to benefit from superannuation in their retirement, it also left a platform and a positive legacy for this country in developing a systematic savings pool for all Australians. Following the implementation of that, from 1988 onwards, we now have—I am not sure how many noughts we put on this—$1.3 trillion that has been saved in the names of Australian workers.

The superannuation system in this country has come a long way. When the Australian Bureau of Statistics conducted its first survey into superannuation, back in 1974, only 32 per cent of the Australian workforce was covered by superannuation, and that was mainly made up of white-collar employees, managerial staff and state and Commonwealth public servants. Prior to 1974, very few employees had the benefit of superannuation. Since 1988, superannuation has applied to all Australian workers. It started off with the revolutionary three per cent, which was traded off against wage rises, and it is now at nine per cent. With the passage of this legislation, and with the effect of the minerals resource rent tax coming into play, the platform is now set for increasing superannuation from nine per cent to 12 per cent, which will more adequately provide for retirement incomes for Australians into the future.

We are now at another significant point in the superannuation revolution in this country. We are at a point of securing proper managerial control of superannuation funds, with appropriate transparency vested in those funds and the trustees required to ensure that the rights and privileges of the members of those funds are fully observed and that those trustees are held accountable. It is clear that we want to make sure not only that those funds are well managed but that the members are being appropriately served in this modern and dynamic environment. Through this bill, the government intends to minimise the unnecessary and unfair fees and charges that often make significant deductions to the savings pool of employees. The bill primarily deals with APRA's data collection powers and disclosure requirements, achieving some of the key objectives of Stronger Super. It also ensures that superannuation fund trustees transfer all accrued default amounts of members to MySuper products by 1 July 2017, with an opt-out option. The bill also provides the industry with the information it requires to lodge an application to offer a superannuation product from the beginning of next year.

These are significant developments. This is the third tranche of the Stronger Super provisions to ensure that Australian workers from all industries, from all occupations, have the benefit of security when it comes to their superannuation. The bill establishes rules in relation to fees for all superannuation funds—for instance, there will be a ban on entry and limited exit fees and switching fees and also other fee rules and rule structures. Setting up clear guidelines in relation to fees for all superannuation funds will ensure that members of MySuper products will not pay unnecessary fees and that their ability to make and achieve a choice is not hindered or encumbered by a nuisance fee structure.

It is also important to note that the bill sets guidelines in relation to MySuper products, particularly in respect of life and TPD—total and permanent disability—insurance, again giving safety to those members who find themselves in— (Time expired)

Debate adjourned.