Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I rise to speak on this bill that is now before the House and which seeks to implement the government's third tranche of legislation implementing MySuper, replacing existing default superannuation fund products. The bill contains eight schedules, all dealing with various reforms, to implement MySuper. I can state at the outset that the coalition has deep reservations in relation to schedule 6 of this bill, which deals with the transition to MySuper. We will seek to move amendments to excise this schedule from the bill. If this is not successful, we will seek to move an amendment to improve the schedule.

The coalition also takes a principled stance against the legislative changes contained in schedule 4 of this bill, regarding amendments to the Fair Work Act, so that only funds offering a MySuper product can be included in modern awards and enterprise agreements. The problem the coalition has with these changes is that not every MySuper product will be able to compete freely as a default superannuation fund under modern awards. The coalition has a fundamental objection to the closed-shop approach taken by the government. We will be moving amendments to address this issue. As I said, if we are unsuccessful in improving schedules 4 and 6, we will not support passage of the bill.

I will deal with schedule 1 first. This schedule seeks to ban conflicted remuneration payments from MySuper products. Schedule 1 contains changes which prohibit trustees from deducting any amount from MySuper products that relates to making a commission payment to a financial adviser. The changes contained within schedule 1 also implement restrictions on personal advice that superannuation trustees may charge for collectively.

In addition, schedule 1 prohibits financial advice provided to employers from being recovered through fees charged to members of the fund. The aim is to prevent commissions being charged to employees to cover the costs of an employer seeking financial advice. This schedule of the bill also contains changes to general fee rules which prohibit entry fees and limit exit switching and buy-sell fees for amounts over and above a cost recovery basis.

The parliamentary joint committee inquiry into the bill heard a range of evidence which highlighted concerns that the industry sector had in relation to schedule 1. The Association of Financial Advisers commented that intrafund advice would not serve the best interests of clients, as the advice could be provided without being based on a client's personal circumstances. The association also expressed concerns that the legislation was inconsistent when distinguishing between complex and basic advice.

The Law Council of Australia raised concerns regarding the potential conflict for trustees arising from the different grandfathering arrangements contained within this bill and the interaction these will have with the government's FoFA changes. The coalition has called on the government to withdraw this bill, to allow further consultation to remedy industry concerns, but the government has not heeded this warning and instead is choosing to pursue the change.

Schedule 2 of the bill that seeks to mandate that MySuper funds includes life and total and permanent disability insurance on an opt-out basis. The changes contained within this schedule also seek to align insurance definitions with conditions of release, to improve consistency with the purpose of the superannuation fund and to ensure payments flow through to members where an insurer pays out to the superannuation fund under the insurance policy. These changes will also prevent a situation where members are paying premiums on several types of insurance coverage but are unable to have payments released to them as they do not meet the superannuation fund's conditions of release. We view this as a sensible change. Schedule 2 also prohibits superannuation funds from self-insuring benefits of the fund, particularly life and total and permanent disability insurance. This ban will not extend to defined benefit funds. Such prohibition will seek to mitigate the risk of any shortfall in insurance benefits funded by other members' balances, which is pretty sensible, Madam Deputy Speaker. I hope you are paying attention.

Schedule 3 of this bill provides additional powers to the Australian Prudential Regulation Authority, APRA, in order to link further data from superannuation funds holding registrable superannuation entity licences. This will provide a large dataset over time and will ultimately provide policymakers with a more accurate picture of the superannuation sector. For example, it will provide more information on the structure of assets within the superannuation sector and more transparent information on expenses, such as fees being charged to policyholders. The changes contained within this schedule also require APRA to disclose quarterly information on MySuper fees, costs and returns.

The legislation further requires the publication on a website of a product dashboard that will show each MySuper and choice product's investment return target and—importantly—how often this has been achieved, the level of investment risk, a statement on liquidity of the product, and information regarding the average number of fees and other costs related to the product. The legislation also makes readily available a remuneration of superannuation funds' directors and executive officers as well as a breakdown of portfolio holdings. This information should already have been available to members of super funds and we remain sceptical as to whether these measures will actually achieve their aims, following the government's track record on the implementation of other websites. It always gives them a little bit of a shiver down their spines when I mention GroceryWatch and FuelWatch. In fact, the Parliamentary Joint Committee on Corporations and Financial Services heard a range of views from industry stakeholders who expressed concern about the workability of this schedule. We the coalition have called on the government to withdraw this schedule from the bill, to allow further consultation to be undertaken, and for the government to hear at least some of the concerns of industry.

The changes contained within schedule 4 of this bill amend the Fair Work Act so that only funds offering MySuper products can be included in modern awards and enterprise agreements. While every default fund has to be a MySuper product, not every MySuper product will be able to compete freely as a default superannuation fund under modern awards. The decision on the selection of default funds under modern awards remains with Fair Work Australia. This process is widely discredited to the point where the current government recognised this before the last election.

This government made a commitment to instruct the Productivity Commission to design a transparent evidence based and competitive process for the selection of default funds under modern awards. But we all know the difference between what the government says before an election and what it actually does after an election. It took this government until early this year to commission the Productivity Commission to commence the review. But before they handed it down Minister Shorten had already ruled it out. Get a load of that, Madam Deputy Speaker Rishworth. You, Madam Deputy Speaker, would be as appalled as I am at the fact that a minister commissioned a review and then ruled out its findings before the review was even handed down. You of all people, Madam Deputy Speaker, would be appalled at that, and rightly so—as I am.

But it is typical Labor, isn't it? It is typical of the government. That is what they do. They make it up as they go along. Of course, the minister is quite happy protecting his union mates given that he was the head of the Australian Workers Union. He has always given the union dominated super funds a leg up over alternative market based providers. Well, the coalition will seek to move an amendment to the schedule. If our first amendment to remove schedule 6 is unsuccessful, we will not support the bill.

The changes contained within schedule 5 seek to allow defined benefit fund schemes to continue to be used by employers for the contributions of employees who do not have a chosen fund. This is an exemption to the general requirement that employers must make contributions to a fund that offers a MySuper product for an employee who does not have a chosen fund. The changes also exclude defined benefit members from being counted in working out whether an employer is a large employer. This will mean that defined benefit employees are exempt from the 500-employee rule when employers are looking to be deemed a large employer.

Schedule 6 of this bill implements provisions that impose requirements for certain existing member balances to be moved into MySuper products, and it also contains a whole new raft of transitional rules. As I stated at the outset, we have deep reservations in relation to this schedule of the bill. We will be seeking to move an amendment to excise the schedule from the bill. Again, if we are unsuccessful, the coalition will then move an amendment that seeks to improve this schedule, along with schedule 4. It aims to restore competition and choice to super.

Schedule 6 amends the SI(S) Act to introduce a new concept of an accrued default amount. The new concept defines those parts of a member's interest within an existing superannuation fund which in turn must be moved into a MySuper product. These are amounts whereby a member has not exercised an investment choice or amounts held in a default investment option of a fund. This broad definition will mean that fund members who have chosen a specific super fund as well as fund members who have their superannuation invested in the default investment option of that specific superannuation fund will have their balances transferred to a MySuper product unless they choose to opt out. So funds have until 1 July 2017 to transfer all accrued default amounts to a MySuper product unless the member opts out in writing. This will significantly expand the amount that is being transitioned into MySuper, with significant financial consequences for individual fund members, including those who have previously exercised their right to actively choose their own super fund. This will mean that, under the proposed accrued default amount definition contained within this schedule, all existing default fund workplace accounts, as well as the balances of individuals who have previously exercised choice of funds but who have remained with the default investment option of their chosen fund, will be swept up into the new default MySuper product. Given that this transfer will take place on an opt-out basis, a member who does not choose to opt out will have their superannuation account balance transferred out of its current investment option or fund into a MySuper product chosen by someone else.

The proposal to transfer such a wide range of accounts into MySuper gives rise to a number of consumer protection issues. Many members who have exercised choice will be inappropriately swept up and are likely to find that, post transition, they are now invested in an investment option which they do not want. Such members will also have incurred transaction costs from the selling and rebuying of assets as a result of the transfer, unnecessarily crystallising capital gains.

This also has potential implications for insurance within super, as the MySuper death and total and permanent disability insurance cover is likely to be less than is currently enjoyed by a member of a chosen default fund. Some people who have not been covered within their chosen fund for a long time may not be able to qualify for life insurance or may only qualify on inferior terms given the changes in their personal circumstances since the original cover was taken out.

We will move amendments to excise this schedule from the bill. If this amendment is unsuccessful, we will move another amendment to ensure that a member who has chosen a super fund does not have an accrued default amount and is not moved to a MySuper product. This amendment follows generally the recommendation of the submission by the Law Council of Australia on the exposure draft and is strongly supported by the Financial Services Council, AMP and commercial super funds. As I have stated previously, if our second amendment is also unsuccessful, we will not be supporting this bill.

The final schedule of the bill relates to eligible rollover funds. ERFs have the sole purpose of being a temporary repository for the interest of members who have lost their super accounts. ERFs keep and preserve these balances until the member has been found. Schedule 7 amends the SI(S) Act so that trustees are required to apply to APRA in order to obtain authorisation to operate an ERF. All balances in an existing ERF will be required to be transferred into an authorised ERF or a fund that offers a MySuper product within 90 days where an application for authorisation has not been made or if APRA has refused authorisation.

I look at this bill and I say, 'Bring on the red tape.' That is what it is—just more red tape, more process—and all with a political purpose from the minister of trying to support some of his mates in the industry. So we will be moving an amendment to excise schedule 6 from the bill. If we are unsuccessful, we will move additional amendments to schedules 4 and 6.

In concluding, I would like to draw the House's attention to the government's failure to have an adequate regulatory impact statement on this legislation. The regulatory impact statement on the second tranche of the MySuper legislation was carried out in September 2011, long before the final version of the legislation was available. Further, a number of matters in various tranches of the legislation were exempted from the regulatory impact statement. The Office of Best Practice Regulation noted:

The Prime Minister granted exemptions from the requirements for regulatory impact analysis in relation to the ability of funds to offer tailored MySuper products to employees with more than 500 employees, and extension to the date by which trustees will be required to have transferred the balance—

and so on.

So the Prime Minister granted an exemption from any regulatory checks on this legislation. It is typical, really, isn't it? As my colleague the shadow minister for finance says, it is just a disgrace. The burden that you are placing on business, and small business in particular, is just enormous. So yet again we have a failure of good governance. These concerns that we have were echoed vigorously by the industry, and why not? There is no transparency. There is no up-to-date regulatory impact statement. There is policy on the run. There are amendments on the run.

The bill was referred to the Parliamentary Joint Committee on Corporations and Financial Services, but government members forced the committee to undertake a rushed inquiry with only a few hours of hearings. In fact, the original intent of government members was to have no hearing at all, to have an inquiry with no submissions. That is the way Labor operate. They have inquiries with no submissions and they have policy outcomes that fail. But we should not be surprised, because they introduce taxes that hardly raise a dollar but, gee, they know how to waste money.

They also know how to introduce regulation. Labor said it was going to be their commitment to abolish regulation when they were first elected in 2007. My numbers are pretty close, and from what I understand Labor have done a sterling job reducing regulation. They have abolished around 80 regulations since they were elected. The problem is they have introduced 20,000 more, and here you have another whole raft of new regulations. Labor must be so proud of themselves. Labor members must be doing cartwheels at the red tape they are inflicting on small business, on families, on large business. They are wrapping up the entire community like a Christmas parcel with all the red tape that is rolling around. Even Santa would blush at the amount of red tape that has been used in regulations here in Australia just in the last five years. Wouldn't he envy that when he is wrapping his Christmas presents for all those kiddies out there?

It was only after the coalition stood up that a short inquiry was held, and of course the government dominated committee backed its minister. What a surprise! Therefore, we will proceed with our amendments. As I said, if our amendments are unsuccessful, we will not be a party to this bill and we will oppose the bill in full.

Michelle Rowland (Greenway, Australian Labor Party) Share this | Link to this | Hansard source

I am very pleased to rise in support of the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012. This bill represents the third tranche of legislation which implements the government's Stronger Super reform initiatives. Of course, the Stronger Super reform initiatives are part of a broader reform agenda for superannuation which has been initiated by the government. The government's Stronger Super response, following the Cooper review, is one of three limbs to the overall superannuation reform agenda. The other two limbs are the Future of Financial Advice reforms, otherwise known as the FoFA reforms, which were passed by the parliament earlier this year, and the government's Stronger and Fairer Superannuation reforms, including an increase in the superannuation guarantee charge from nine per cent to 12 per cent by 1 July 2019, which have also been passed by the parliament.

The bill before the House contains eight schedules and establishes various rules relating to the operation of MySuper products. Before turning to some of the specifics of the bill, I believe it is opportune to reflect on the state of play regarding superannuation and the financial services sector in Australia. Last week APRA released its 2012 super statistics, which revealed that the value of Australia's superannuation savings is now $1.46 trillion and grew 13 per cent over the year to September 2012. In an ongoing uncertain global economic climate, these figures are indeed phenomenal—double-digit growth rates for the retirement nest eggs of Australians.

The positive industry response to the government's superannuation reform agenda is also evident in the enhanced products and services now being offered to consumers. One example is the launch by the ANZ last week of its new Smart Choice superannuation product, which has been designed with the government's MySuper reforms in mind. Together with the ING Living Super launch in September, it is a clear signal that the industry is embracing the MySuper reforms and launching new simple and affordable products accordingly. This reinforces the fact that MySuper products will be low-cost, low-risk superannuation products which provide those members with greater security. These changes will benefit those 80 per cent of members who are in the default strategy in their respective super funds but will not disadvantage those members who wish to take a more active role in managing their superannuation.

In his second reading speech for the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011, the minister stated:

… around 60 per cent of Australians do not make active choices in relation to their superannuation.

And this government believes that Australians should not be charged for valet parking when they are catching the train.

…   …   …

Having created an industry which flourishes on the back of compulsory savings mandated by legislation, it is fair that this industry, which benefits so much from the compulsory saving system in Australia, contributes to higher retirement savings through greater efficiency and lower fees.

These comments go to the heart of the recommendations of the Cooper review. Specifically, in the case of MySuper the final report included a covering letter statement, which read in part:

We have developed ten recommendation packages aimed at benefiting members.

MySuper sits at the heart of our recommendations. It is designed to focus funds on the core purpose for which they exist: optimising retirement incomes for members.

Key recommendation 1.2 in the review highlights of the report states:

MySuper is a simple, well-designed product suitable for the majority of members. The MySuper concept is aimed at lowering overall costs while maintaining a competitive market-based, private sector infrastructure for super. The concept draws on and enhances an existing and well-known product (the default investment option). MySuper takes this product, simplifies it, adds scale, transparency and comparability, all aimed at achieving better member outcomes.

In its recommendations, the Cooper review used the terminology of the superannuation system architecture recognising four types of members. The first two are particularly relevant to the rationale for the MySuper model, namely members who simply want someone else to take care of all their superannuation services needs for them—MySuper is particularly designed to cater to these members—and members who want to exercise choice over the investment strategies applied to their superannuation balances but want to have their accounts administered for them. These members can elect to be in the choice segment—although they might decide that a MySuper product meets their needs and elect to have their money invested there—or in a combination of MySuper and choice products.

Recognition of this rationale is not isolated. In a September 2010 speech to the Australian Conference of Economists, Dr David Gruen of Treasury argued that, against the backdrop of increasing evidence from behavioural economics, we can no longer run with the conventional economic wisdom that suggests consumers of financial products are the best judges of their own interests. Market failure does occur and when it does it is appropriate for government to step in. He quoted from the Wallis inquiry final report in 1997, which stated:

For many financial products, consumers lack (and cannot efficiently obtain) the knowledge, experience or judgment required to make informed decisions. This is … a situation where further disclosure, no matter how high quality or comprehensive, cannot overcome market failure.

In these cases, it may be desirable to substitute the opinion of a third party for that of consumers themselves.

Dr Gruen also explained in convincing terms the policy rationale for MySuper and the initiatives contained in this bill. He said:

… a key driving principle behind MySuper is that, for those people who do not actively choose an option for their superannuation savings, we want public policy to mandate a default option with carefully designed features that we judge will promote the wellbeing of those who use this option.

Crucially, this mandated default option is not imposed on anyone. Freedom of choice is a central feature of the choice architecture model that underpins the MySuper proposal. Actively engaged people can choose a MySuper default option, or they can choose from a potentially wide array of alternative 'choice' options.

The evidence is that around 80 per cent of members of superannuation funds in Australia are invested in the default option in a super fund chosen by their employer or an award. Of that 80 per cent, anecdotal evidence suggests around 20 per cent explicitly choose the default option, with the rest making no active choice.

Turning to some of the specifics of the bill, I would like to highlight a selection in the time available to me. Schedule 3 addresses the collection and disclosure of information. It implements new data collection and publication powers for APRA in relation to superannuation and imposes new disclosure obligations on trustees, including publishing their full portfolio holdings and a product dashboard on their website. This provision improves transparency by expanding the coverage of APRA data collection, ensuring the publication of data on MySuper products and improving disclosure for superannuation. This is a direct result of the Cooper review's final report, which stated:

Transparency and comparability are critical to the efficiency and operation of a market‐based savings system, even where participation is compulsory. The Panel believes that there is presently a lack of transparency, comparability and, ultimately, accountability in the Australian superannuation system that can only be effectively improved through targeted and proportionate regulation.

The provisions in this bill will rectify this issue of a lack of transparency in the Australian superannuation system by expanding APRA's role in the collection and publication of data in superannuation entities. As outlined by the Parliamentary Joint Committee on Corporations and Financial Services in its inquiry into the bill, this data will allow members, employers, the industry and other stakeholders with information to compare the performance of superannuation products, enhancing the accountability of trustees to their members.

There is a requirement for funds to disclose their full portfolio holdings. The rationale for this provision, similar to what I have discussed, is that superannuation fund trustees should be aware of what they invest members' savings in, and, given that superannuation is a compulsory system, members should have access to this information. However, the government has indicated that it will consider whether to extend portfolio holdings disclosure requirements to managed investment schemes, again as recommended by a PJC inquiry, this time into the collapse of Trio.

On accrued default amounts, the government has determined to define accrued default amounts broadly. The rationale here is that this will allow funds to convert their default investment option to a MySuper product rather than having to determine the status of every member. Importantly, this is consistent with the recommendations of the Cooper review. Members will be notified before a transfer occurs and will have the right to opt out. Therefore, no member is forced to transfer if they do not want to. Trustees will have up to four years to communicate with members about their options. Therefore, this approach ensures that all members that need to be protected are transferred to a MySuper product and any members who wish to make their own choice are free to do so.

There is the issue—and it is often said—that, if MySuper is about the disengaged, why should members who have chosen a fund be moved to MySuper? The important point to note here, as I have set out in the evidence and opinions from the Cooper review, Treasury and the industry itself, is that MySuper is not just about disengaged members. The Cooper review recommended that default investment options should be subject to heightened duties and specific rules. The review did not differentiate between how members were placed in a default investment option; rather, it recommended that all members in the default investment option should be within MySuper. The review noted that members would be placed in MySuper by default and that members would also be free to choose MySuper if they wanted a simple and low-cost product. Members who have made an investment choice in the past should not be excluded from being in a MySuper product in the future.

Why should members who have selected the default investment option be moved to a MySuper product? Again, the Cooper review recommended that members currently in default investment options should be placed in MySuper products. Some members who choose the default investment option simply want the trustee to make investment decisions for them. As the trustee will be responsible for the investment decisions in MySuper, these members should be moved to a MySuper product. Members who want to remain in the default investment option will be able to opt out.

Some of those opposite have argued that there has not been enough consultation on MySuper. Whilst these views are clearly misguided, we should not have high expectations in this regard following some of the mistruths and inaccuracy being peddled by some of those opposite. There has been extensive consultation with industry in relation to the MySuper reform initiatives. The Australian Institute of Superannuation Trustees, a peak industry body in the superannuation sector, told a recent PJC inquiry into the bill that there had been a 'significant and extensive' consultation process over a period of 'about 20 months' dating back to the start of 2011.

The MySuper reforms are complemented by the SuperStream initiatives, which are designed to clean up the back office administrative elements of the superannuation industry. Treasury's regulatory impact statement on Stronger Super implementation in September 2011 described the SuperStream initiatives as designed to 'improve the productivity of the superannuation system and make the system easier to use'.

The benefits which will result from the implementation of the SuperStream and MySuper reforms are many and will touch members and industry participants alike. Fund trustees will be relieved of administrative inefficiencies which distract them from their duties to members, and members will benefit from greater confidence in the superannuation industry. Treasury estimates that the annual savings resulting from SuperStream and MySuper will amount to $1.55 billion in the short term and $2.7 billion in the long term and that the average member will see an increase to their final superannuation balance of $40,000. These are impressive developments that the government can indeed be proud of on behalf of all members of the Australian public, and I am delighted to be able to extend my support to such great initiatives.

There are several benefits associated with this bill. In the time available to me, I have sought to highlight some of them. With the passage of this bill, it is evident that many working Australians will receive a very tangible benefit from the measures implemented by this bill. These actions are also a genuine reminder of this government's continued commitment to policy delivery and achieving its vision for the future of Australia. This bill is a genuine illustration of this government's commitment to increase the efficiency and effectiveness of the Australian superannuation system. I urge all members to support this bill.

Scott Buchholz (Wright, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak on the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012, which is currently before the House. As members on this side of the House are aware, the coalition have always been consistent in supporting changes to superannuation in an effort to make the system more efficient, transparent and competitive, with the ultimate objective being to improve the value for super fund members. We have come to this House on regular occasions supporting bills that have come before the House. We get tagged with 'constant negativity', but the reality is—from the advice of the Parliamentary Library—that to date we have supported 87.3 per cent of the legislation that has come before us. We have supported 87.3 per cent, so I am perplexed as to where anyone could say that we were not cooperating.

On this particular bill, I am disappointed and appalled at the apparent lack of adequate scrutiny of the bill by the Parliamentary Joint Committee on Corporations and Financial Services because this Labor government has once again rushed an inquiry. The bill is more than 100 pages long and makes fundamental and controversial changes to Australia's superannuation retirement system. Witnesses had a very limited time to make submissions. The Superannuation Committee of the Law Council of Australia—this eminent body—stated:

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.

A previous speaker mentioned that we had been spreading mistruths and misinformation about the time frame allowed. Well, there you have it now on the record: the Superannuation Committee of the Law Council of Australia stated that there was not enough time. Australian public, you be the judge. When you talk about peddling mistruths and misinformation, nothing can ever beat the clanger 'There will be no carbon tax under a government I lead' when it comes to this government spreading mistruths and misinformation.

This is extremely concerning, and I am sure constituents in my electorate of Wright will feel much the same way about it. Remember when we first came to this House? The Prime Minister said, 'We need to open up the blinds and let the sunlight in, let the transparency of this place be divulged.' I wondered where that phrase 'let the sunlight in' came from. I was watching an episode of Yes, Minister, the UK political comic show, the other day and the 'Prime Minister', Jim Hacker, said the very words: 'Open the windows and let the fresh air in.' This is comical, and you can draw parallels from Yes, Minister.

The bill is the third slice of legislation following the recommendations made by the Cooper review, which we are all aware was constructed with the aim of introducing a new, low-cost superannuation product known as MySuper to replace existing default superannuation products. The bill contains a number of what many Australians would deem to be miniscule changes. However, each one of these changes is crucially important. That is why I am proud to represent the people of Wright—because I want to make sure that we get this bill right.

The first part of the bill that I am talking about today legislates to ban conflicting remuneration and entry fees and limits other fees to cost recovery. Under this schedule, a superannuation fund that wishes to offer a MySuper product may not charge members of a MySuper product a fee that relates to a payment of conflicted remuneration. This prohibits the trustee from deducting any amount from a MySuper product that relates to making a commission payment to a financial adviser. And while performance based fees may still be paid to an investment manager in relation to assets of a fund that are attributable to a MySuper product, the trustee must demonstrate that the arrangement promotes the financial interest of MySuper members. This is where my concerns start. To demonstrate this concern, I quote from the Association of Financial Advisers, who stated that intrafund advice will not serve the best interests of clients. They go on to say:

… the payment for personal advice out of an administration fee is a less-than-transparent mechanism and also serves to detrimentally impact the perceived value of any advice that people get. Anything you get for free you do not properly value, and if you can get it for what appears to be free from your superannuation fund then why would you go to a financial advisor and pay for it?

These concerns are very real and indicative of the inadequate examination by the committee. I am appalled that in 2012 we continue to have to address matters such as this.

The next section of this bill looks at new data collection and the publication powers of APRA and requirements for product dashboards and portfolio disclosure. A range of concerns were raised in the inquiry about the practicality of the product dashboard. As stated by the Australian Institute of Superannuation Trustees, there is clear potential for misleading information being supplied on the product dashboard—a real concern. The only consolation I have is that members of the committee have recognised that the legislation lacks clarity about what is required by the dashboard and are recommending greater certainty for industry participants regarding this measure. Unfortunately the recommendation is of little value, as it merely calls for APRA to conduct further consultation with industry; it does not call for any real change to the legislation. I concur with my colleagues in recommending that schedules 4 and 6 of this bill be amended to improve the structure of choice for members moving moneys, in view of the evidence that across many different sectors of the superannuation industry there is strong dissatisfaction about the practical workability of the product dashboard provisions set out in schedules 4 and 6.

The next section of this bill amends the Fair Work Act to ensure a MySuper product can be nominated in a modern award or enterprise agreement. To cut straight to the point of the issue, while every default fund has to be a MySuper product, not every MySuper product will be able to compete freely as a default superannuation fund under modern awards. As a result, the decision on which funds are selected as default funds under modern awards remains therefore with Fair Work Australia through the current widely discredited process.

Even the government had to recognise before the last election that the current process, which heavily and inappropriately favours union dominated industry superannuation funds, is not open, transparent and competitive.

It is appalling that the government of this country admits that their process operates in this manner. I question this, as any normal member of a superannuation fund should: if this system does not perform to standard then it is the member who will suffer, because their money—the money which they are counting on to support them in their retirement—will go towards administration. With this in mind I implore the parliament to use this opportunity to ensure the introduction of genuine competition in the default superannuation fund market by moving relevant amendments to this bill. It is imperative that employers be given the option to select any MySuper product as a default fund for employees who have not chosen a fund. Doing so would ensure genuine choice and competition in addition to assisting to maximise value for employees who end up in a default superannuation fund.

The final aspect of this bill that I want to speak about today is the requirement for existing member balances to be transferred to MySuper products, and the relevant transitional rules. This is a fairly extensive schedule, so I will keep my comments brief. Firstly, 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. This means that in many cases members who have exercised a choice will have that choice overridden. Put another way, under the drafting, the government has not distinguished between default and personal—non-default—funds.

The second point I want to make relating to this schedule regards the 'opt-out' mechanism. Funds have until 1 July 2017 to transfer all accrued default amounts to a MySuper product unless the member opts out in writing. By that date the trustee of a fund must contact all members having accrued default amounts and notify them of the proposed transfer of those amounts into a MySuper product. If the member does not opt out by the end of a 90-day period, the trustee is obliged to go ahead and carry out the transfer. This means that, without members being aware that this is happening, the nature of their superannuation product is going to change—and in a material number of cases that change will be adverse to members' interests.

This action by the government is not only somewhat extraordinary; I believe it is also somewhat deceitful. Furthermore, it is disappointing that a government can choose to set such an example to the wider Australian business community. I can only hope that business owners will not take this lead in the way they conduct their own businesses. To finish on this point, I concur with my coalition colleagues in recommending that an amendment be moved to the bill to provide that any amount in respect of which a member has made an active choice is not an accrued default amount and should not be moved to a MySuper product, either within or outside their chosen fund.

In conclusion, it is very easy to see that this government has yet again done the Australian people over. The people of my electorate of Wright, whom I serve with honesty and integrity, deserve significantly better. The government has made every effort to deceive the Australian people through this bill. I conclude with the recommendations of my coalition colleagues. I strongly encourage those on the other side of the House to think carefully about the Australian people who will be affected by this legislation and what it means to them. I do not want the mums and dads and the hardworking business owners of my community to be left behind—everyday Australians who work hard to ensure they have a plan for the future. This is what will happen if we do not make every effort to work together for effective policy.

I encourage the government to withdraw this bill, pending further consultation across the superannuation industry and addressing the serious flaws identified by the inquiry. This in turn will allow for the preparation of a full and compliant Regulatory Impact Statement for the entire bill. If those on the other side of the House choose to proceed with this bill in its current form, then I can recommend that at least they adopt the amendments put forward to ensure that a member who has previously exercised choice of fund, while also opting for the default investment option of that chosen fund, cannot be automatically transferred into a MySuper product by having previous contributions defined as an 'accrued default amount' and that any product which qualifies as a MySuper product is able to compete freely in the default superannuation fund market. We recommend that schedules 4 and 6 be amended or removed for additional scrutiny before this bill is considered.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

This is the third tranche of legislation as a part of the government's Stronger and Fairer Superannuation reforms. It includes seven key elements, the first being a ban on conflicted remuneration fees—effectively commissions for MySuper products. It provides an opt-out provision—that is, insurance in the form of life insurance and total and permanent disability insurance should be provided; however, MySuper Fund members can opt out of the provision of such insurance. It increases the disclosure obligations on trustees in relation to their portfolio holdings. It also provides for default placement via awards and collective agreements—that is, when members are placed by default into a superannuation fund it must be a MySuper superannuation fund. It makes it quite clear that defined benefit funds are excluded from these arrangements. It provides for the streamlining of transfer of pre-approved funds into MySuper accounts and it provides better powers for APRA to scrutinise eligible rollover funds.

My colleague the member for Greenway has gone through the background to these provisions in quite some detail. I do not intend in the time I have available to go back over that ground, but I would like to make some observations about another part of the transparency regime of our financial sector—and by that I mean our ratings agencies. Credit ratings play an important role in the Australian prudential regulatory framework. Ratings agencies are companies that charge fees to provide ratings on financial products and organisations. The work of ratings agencies helps to assess financial products. Ratings agencies, including Moody's, Standard & Poor's and Fitch, wield enormous financial power, yet they are essentially unregulated. Since the global financial crisis, the work of ratings agencies has come under increased scrutiny. I believe that this scrutiny is appropriate and in fact that there could be, and should be, more done in this area. There is no doubt that many investors, not just in Australia but in the United States and elsewhere, are still feeling the consequences of the global financial crisis and the collapse of investment institutions like Lehman Brothers.

Ratings agencies played a significant role in this crisis and contributed to the housing bubble in the United States by giving risky mortgage backed securities top ratings and underestimating the risk of default and disclosure. While the opinion of these ratings agencies is just that—an opinion—in practice the role these agencies play in financial markets is crucial. This is largely a user-pays system in which the ratings agencies receive income from the fees paid by those who issue certain financial products. I believe that there is a lack of transparency and often conflict-of-interest issues in this system that currently are not adequately addressed by regulation.

There can be no denying that there are many investor victims in Australia and globally because of their reliance on the work of ratings agencies. There have been two recent Federal Court cases that touch on this situation. Earlier this month the Federal Court made a landmark decision with regard to the use of Standard & Poor's AAA ratings in the lead-up to the global financial crisis by finding that the ratings agency was in part liable for the advice and distribution of complex financial products to 13 New South Wales councils. This recent decision came in the wake of an earlier ruling in October—again in the Federal Court—which found the Australian arm of a failed US institution, Lehman Brothers, liable for investment advice to councils regarding other complex financial institutions. I know about this very well, because one council in my electorate, the Wingecarribee Council, lost somewhere in the order of $30 million.

It is good news that the Federal Court made a decision in this case; it means that the council affected will recover some of the $30million loss. While this decision will no doubt be appealed, in the meantime it is important to note some of the findings in this decision. The Federal Court judge found that S&P's decision to give a AAA rating to the financial product was 'misleading and deceptive' and involved 'negligent misrepresentation'. As the judge said:

The very purpose of a rating is to provide investors with independent information by persons expert in assessing the creditworthiness of an investment so that, by a simple system of letters, an investor can know and compare the creditworthiness of investments.

This is an issue that goes not just to financial products but to governments at the federal and state level as well. Many local government bodies and their ratepayers were essentially defrauded through false and misleading ratings assurances. I understand that it is likely that, following this decision, we will see more court cases.

I raise these issues in parliament today because I believe the time has come for the Australian parliament to play its part in applying proper scrutiny to these ratings agencies and companies—just as we quite rightly bring legislation before this House to ensure that members who are investing their money in superannuation products do so with the knowledge that those products are well-managed and that they have some control, knowledge and information about not only the superannuation fund but also the trustees of those funds and the whereabouts of those investments. That is because Australia's financial system depends on each player adhering to best practice and the highest standards of prudential rigour. I believe that more action needs to be taken in this parliament not only to improve the operation of our superannuation system but also to ensure that the work of credit rating agencies is done within an environment that is properly looking at the enormous responsibility that they have in pricing and in rating the creditworthiness of financial products and government bodies as well. I commend the legislation to the House.

Debate adjourned.