Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

This bill represents the latest instalment of the Liberal and National parties' long-running war with superannuation and long-running war with industry superannuation, in particular. This is not a bill that will receive the support of the opposition.

The Liberal Party and the National Party have never believed in Australia's compulsory universal superannuation system. They opposed it at its inception, they opposed it continually, they have opposed every addition to it and they have, particularly, been opposed to industry superannuation. What we see here is a continuation of that prejudice from the Liberal and National governments. This is a process that began under Prime Minister Abbott and, like in so many other areas, has continued untouched, uninterrupted, under the Turnbull administration.

What we have here is a solution in search of a problem and a very bad solution—a botched solution—at that. What is the malfeasance that we are trying to fix here? What is the problem we see in industry superannuation? Is it that there is some sort of systemic problem the government has identified that they have rushed urgently to fix? Is it that the government has identified that industry super is underperforming compared to the rest of the superannuation sector? Have they found conflicts of interest rampant, throughout, in the industry superannuation system?

If they have done that, they are invited to present some evidence to the House. They are invited to present some case for their actions. They will not be able to, because none exists. Industry superannuation has been performing well for its investors. Industry superannuation has been providing good returns for its members. What we are seeing, on the contrary, is the Liberal and National parties old-style divide-and-conquer prejudice against industry super.

This is some sort of problem for the Liberal and National parties that they never seem to have been able to overcome. Industry super employers and unions—working together for the best interests of the members of the industry super funds—is something that just does not compute with those opposite. They cannot quite process that this is something that would work in a cooperative fashion. As a result of the way industry funds have operated over the last several decades, many working Australians have better retirement incomes than they would if superannuation did not exist and if they were not members of industry superannuation funds. Of the top 50 performing superannuation funds over 10 years, 19 are industry funds. Of the bottom 50, only seven are industry funds. Of the top 10 funds over 10 years, none are retail funds. Retail funds and the retail sector play a very important role in our superannuation system, but industry funds are not the issue that should be this government's urgent priority when it comes to structural and institutional reform.

I note that this is a recommendation of the Murray inquiry. I note that and I freely knowledge that, but I also point this out: the government is yet to respond to the Murray inquiry. The response to the Murray inquiry, we are told, is being delivered tomorrow and this legislation is in the House tonight. Of all the recommendations in the Murray inquiry and of all the things that the Murray inquiry has decided to recommend, there is one that this government has decided to implement—one that they have picked out and said, 'This is most urgent for us, not all the other recommendations of the Murray inquiry.'

I have been at pains not to make a political football of the Murray inquiry and to provide bipartisan support wherever possible to the Murray inquiry, but we have got government addicted to playing cheap and dirty politics and we have got a government addicted to saying, 'We're not going to accept that bipartisan support. What we're going to do is cherry pick the Murray inquiry and we're going to play good, old-fashioned wedge politics.' That is what this government is addicted to. We were used to that under previous arrangements and we are told that everything is changed and everything is better now that we have a new Prime Minister. Well, nothing has changed. This Prime Minister has changed not one jot when it comes to this government's actions. He is proceeding with this old style, divide and conquer, prejudiced approach to policy.

We have seen this in the government's approach to financial services regulation across the board. What was the government's first priority when they came to office, when it came to financial services regulation? What did they rush to do first? It was to unwind the previous government's Future of Financial Advice reforms. Those reforms were a solution for real problem. They were a solution for a problem that had been identified, which was people being ripped off by poor and conflicted advice. The Labor government stepped in and provided appropriate and well-calibrated regulation to minimise the chances of that happening again. This was regulation in response to scandals—not just one scandal and not just two scandals but continual scandals and rip-offs of good, hardworking Australians. It was legislated painstakingly by the previous Labor government because there was a problem to fix.

Where there was a problem, the Liberal and National parties came to office and rushed to undo the solution. They took reforms to both houses of parliament to unwind the Future of Financial Advice reforms. They urgently prioritised it and, for a time, they succeeded. Thank goodness, the Senate—after the strong representations from the Labor Party—eventually reversed their approval of the government's watering down of the Future of Financial Advice reforms and insisted that they be reinserted. But here, again, we have the government playing the same old games. Here we have them now rushing to pick one Murray inquiry recommendation for a problem which does not exist. Where is the problem in industry fund regulation that the government has identified that this proposed legislation is designed to fixed? It is not poor returns and it is not conflicts of interest.

The other point is this: not only is this a solution in search of a problem but it is also a botched solution in search of a problem. This is very poorly drafted legislation. This is legislation which goes much further than what the government claims is its intent. They claimed that their intent is a third—so a third are independent for directors of industry super funds. In fact, it is a third that are independent and the rest is open slather. The longstanding requirement that 50 per cent of the representatives of industry funds be employers and 50 per cent be employee representatives is no longer extant in this legislation. Instead, there is a requirement that a third be independent and the rest are open slather. Employer representatives could be removed and union representatives could be removed in their entirety. Either the government is trying to do more than they are saying they are trying to achieve or, in fact, they have been incompetent as they set out to do this.

Instead of trying to divide superannuation between industry funds and the rest, and instead of trying to divide the superannuation sector and concentrate on the things which some elements of the superannuation sector disagree with each other on, the government could instead be concentrating on strengthening superannuation. They could be concentrating on taking the superannuation guarantee from nine per cent to 12 per cent. In fact, they have done the opposite; they have frozen it at 9.5 per cent. They could be actually tried to strengthen superannuation for low-income earners by actually giving low-income earners a tax concession to their superannuation, which was in place under the previous government and which this government—to the eternal discredit—has abolished. That is, the low-income superannuation contribution.

That is because this government does not believe that low-income earners deserve any tax concessions to their superannuation. They certainly believe in very generous tax concessions for high-income earners and they very clearly believe that high-income earners deserve very, very generous concessions. But what they cannot stand is the fact that low-income earners get any tax concessions. They could not stand for it and they abolished it. Here we have that same sort of old, cheap prejudice, which is driving this change—I will not call it a reform, because it is not—to see the longstanding fifty-fifty model of representation for industry super being abolished under this legislation.

If there was a one-size-fits-all regulation for corporate governance—and if it was appropriate—the Labor Party would be prepared to consider it. But, of course, no such thing exists. What we see is that industry super funds are being overly regulated by a government which tells us that they believe in getting rid of red tape, not having too much regulation and being an anti-red-tape government. But here we have them prescribing that a third of directors should be independent when funds already have that capacity. They can already appoint independent directors if they think it is in the best interests of the fund.

What is important is not whether a director is necessarily independent. It is the skills that director brings, the expertise they bring and the experience they bring. The fact of the matter is that there is already significant regulatory oversight of superannuation funds. The government might have us believe otherwise, but that is not the case. APRA has the power to set and supervise compliance and enforce credential standards so that funds meet the financial promises they make to beneficiaries. APRA funds are required to continuously report on the composition of their boards and whether boards and individual directors have the required mix of expertise and skills. Boards are also required to conduct ongoing performance reviews, manage conflicts of interest and make sure directors are fit and proper.

Many of these requirements were only introduced in July 2013 but this government just could not help itself. Instead of just seeing how those reforms play out, seeing whether they meet the objectives set out for them by the previous government, no, they go down the old-fashioned route that they have engaged in since the early 1990s of opposing superannuation and opposing industry superannuation in particular. There has never been an industry super fund that a Liberal National Party MP did not see and want to damage and to punish. And we see that long-standing process continued in this legislation.

I again invite the government to provide one piece of evidence that there is a problem with industry funds which needs to be fixed and fixed by this legislation. Show us the evidence that industry funds are underperforming. Show us the evidence that there are systemic conflicts of interest in industry funds. They will not be able to do so because no such evidence exists. This government, which claims to have an evidence based approach to policy, simply cannot have such an evidence base because this evidence does not exist.

The fact of the matter is that there will be costs imposed on funds as a result of this imposed overregulation, this heavy-handed regulation, this red tape that is imposed on industry funds by this interventionist government, who seek to impose their will on the trustees of industry super funds, who think they know better from Canberra than the employer representatives who are experienced and well qualified, and the employee representatives with their member's best interests at heart who are also well experienced a well qualified. This government thinks they know better than all of those. They know better than all the industry super fund trustees that have done such a good job for their members over the years that industry super has existed.

I do not mind saying industry super has done very well for many millions of members including many members of this House over the years and that has continued so I have full confidence in the particular directors of many of the industry funds both employer representatives and employee representatives. I see very little case for this overly heavy-handed form of regulation, which is hard to reconcile with this government's alleged zeal to reduce red tape—because they only do that when it suits them. They only do that when it suits their prejudices. I hesitate to call it an ideology because an ideology implies some sort of coherent set of logical parameters to their thought process and I do not see any evidence of that. I just see prejudice when it comes to this government's approach to superannuation, prejudice against lower-income earners and against industry funds. Such is this government's hatred of trade unions that they are prepared to say that they will overly regulate industry funds because they happen to have union representation on them as well as employer representation on them. And that just shows was what is wrong with this government's approach.

We have seen the danger of a one-size-fits-all approach. It has been highlighted by many commentators in this debate and in other debates. The danger of a one-size-fits-all approach when it comes to governance systems and structures which are overly prescriptive was highlighted as long ago as in the HIH royal commission by Justice Owen. In that commission he pointed out that it can be very dangerous to impose governance systems or structures that are overly prescriptive and are one-size-fits-all. The fact of the matter is that is exactly what this government is doing. As David Whitely, chief executive of Industry Super Australia, has said in relation to this, 'It is a solution in search of a problem … It is not because of any systemic performance within the sector.' The fact of the matter is that Mr Whitely in this regard is right. Ian Ramsay, Professor at Melbourne University, is right when he says skills, expertise and experience were more relevant criteria than independence per se. Peter Swan, Professor at University of New South Wales, was right when he said what is important is independence from management, not the owners—the owners being the members of the fund.

There are matters of independence of directors which governments can and should from time to time consider, not singling out industry funds but looking at the independence from management. The separation of management and directors right across the superannuation sector is something which is worthy of debate in this House, but of course we do not see that from this government. They always go the cheap and easy route, which, in this case, involves an attack on industry super because that is a very obvious play for this government to embark on. If this Prime Minister was fair dinkum, he would change the approach. If this Prime Minister was fair dinkum, he would actually go back and say, 'Well, let's have an evidence based approach. Let's take the Murray inquiry as a whole. Let's respond to it in one go.'

The opposition are being fair dinkum. The opposition are not playing politics on the Murray inquiry. We will not abuse that but of course this government has not done that because they cannot find it within their wit to do any better than what they have delivered to the Australian people for the last two years, and what a very poor government that has been indeed.

John Cobb (Calare, National Party) Share this | Link to this | Hansard source

I rise to support the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 and the bringing in of measures to improve the governance of the superannuation industry. Obviously superannuation has become one of the biggest money funds in Australia—probably is the biggest by far. It does need improving, it does need modernising and it does need to be more efficient. We just heard the shadow Treasurer say it was so perfect but it quite obviously was not. What the government is doing is meeting a need to improve the governance, to improve the efficiency and to make it a competitive industry. We have a responsibility to ensure that superannuation boards have the most experienced members and those with the right expertise to get the best outcomes for fund members. I must stress this amendment is not singling out any one sector; in fact, the changes equally apply to corporate industry public sector and retail funds. The modernisation of superannuation is necessary considering superannuation is already the second-largest asset held in Australian households. There is currently $2 trillion in super and this is projected to grow to $9 trillion by 2040. This increase is no surprise, with Australia's ageing population; in fact, it would be a worry if there were not this increase. By 2055 the number of Australians aged 65 and over is expected to double. It does require the government to ensure that the industry is going to be capable of meeting these needs and be well run in the meantime. In this case, action has been well overdue, as the current requirements are outdated and no longer reflect the size and the structure of that industry.

The changes come in response to independent reviews of the superannuation system. The Cooper review and the Financial System Inquiry recommended that superannuation trustee boards include a higher number of independent directors. The proposed changes will require all superannuation funds to have a minimum of one-third independent directors on their trustee board and an independent chair. An independent director is a person who is not a substantial shareholder of the super funds trustee or who does not have a material business relationship with the licensee and has not had one for the past three years. This definition has been broadened to take into account a person's wider personal circumstances. APRA will enforce the changes and hold the ability to determine if a person is independent. This will enable APRA to respond to situations where a person's circumstances or their capacity to exercise independent judgement is clear, but for reasons such as timing, restructures, mergers and acquisitions. This gives trustees a three-year period to make the necessary changes from the time the legislation receives royal assent.

The purpose of these changes is to ensure that Australians have the best people governing their retirement savings. The current system does not mean independent directors will provide boards with an external perspective, and it is quite obvious to all advisors that this needs to happen. Independent directors will be able to provide a check on management and conflicts of interest, and will act as a safeguard to related party interests being put ahead of member interests.

The new governance arrangements will replace existing requirements of equal representation of employer representatives and member representatives on the boards of standard employer-sponsored superannuation funds of five or more members. The 2014 Financial System Inquiry final report recommended these changes to ensure efficiency and best practice. Given the diversity of fund membership—and I think this is the whole point of this—it is more important for directors to be skilled, to be independent and to be accountable than to be representative. Their job is to make the members money, not to be representatives of the members. I think there is a not-so-subtle difference there. These changes will promote strong governance through the power of an objective source. The bill does not restrict the composition of the remaining two-thirds of board members. Boards can continue to structure themselves in a manner they believe will serve the best interests of their members.

After a lot of consultation—I know they came to see me—these proposed changes have been welcomed by various members of the industry. CHOICE echoes the government's sentiment—that having higher standards of governance will mean consumers have a secure retirement. Suncorp believes it will ultimately benefit customers as it supports competition, while the Association of Superannuation Funds says it reflects community expectations and is a positive outcome for the whole industry.

I will stress that at the moment the current system is lagging behind, and industry realignment is necessary. It is important that superannuation boards are not exempt—I stress: not exempt—from standards reflected in corporate governance principles that apply to all successful companies. It brings it into line with domestic and international best practice. The current system is largely out of step—it is based on history rather than need, and that is: the need and the interests of those who have funds within the funds system—with other corporate sectors including listed companies, banks and general insurers. All of these at a very minimum recommend a majority of independent directors with an independent chair.

There is no intention for this to be and nor is it an attack on industry funds. In actual fact, quite a number have already moved to a model that is similar to what is being proposed here today, while others have taken a constructive approach towards the changes—unlike the opposition, who seem to think that what they do cannot be fixed. Well, it can certainly be improved, and that is what is happening.

The bill delivers on the government's superannuation election commitment to align governance in superannuation more closely with corporate governance principles applicable to ASX-listed companies. The current model does not allow for accountability or transparency—in fact, it prohibits this and allows for decisions to be made that may not be in the best interests of members. The changes will ensure a stronger superannuation system to support the future retirement of Australians.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

Quite simply, the effect of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 and the coalition government's approach to superannuation retirement incomes is that Australians will save less for their retirement. That is the crux of the matter of this bill and the suite of other reforms that have been introduced by the Abbott-Turnbull governments to ensure that the incentives for Australians to save more for their retirement are removed, and the effect will be that they will have less in their superannuation accounts than they otherwise would have under a Labor government. Quite simply, this is dumb policy. In an environment where there are big questions about Australia's fiscal sustainability, and an environment where we have an ageing population putting more pressure on our aged-care services and more pressure on the age pension budget, to be cutting back on the amount that we are encouraging Australians to save for their retirements is simply dumb politics, and it represents this government's obsession with their ideological views being put before the interests of Australians and the Australian economy. It completely demonstrates how out of touch the Abbott-Turnbull government is.

In 2013, the Financial Services Council did the most comprehensive study and qualitative analysis of Australians' views of superannuation. It was the largest survey that has been conducted of Australians about their views of our superannuation system. The results are quite interesting. They show that a whopping 83 per cent of Australians support an increase in compulsory superannuation contributions from nine to 12 per cent. Of course, this was Labor's plan when we were in government. Labor developed a plan to ensure that Australians save more and that we take pressure off the age pension, off the aged-care system, by encouraging Australians to save more by increasing the compulsory level of superannuation contributions from nine to 12 per cent. It was a staged increase; it was not an immediate increase. It would have been completed by 2020.

What was this government's approach to that very positive policy that would have resulted in Australians having more money in their superannuation balances by 2020? The Abbott and Turnbull governments and those opposite all voted to stop that scheme going ahead. They voted to halt the increase in superannuation from nine to 12 per cent. They say they have put it on hold, but, to the Australians out there who may be listening or watching: that is complete garbage. If you think that the government is going to increase superannuation from nine to 12 per cent at any time into the future, you have rocks in your head. The government have form on those sorts of issues. Which was the last Australian government that also put a halt to compulsory superannuation contribution increases? That would be the Howard government. They encouraged Australians to save less and the Abbott-Turnbull government took up the cudgels when they came to office, once again demonstrating how out of touch they are.

The most common type of fund that Australians support and place most of their superannuation contributions into is an industry fund—a super fund that is managed cooperatively by workers and employers. The Financial Services Council survey demonstrated that 59 per cent of Australians have their superannuation savings invested in an industry fund. Why is that? Why would most Australians have their superannuation in an industry fund? There is one simple answer to that question: they are the best performing funds. They are also the ones with the lowest fees and are managed cooperatively by people who understand their circumstances—most notably fellow workers and employers from that particular industry or that particular business. They have served our economy and workers well. The result of the encouragement of industry funds in Australia has resulted in $2 trillion being invested in Australia's superannuation system, the fourth-largest pool throughout the world of investment saving funds. For workers who may lack particular expertise in managing retirement incomes and managing investment funds, it has provided access to the best quality advice at very reasonable cost. That has proved very effective for the management of workers' retirement incomes, but it is also very effective for Australia's economy because, as I said, it has built up a very large pool of investment funds, which of course can be used, subject to trustee obligations under particular funds, as a source of investment funds for other projects throughout the country—most notably infrastructure, which is productivity-enhancing and ensures that our economy is growing. We know that industry funds are the best performing funds, we know that they are the cheapest and we know that most Australians have their retirement savings in an industry fund.

What did the mob over there do when industry funds performed so well? What did the Abbott-Turnbull government do? They introduced legislation such as this that seeks to tear that system down. They seek to meddle in the management of the most successful and best performing funds and the cheapest sector in the superannuation industry. That is the subject of this bill. That is why they are doing what they are doing with this bill. They are changing the governance of the most successful sector of the superannuation industry. Under this bill, registered superannuation entities must have a minimum of one-third independent directors and an independent chair on their board. That is something that the coalition has been pushing for many years. It is an ideological push that could harm the performance of superannuation funds and affect the retirement incomes of thousands and thousands of Australian workers. It represents, once again, the Abbott-Turnbull government putting their ideological interests ahead of the interests of Australian workers and, indeed, ahead of the interests of the health and growth of the Australian economy.

The question that needs to be asked is: why is this needed? Why has the government come up with this reform? Why is this needed when industry funds are the best performing? Why is this needed when industry funds have the lowest fees? Why is this needed when industry funds have the best returns? Recently, independent expert advice proved that, in terms of returns for members and investors, industry funds returned on average 10.2 per cent growth compared to retail funds of 9.6 per cent growth. They are also some of the safest funds in the world when it comes to the management of members' funds. There is no justification whatsoever for these reforms. At the heart of this is an ideological obsession with the fact that the coalition have never been comfortable with the notion of workers managing their own retirement incomes. They have had an ideological bent against it from the moment Paul Keating established the compulsory superannuation system in this country. It is sad and it demonstrates how out of touch the government really are. In many respects it just shows that this bill is unnecessary, because in 2013 the then Labor government introduced new governance obligations for industry superannuation funds. Those obligations require all funds, using an independent third party, to regularly evaluate the effectiveness of their board and directors, to manage and disclose conflicts of interest, to ensure all directors are fit, proper and capable of making decisions expected of them, and to regularly review their board renewal processes. APRA, the industry watchdog has robust enforcement powers and has admitted that these reforms that were introduced by Labor in 2013 are yet to be bedded down. They are still in the process of putting these reforms into action.

So there is no justification for these reforms. This bill represents a heavy-handed intervention and a 'one size fits all' approach, regardless of the superannuation fund's business model and the circumstances of its membership. It does not exactly fit with the traditional Liberal philosophy of not intervening in a market, particularly in a market where the funds that are being invested are performing very well and getting great returns for the members, and are safe.

The bill also ignores some of the major issues that exist in Australia with respect to funds management. I can recall as a senator in the past sitting on Senate committees that looked into the collapse of investment funds in Australia—investment funds such as Trio Capital, Opes Prime and others—where many workers who established their own self-managed super funds on the advice of so-called independent financial advisers lost all of their savings, with no recourse at all for any compensation or actions that recovered that lost capital, because they were outside of the industry superannuation fund system and they did not have the protection of the Superannuation Industry (Supervision) Act.

Those self-managed super funds and that poor financial advice resulted in thousands of Australians losing their retirement income. I can recall going to Wollongong and taking evidence from many of the people who lost much of their retirement savings in Trio Capital. Many of these people had worked in the coal mines or steel mills around Wollongong for their whole life and were just at the end of their working life. They received advice from so-called independent financial advisers to re-mortgage their homes so that they could invest in these schemes. So, not only did they lose their retirement savings but they lost their kids' inheritance as well. Once again, there was no recompense because they were outside of the system.

This was an issue Labor was well aware of when we were in government. That is why we instituted the Future of Financial Advice reforms. It was to tackle some of these problems of poor advice to vulnerable people. Again, what was the response of the Abbott/Turnbull government? When they came to government they sought to water down the Future of Financial Advice reforms, particularly the 'best interests' rule for ensuring that financial advisers were acting in the best interests of their clients.

That is a real issue that is still ongoing in Australia. One would think that if the coalition government were in touch they would look at it. But, once again, they have ignored it. We have had these big scandals in a number of the big banks throughout Australia in respect of their wealth management practices and the advice that has been given to individuals through their banking and finance advice services. Again, the government has ignored many of the recommendations of some of the inquiries into these issues, and instead has sought to attack the best-performing and safest aspect of the wealth management and retirement incomes investment advice system.

Finally, I want to deal with the issue of the gender gap. At the moment the average superannuation payout an Australian woman will receive when they retire is $112,600. The average for a man is $198,000. There is a massive difference in Australia at the moment in the retirement incomes of men and women. In Australia, 35 per cent of women have no superannuation at all. Furthermore, 55 per cent of women will retire with less than $25,000 in their superannuation fund.

So, what does this Liberal government do when it comes to looking at this issue of the gender imbalance in retirement savings in this country? They seek to legislate to make the problem worse. They seek to get rid of the policies that were meant to address this issue, in the low-income superannuation contribution. Low-income earners have a disincentive to save. It is built into the taxation system. The taxation system ensures that if you are a low-income worker—someone typically on less than $38,000—you will pay more tax on your superannuation that you will, effectively, on your marginal rate for earnings. That is a disincentive to working people. So, Labor introduced an effective tax credit to ensure the disincentive was removed. This government has scrapped that tax credit: they have gotten rid of the low-income superannuation contribution.

Effectively, what they have done is put a tax increase on three and a half million of the lowest paid workers in the country, two million of whom are women. So what we are going to see is women and low-income workers save less for their retirement, putting more pressure on the budget in the future and more pressure on the aged care system. It is dumb politics and that is why this bill must be opposed.

Jane Prentice (Ryan, Liberal Party) Share this | Link to this | Hansard source

I rise to support the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. The bill delivers on an election commitment to improve governance in the superannuation industry. It updates laws enacted at an earlier time in the evolution of Australia's superannuation system, when the industry was far newer and far smaller than it is today.

These days, the superannuation industry has more than $2 trillion in assets under management, a figure equivalent to 120 per cent of Australia's GDP. As the former minister noted in introducing the bill, this figure is expected to grow to $9 trillion by 2040. It is an industry in which most of us have a stake. For many Australians, their superannuation fund is their largest single investment outside the family home. This bill affords the protection of a governance regime that will better safeguard the superannuation accounts of all Australians. In light of the current size and anticipated future growth of the industry, it is both reasonable and necessary to bring governance requirements for all superannuation funds up to best-practice standards and, importantly, in line with those expected of corporate superannuation funds and Australian Stock Exchange listed companies.

This bill does just that. It modernises board requirements to ensure that super fund boards represent the broad range of skill sets required to manage a sophisticated investment vehicle. At present, corporate and industry super funds are required to have equal numbers of employers and employees or member representatives. However, the number of independent directors is currently limited to one in the absence of Australian Prudential Regulation Authority one-off approval. This bill will ease limitations on the number of independent directors and will instead require superannuation trustee boards to have a minimum of one-third independent directors as well as an independent chair. This is not an unreasonable requirement. Indeed, other corporate sectors such as listed companies, banks and general insurers all require, as a minimum, a majority of independent directors with an independent chairman. It is also international best practice in many countries overseas. No one particular sector of the industry is targeted by this bill, as the changes apply equally to all corporate, industry, public sector and retail funds.

The origins of this bill can be traced back several years to the recommendations of the 2010 Cooper review, commissioned by the former government. That review recommended that superannuation trustee boards include a higher number of independent directors. The findings of the Cooper review were reflected in the more recent financial system inquiry, which came to similar conclusions. The superannuation industry has had several years to consider the merits of this proposal.

Positive feedback for the reforms has come from a diverse range of organisations and industry bodies such as Choice, National Seniors Australia, the Association of Financial Advisers, the Association of Superannuation Funds of Australia, the Financial Services Council, the Australian Chamber of Commerce and Industry, the Australian Institute of Company Directors, the Business Council of Australia, chartered accountants, the Council of Small Business Australia and the Governance Institute. Industry players themselves have also been supportive, including BT Financial Group, Qantas Super, First State Super, LGsuper, Mercer, Suncorp, Sunsuper, UniSuper and VicSuper—to name just a few.

It is clear that the proposed reforms have support from a broad cross-section of the industry and from organisations representing interest groups that would be affected by this change to the industry. Indeed, in some respects this bill merely represents government catching up with a position that the industry has already embraced and is moving towards. Industry super funds such as Catholic Super, First State Super, Hostplus, Prime Super, UniSuper and VicSuper are already moving constructively towards incorporating the changes. In doing so, there is broad recognition that improving corporate governance is a goal worth pursuing. Irrespective of performance, independent of any consideration of investor return, super funds are recognising that their board structures need to evolve. They recognise that everyday investors need to have full confidence that the board has their best interests at heart and has the skill and capacity to act in their interests.

I note with interest that other commentators have recognised the need for change. Members opposite may be interested in the comments of former Australian Workers' Union boss Paul Howes, who noted:

Equal representation has been a success but the evolution of the super industry is important and I can't see anything negative in having more independents on boards.

We know from experience that the parliamentary Labor Party has a long record of heeding the words of Mr Howes. In fact, I remember a certain evening back in 2010 when a mere appearance by Mr Howes in a late-night ABC interview was enough to bring down a Labor administration. To those opposite, I urge them to heed his words again. This time, I can assure them they will not live to regret it. Mr Howes's support serves to further highlight the point that unions have nothing to fear from these reforms.

Industry super funds with a commitment to good corporate governance have nothing to fear from these reforms. The reforms contained in this bill protect the interests of everyday Australians with superannuation accounts. They will improve confidence in the corporate governance arrangements of superannuation funds, and they bring Australian superannuation funds in line with national and international best practice. This bill is worthy of the support of all members in this place and I encourage them to get behind it. I commend this bill to the House.

Michael Sukkar (Deakin, Liberal Party) Share this | Link to this | Hansard source

It is wonderful to be able to speak in favour of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 tonight. We have heard a lot of contributions from those opposite and it is quite embarrassing, really, that what should be an uncontroversial change to our superannuation arrangements is being vehemently opposed by those opposite because it does not accord with the wishes of their union paymasters. All we want to do is improve the governance arrangements for super fund boards to ensure that they meet the highest standards of governance. With $2 trillion under management, rising to $9 trillion under management, why wouldn't we want the highest governance arrangements applying to those funds?

The amendments in this bill, as highlighted by previous speakers, are not about singling out any one sector. The changes apply equally to corporate, industry, public sector and retail funds. The changes will not apply, though, to self-managed super funds. As I said, superannuation represents $2 trillion and is the largest asset held by Australian households. In our view, the appropriate provision of independent directors on trustee boards is a vital step towards strengthening the super system. In our view, independent directors bring to a board a dispassionate perspective, enabling the board to benefit from a diversity of views and of course providing a check on management recommendations and conflicts of interest. Therefore, the presence of a greater number of independents on super fund boards will increase the accountability of management and strengthen the oversight of funds, helping to ensure that related party interests are not put ahead of members' interests.

The new governance arrangements in schedule 1 will replace the existing requirements in part 9 of the SI(S) Act that require equal representation of employer representatives and member representatives on the boards of standard employer sponsored superannuation funds of five or more members. In this respect, the previous government's 2010 super system review, the Cooper review, recommended that the SI(S) Act be amended so that equal representation should no longer be mandatory. In addition, the Cooper review noted that the presence of independent directors on boards is best practice in corporate governance. The Cooper review examined equal representation and found that:

… changes in the industry over time and certain implementation practices mean that equal representation no longer seems to achieve its original ... objective.

The 2014 financial system inquiry's final report concluded that independent directors on all superannuation trustee boards promote good governance by bringing an objective perspective to issues the board considers and holding other directors accountable for their conduct. In addition, independent directors allow for an increased accountability of decisions made by other directors who may have conflicting interests.

This bill delivers, therefore, on the government's superannuation governance election commitment to align governance in superannuation more closely with the corporate governance principles that we all accept and that are applicable to ASX listed companies, for example. The bill does not restrict the composition of the remaining two thirds of board members. The government considers that it is appropriate to leave its boards to structure themselves in a manner they believe will serve their members' best interests. Relevantly, to support the reforms, the bill provides APRA with the power to make determinations as to whether a person is independent or not. This will enable APRA to respond to situations in which a person's circumstances and his or her capacity to exercise independent judgement is clear but, for reasons of perhaps timing, restructures and mergers and acquisitions, that has changed.

The amendments will take effect from the date of this bill receiving royal assent, with a three-year transition period to allow existing super fund boards to comply with the new requirements. Any new fund licensed by APRA after the date of royal assent will need to comply with the new requirements from the time they are licensed.

A number of stakeholder groups support these proposed changes. As I said at the beginning, these should be uncontroversial, and I would think they should receive support on both sides of the House. For example, the Association of Superannuation Funds of Australia said:

The government's release of draft legislation, which will require boards of superannuation funds to be comprised of at least one-third independent directors … is a positive outcome for superannuation.

That is the Association of Superannuation Funds of Australia. They also said:

As a minimum, there must be the flexibility to appoint directors who have the right skills, experience and knowledge, as well as cultural fit.

Also, the Council of Small Business Australia said:

The fact that the directors are, in the great majority, chosen firstly on where they work rather than what skills and experience they have creates question marks around whether the best model of governance is in place. This proposed change creates improved transparency and an opportunity for the boards to improve their approach to collecting funds and dealing with people in the supply chain.

It is therefore our view that these changes, if they are good enough for governance arrangements for our top ASX listed companies and good enough governance arrangements for all listed companies around the world, then they should be good enough for our superannuation industry. It does not stop any fund from appointing directors with relevant experience who are the best people to be entrusted with the decisions to properly invest Australians' superannuation savings.

I repeat: with our superannuation savings pool reaching $9 trillion, there is no room for errors. The government has to take an abundance of caution in ensuring that the composition of all our boards has the best interests of their members at heart but, more importantly—because I am sure they do have the best interests of their members at heart—that there is the requisite balance of skills on those boards to make the best investment decisions. With a pool of savings that large, it is incumbent on government to ensure that Australians are getting the best return for their retirement. I therefore will not repeat the contributions of those who have gone before me, and I commend the bill to the House.

Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

Thank you for this opportunity to speak on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. Superannuation is a subject that I have long held an interest in, and I am pleased now to be able to represent this policy area from our side of the House.

The government tries to claim that this bill is about improving the performance and accountability of superannuation funds, but in actual fact the bill represents nothing more than a change to our superannuation system, which is badly motivated, ideologically driven and unwarranted.

I have personally the greatest respect for the retail funds and the banks, but it is an observable fact that the industry super funds are among the most successful and highest-performing funds in the sector year on year. I think it is important when we debate these important issues that we do not descend into two warring tribes—the retail funds on one side; the industry funds on the other—replicated in this House and in the other chamber. It is important that we deal in the facts.

I am just as interested in the academic and independent analysis of this situation as I am in either side of the argument. I am interested in Ian Ramsay from Melbourne university who said:

Skills, expertise, and experience were more relevant criteria than 'independence' per se.

I am interested in Sam Wylie from the Melbourne Business School who said:

The industry fund sector as a whole has been well governed and has delivered tremendous value to its members .

I am interested in what Fiona Reynolds had to say from the Australian Institute of Superannuation Trustees. She said:

We think there should be flexibility in the system that allows you to appoint independents if you want, but you are not forced to.

The sad reality here is that the government is attacking a model that works. It is seeking to dismantle industry super funds' successful representative model of governance, which has seen them have higher returns for their members who retire more comfortably as a result—and that is the most important thing. In other words, as my colleague the member for McMahon said, they are proposing a solution to a problem that does not exist.

This ideological crusade was started by the member for Kooyong in his time as Assistant Treasurer, and it has been disappointing to see the new Assistant Treasurer continue in this way. Labor will support policies that make our superannuation system stronger, fairer and more sustainable. This bill will achieve none of those goals. For this reason, as my colleagues have indicated, we will be opposing this bill in its entirety. We call on other members—particularly, those on the crossbench in the other place—to support the representative model for industry super funds as well, because it works.

Members here know that Australia's superannuation system is the envy of the world—not just a proud Labor achievement but a proud national achievement. The total assets of Australian superannuation funds, as my colleague on the other side of the House mentioned, are more than $2 trillion as at the end of June this year. This was a 9.9 per cent increase on the same time last year.

Millions of Australians will rely on these funds to fully or partially finance their retirements. This fact alone is enough for us to take the issue of superannuation governance very seriously. We must ensure that our superannuation funds continue to perform and provide for Australian people as they entire retirement.

That is why we already have very strong regulatory oversight of superannuation funds by APRA. APRA has the power to set and enforce prudential standards for superannuation funds. They have set minimum foundations for good governance of superannuation entities, requirements for super funds to make sure that directors are fit and proper and manage conflicts of interest effectively.

The existing prudential standards are relatively new, having come into effect from July 2013. Importantly, super funds are required to continuously report on the composition of their boards, and whether boards and directors have the required mix of expertise and skills—something that both sides can agree is important. These regulatory requirements are what APRA has determined to be appropriate for superannuation funds to ensure good governance, and we strongly support their efforts and these measures.

Most industry super funds go above and beyond APRA's regulatory measures. In addition, the Superannuation Industry (Supervision) Act 1993 requires super funds to have equal representation of employer and employee groups among their trustees, or to have a policy committee comprising equal numbers of employer and member representatives. That is the so-called representative model.

Many analysts point to the representative model of super fund governance as one of the key factors of the success of our superannuation system. Funds with representative directors perform substantially better than retail funds, as I have said. That is a fact that cannot be disputed by anyone in this debate. By the numbers, the average performance of industry funds for the year was 10.2 per cent compared to 9.6 per cent for retail funds. Industry funds are also more likely to change asset allocations more often and put more money into unlisted investments like infrastructure—another welcome practice.

According to APRA, in March this year industry funds had six per cent of their funds in unlisted equity, seven per cent in infrastructure and seven per cent in unlisted property. In comparison, retail funds had three per cent in unlisted equity, one per cent in infrastructure and two per cent in unlisted property.

One of the main reasons given for this disparity is that representative industry funds' trustees are more likely to feel obliged to their members to get the best possible returns. The representative model has been proven a success for Australian industry funds, and there has been no cause to make substantial changes to the model.

The government has proposed changes which will radically change the face of the Australian superannuation system. There are a few key components of the government's amendments. Others have dealt with them in detail; I will mention them briefly: one-third of super boards must fit their definition of an 'independent director'; the chair must be independent; the equal representation requirement has been entirely removed; and they have introduced an 'if not, why not' disclosure of majority independent directors.

As I said, we will be opposing all of these amendments to the act for these five reasons: one, there is no evidence in favour of independent directors; two, the current representative model is working well, as I said; three, there are governance safeguards in place already; four, the proposed changes are overly prescriptive; and, five, the amendments will cost millions of dollars for fund members.

When it comes to no evidence for independence, the government has not been able to stack up the claim that maintaining independent directors on not-for-profit superannuation funds would improve fund performance. A study looking at the governance and performance of APRA-regulated funds found no evidence that board independence and chairman independence affect that performance.

Empirical research on American public pension funds indicates that the proportion of outside trustees on the board has no significant relationship with funds' excess outperformance. The government have just asserted that independent directors are better. They have made an ideological case but not a case based on fact or observation or in the best interests of the members of the funds, which should be our main concern. They have not provided evidence in their speeches or in the explanatory memorandum that these changes are necessary.

That is because, as I said before, the representative model is working. This is a solution to a problem that does not exist. Of Chant West's top 10 performing superannuation funds for the last financial year, eight of them were not-for-profit funds. These are under attack. The Grattan Institute found that not-for-profit funds have lower fees and higher returns across a variety of investment options. There is so much evidence of this. The McKell Institute found a direct relationship between the representative boards—the model that is being attacked—and higher returns. Why would we legislate to ban a model that is working for the Australian people?

There are already substantial safeguards and regulations in place in the hands of the good people at APRA. Superannuation fund members are already protected by a system of APRA regulation. APRA have the power to intervene where they do not believe that a super fund has the ability or willingness to rectify serious weaknesses. They have the power to suspend or remove a director of a superannuation fund. There is just no reason to mandate a fixed regulatory structure when APRA already have the power to intervene when there are issues.

These changes are overly prescriptive. They do not take into account the differences between superannuation funds. They do not give superannuation funds the ability to determine the ways that best fit their model and their members. Super funds are not all the same. They should not necessarily be treated in the same way either.

Governance experts around the world agree that there are a complex set of factors that determine what makes up a good board. In 2012, the Productivity Commission said in their report on default superannuation funds in modern awards that there is 'a lack of compelling evidence to suggest that any one model of board structure should be viewed as clearly preferable in all cases'. Those opposite come in here and quote the PC to us all the time. This is the Productivity Commission saying that there is no evidence that one type of board structure is better than another in all cases.

On top of that, a whole lot of qualified and experienced people could be disqualified from being independent directors under the government's model. For instance, directors would be unable to serve on the boards of wholly owned subsidiaries of super funds, even where the subsidiary is established only to serve the interests of the fund and for the profit of members. No employee or employee representatives will be able to serve as a chair of a board at all, even when they are the most qualified and suitable person for the job. That is not just a thing about employee representatives but about employers as well. They will be disqualified, even if they are the best for the job. This bill seeks to make radical changes to the superannuation legislation which deprive APRA and individual funds the right to determine the suitability of boards.

Finally, the changes will be costly. The amendments to the superannuation legislation will be costly for governments but also for the individual members of a superannuation fund. The explanatory memorandum to the bill suggests that these measures will cost government $8.5 million in start-up costs and a further $12.3 million in ongoing costs annually. These costs understate the real impact that the amendments will have on the broader superannuation sector. Immediately after this legislation is in force there will be costs associated with finding new directors, including search costs, due diligence, induction and training. Industry data has also found that the premium for independent chairs, which is something like $41,000 on average, is 70 per cent higher than for representative chairs, averaging something like $24,000. These salary costs could be even higher, with some professional directors currently on the boards of retail funds being paid in excess of $100,000.

Industry Super Australia has calculated that the director churn resulting from the government's new rules for super boards, if they get up, could be up to S168 million. These costs will have to be borne by fund members, meaning the changes will cost the retirement funds of average Australians. Average Australians out there in Middle Australia should not have to pay higher fees on their super because of this government's ideological bent against representative super funds.

As I said, this side of the House will be opposing the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. The representative model used by industry super funds today is part of what makes them the largest and most successful funds around the world and in a superannuation system that is, as I said, the envy of the world. It was an economic policy creation and innovation of the Australian people that was proudly made by the Australian Labor Party, which represented them at the time and represents them now. We are proud of this creation. We should be looking for ways to make it stronger, fairer and more sustainable, not conducting this kind of ideological crusade that says that anything that involves employee and employer organisations working together is somehow bad.

This legislation is badly motivated and poorly designed. We want to make policy. We want to work with anyone who wants to work with us to make the superannuation system better and not with people who want to divide and diminish it, with the ultimate costs being worn by the Australian people. The bill fails to acknowledge the real differences between super funds and their ability to determine their own governance procedures in the interest of members, under the watchful eye of APRA. Labor is taking the view on this issue, 'If it ain't broke, don't fix it.'

Mr Fletcher interjecting—

The cranky member for Bradfield sits at the table and makes our arguments for us, as so many others on that side have made our arguments for us. Every time he looks up from his comics and opens his mouth he reveals what this is. It is just a cranky, ideological crusade by a government that are a leopard that has not changed its spots. They are still the same as they were before their leadership changed hands. They still have the same policy to diminish super in this country and to use the Australian government in the House of Representatives to conduct this ideological crusade. My message to the government is that the ideological crusade that they are pursuing should be ditched. They should own up to the evidence that the representative super model is working and does not need to be changed. (Time expired)

Debate interrupted.