David Coleman (Banks, Liberal Party) Share this | Link to this | Hansard source

I am very pleased to have the opportunity to speak on this important legislation, the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, which brings in place some very common-sense measures in the governance of superannuation funds. I think it is useful, before getting into the detail of the proposed legislation, to really reflect on what superannuation funds are all about and what is their goal. It seems to me that it is very clear of what the goal of a superannuation fund is—that is, to maximise the returns of investors. It is not overly complex as a goal. It does not matter really whether I am a fireman, a public servant, a lawyer or whatever job that I have; obviously what people who are members of superannuation funds want is for those funds to perform. So it seems to me that it is obvious that the structure of the governance of funds should be focused on maximising their performance.

In the corporate world, when boards are put together, it is customary for people with independent expertise to be appointed to those boards to bring forward their skills, their experience and indeed often their industry experience. A media company might have a number of independent directors and it would be quite typical for those independent directors to have a strong understanding of the media sector and, indeed, that is the case with many independent directors on listed boards.

But we have this curious situation at present—and I suspect this is something that is not widely understood in the Australian population—where industry super funds and corporate super funds, rather than drawing on the broadest possible range of skills in setting up their trustees, who effectively act as board members, have a different rule. The rule is not about bringing in independent expertise to assist in the management of the fund; the rule is basically about ensuring that the trustees represent particular constituencies that might have some interest in the fund. Generally that will be 50 per cent representatives of the employees and 50 per cent representatives of the employers. You may well ask: how can the fact that someone is representative of a particular group be related to their capacity to actually know what is important in managing a superannuation fund?

These are not small funds. We have about $2 trillion in assets under management in the Australian superannuation industry, many funds with tens of billions and more in them. Taking it back to first principles, what would you do? You would say: okay, how do we find people from the broader community with the best possible experience to assist in the management of these funds? The sort of people you would think would be logical would be people that perhaps have managed investment funds themselves or have worked in the funds management industry or who have other areas of related expertise. But that is in fact not how the system works today.

The way the system works today is someone comes along and says: I will represent the workers or I will represent the employer. Frankly, whether it is the employees or the employer, the inadequacy of that structure is very clear because the fact that somebody can represent employees, whether that is as a union representative or in some other role, has absolutely nothing to do with their capacity to manage a superannuation fund. These are completely unrelated skills. Anyone can put their hand up and say: I understand what employees in this sector are interested in and what their issues are and that is great. But how does that skill actually enable you to maximise the returns of a superannuation fund? It seems to me it is a completely separate skill set. The same applies to corporations as well because you might have representatives who are speaking for that corporation but the fact that someone speaks for a particular corporation does not mean that they have got the appropriate skills to actually manage a fund. Again, we are talking very substantial amounts of money here. It seems to me, as a point of principle, it is self-evident that drawing from the widest possible range of expertise is the way to go.

So what this legislation does is to say: rather than having this half-half system—which, as I said before, bears no relationship to the capacity of people to lead a large investment fund—let us at least ensure that just one-third of the directors—trustees, effectively acting as directors—are independent. That is important because the act of appointing independent trustees means that the narrow interests of the corporation or the industry, or, indeed, the employees, are not so paramount as they are today where in fact the only people who are appointed are people who represent one of those two narrow sectional interests. So what this will require funds to do is to say: 'All right; if we've got, say, nine trustees on our board, at least three of them will need to be independent.' It is very, very hard to understand how, on any objective basis, one could oppose that proposition. It is far from a radical proposal to say that one-third of the trustees should be independent. If they are independent then, presumably, the other trustees will be seeking to find independent trustees who have relevant expertise. That can only be a good thing.

It is also good that the legislation will require that the chair of the board is independent. This is pretty much standard practice in corporate Australia of course. You do not want your chair to be too closely associated with the constituent parts of the entity. And it is absolutely right that the chair should be independent.

Funds will still be able to appoint other directors in the other two-thirds. They might choose to represent employees or employers or whoever, but one-third will be required to be independent. Again, it is very, very difficult to understand why those opposite would seek to oppose such a sensible measure.

The support for this concept of independence is widespread across the community. The Financial Systems Inquiry recommended such a change. A quote that I particularly like from the Murray review is:

… it is more important for directors to be independent, skilled and accountable than representative.

In a sense, as I said before, somebody might represent employees in, say, the construction industry, but how is one's capacity to represent employees in the construction industry in any way related to one's capacity to manage tens of billions of dollars in superannuation assets? They are completely unrelated. Having to find one-third of the members as independents will require these boards to look further afield.

Of course, as the Murray review said, as more fund members exercise choice, directors appointed by employer and employee groups are less likely to represent the broader membership of the funds, and of course a lot of these big industry funds might have started out representing a particular industry but now have hundreds of thousands of members from all over Australia. So why should the composition of their boards be so limited?

It was good to see Paul Howes, the prominent former head of the Australian Workers Union speak out in support of these changes. He said:

It has been disappointing to see a knee-jerk reaction against the call for a more independent governance model …

…   …   …

… the evolution of the super industry is important and I can't see anything negative in having more independents on boards.

That is really the essence of it. What could possibly be negative about requiring more independent representatives to be on boards?

As we look at the range of support for these measures, it is extremely widespread. National Seniors is a group that represents many Australians, and they see this measure as a step towards international best practice which will instil greater confidence in Australia's big institutions. The chair of Qantas Superannuation, Anne Ward, has spoken out in favour of these reforms, as have many other people.

So it is a real question as to why anyone, really, would oppose the concept of increasing the independence of the governance of superannuation funds. It is a self-evident proposition that it should be widely supported in this House.

There is another important provision in this bill. Whilst only one-third of directors are required to be independent, the legislation does in fact require boards of funds to report to APRA if a majority of trustees are not independent and to explain why. So it is not required to have a majority of independent directors, but it is required to explain the rationale for not so having. Again, it would have to be a pretty compelling rationale, when you think about it, because what the advocate of that position would have to say is: 'Despite the fact that here in Australia there are thousands of people with immense experience in managing large amounts of money in superannuation funds, infrastructure funds and all sorts of sophisticated investment vehicles, what we have chosen to do is actually not to use them for a majority of our trustees and we have instead decided to appoint some employee representatives,' say, who typically would be union representatives. So it would be, I think, very interesting to see how those funds would justify doing that, because there is no relationship between someone's capacity to advocate for employees as a union representative and their capacity to manage tens or hundreds of billions of dollars. I think that point is self-evident. You do not say: 'Someone is a strong employee advocate through a trade union so, therefore, let's make them the CEO of the company.' You do not say: 'They're great at advocating in industrial disputes so, therefore, let's appoint them to the board of the Commonwealth Bank.' As a general principle, you will apply skills where they are most useful.

We have a very odd situation in this sector that I suspect is unique in the composition of boards in pretty much any aspect of the Australian economy. Rather than looking at the underlying skills of the individuals involved, we look at their capacity to represent a particular constituency. Of course, company boards are not structured in that way. People are appointed for their capacity to act in the best interests of the company and there is a strong emphasis on independent directors. There is a lot of skill out there. We are fortunate in Australia to have such a strong financial services sector. Our superannuation system is one of the largest in the world. As a nation I think it is fair to say that we punch above our weight in financial services. Indeed, the financial services sector, as we look at the changes in digital disruption, presents immense opportunities for Australia.

This is not an area in which we lack expertise as a nation; this is an area where, along with agriculture, resources and one or two other sectors, we have a disproportionately strong position. We have lots of expertise to draw upon. This legislation says, 'Fund, we're going to require you to draw upon that expertise for at least one third of your trustees and we're also going to require you to have a chair who doesn't represent the narrow sectional interests of one particular group but represents all members who are part of this fund and has the primary overarching goal of maximising the returns of the fund.' It is very simple, straightforward legislation. It is, frankly, overdue and I commend it to the House.

Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

I rise to oppose the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. At its core, this bill is proof that nothing has changed amongst those opposite. The Liberals may have overthrown their former Prime Minister, but bills like this show that the underlying fundamentals of the government, the rotten policies that caused the public unrest that triggered the spilling of the Prime Minister, remain. This bill is ideologically driven. I noted the comments of the previous speaker, repeatedly emphasising that what is really important amongst super fund board members is not who they represent or what their background is but their capacity, skills and experience. It is the skills and expertise that board members bring, not their representation or their background. But that is not what this bill is about. This bill does not require specific skillsets or expertise. It prohibits certain classes of people from forming a component of boards.

This bill is really all about dismantling the government's model of the highest performing superannuation funds in Australia: industry funds. So many Australians choose industry funds to save for their retirement. The Superannuation Legislation Amendment (Trustee Governance) Bill makes amendments to the Superannuation Industry (Supervision) Act to require trustees of registrable superannuation entities to have a minimum of one third independent directors and an independent chair on their boards. Schedule 2 amends the Governance of Australian Government Superannuation Schemes Act. It will restructure the trustee board for the Australian government's main civilian and military superannuation schemes, the Commonwealth Superannuation Corporation board, to comply with these new governance requirements. The bill seeks to amend the definition of 'independent' in a way that all but denies employee representation on industry boards within that definition. This is specifically the case with independence of association from trade unions, where a trustee would not be eligible if they had had an association with a trade union within the last three years. Further, the bill proposes a process whereby the Australian Potential Regulation Authority, APRA, can assess whether a person is independent, regardless of the definition and regardless of whether an individual has met that statutory definition.

The small print on what constitutes an 'independent' person muddies the waters even more. The pages of this bill that seek to characterise what it is to be independent make one thing clear: this bill wants to eliminate from their boards officials of trade unions representing people who invest in these funds. From a corporate governance perspective, 'independent' traditionally refers to independence from the management of the company. This bill changes that. For industry funds, third, the common trustee framework is for there to be an equal number of employer and union appointed members. This does not mean that so-called 'independent' trustees are not eligible to join these boards. In fact, a review of industry funds shows that around half of the major industry funds have at least one independent trustee on their boards.

The equal representation between employers and employees is a strong and effective governance arrangement that promotes transparency, accountability and appropriate risk management. This bill would seek to remove this central pillar of industry super governance and replace it with an inferior model. The bill is not proposing the replacement of the fifty-fifty split with a third, a third, a third model—one third of boards being made up of independent trustees; rather, the government is proposing that the boards be made up of at least a third independent appointees and then nothing. There are no mandated levels of employer and employee representatives. We have strongly opposed the repealing of the guarantee of employer and employee representation, a governance structure that has worked well for decades. Contrary to the proposed aim of this bill, removing these employee voices from super boards will weaken accountability and transparency.

Industry super funds are run as not-for-profits, meaning that they are run solely to benefit members. They were created in the 1980s to protect workers' superannuation from the high-fee and commission funds that were originally set up to cater for white-collar workers' retirement. Industry super funds do not pay commissions to their staff or financial advisers or planners. They are designed and structured to benefit members. The boards of representative trustees are generally required to make decisions by a two-thirds majority, making them risk averse. There is a particular regard and reverence for workers' retirement savings that comes strongly through the trade union movement. When you have worked your life as a representative and, indeed, as a trustee of the interests of workers, you learn a very healthy respect for that money. The boards of industry super funds are generally considered to be more focused on long-term growth, investing large amounts in infrastructure and long-term investments and benefiting their members indirectly through sustained economic growth as well.

Their governance structures mandate boards that have both employer and employee representation. This is in contrast to retail funds, which, unlike industry funds, use superannuation funds to create profit, which is then returned to their shareholders, not the fund members. While they regularly make significant profits, that money benefits shareholders and not necessarily the fund members. Indeed, over the last 10 years the average retail super fund has delivered $16,000 less to their members than the average industry super fund, despite their often significant profits. They are able to make significant profits because they are inherently more speculative than industry funds.

The chief economist for Industry Super Australia, Stephen Anthony, argues that the culture of deep and long-term investment in infrastructure, brought on by the representative governance models of industry super funds, has had a positive and lasting impact on the economy. Stephen Anthony cites APRA statistics from March this year saying that industry super funds held an average seven per cent of their investments in infrastructure, and 20 per cent in unlisted equities overall, compared to one per cent in infrastructure and three per cent in unlisted equities overall for retail funds.

In 2014, the McKell Institute released a report titled The success of representative governance on superannuation boards. This report found that the available evidence shows a strong relationship between non-for-profit governance and a higher return for members. A 2012 Productivity Commission report into default superannuation funds found:

… 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.

Contrary to what the government is suggesting, and contrary to what those opposite are suggesting in their contributions in this chamber, there is already stringent governance oversight of all superannuation funds. In 2013, under the then Labor government, governance obligations were introduced requiring all funds to regularly evaluate, through a third party, the effectiveness of their board and directors. This includes disclosures of conflicts of interest, and ensuring directors are fit and able to adequately make the decisions that are expected of them.

The prudential regulator, APRA, has significant enforcement powers to ensure these governance practices are enforced. APRA also has the power to set and supervise the funds to ensure they meet the financial promises they keep. To ensure directors meet the skills and have the experience to make informed decisions, APRA funds are required to report on the makeup of their boards. This is the nub of what the previous speaker was talking about. But this bill does not go to that. It fixes a non-existent problem.

Currently, boards are also required to conduct ongoing performance reviews. These requirements, many set or updated in 2013, should be given further time to be fully bedded down and implemented. They should also be reviewed to assess their effectiveness, before we introduce another change in legislation.

The bill wants to give further, unprecedented powers to APRA, including the ability to determine whether or not a person is sufficiently independent, even after they have met the statutory definition. In short, this bill is about ideology, not evidence. It is huge government overreach and it is aimed at reducing employee and union voices in super funds. That is the only objective of this legislation.

In Australia, at June 2015, superannuation assets totalled just over $2 trillion. It is a staggering amount of money, which must be carefully managed. However, this bill does nothing to enforce stricter standards amongst directors, only to mandate quotas that will see qualified and capable people prevented from joining super funds because of their background. If the government were serious about implementing stricter standards for trustees, this would be a very different conversation. However, removing employee and employer representation on boards does not constitute a change in behaviour, only an attempt to weaken representation.

Independence is a method of achieving good governance, not an end in itself. Currently, the ends are higher returns and trustees who act in the interests of fund members. These objectives clearly are being met at present. This government cannot be trusted to make decisions about superannuation, because deep down the Liberals simply do not believe in it and do not value it. The last two Liberal prime ministers distained superannuation. John Howard infamously called it a 'job killer'. Tony Abbott called it 'one of the biggest con jobs ever foisted by government on the Australian people'. Last year, the now former Treasurer announced that the scheduled increase of the compulsory superannuation contribution from nine to 12 per cent would have to be postponed, blaming Labor for failing to allow them to keep their election commitments. They also scrapped the low-income superannuation contribution, a policy targeted at helping the lowest earners in Australia save for their retirement. A similar story can be told about the Howard government, which, after less than six months in office, scrapped the proposed increase in compulsory superannuation from nine to 12 per cent, after running on it as an election promise.

The bill also goes against the mantra of those opposite about red tape reduction. We know this government talks a good game on red tape reduction—we have all seen the cuttingredtape.gov.au marketing site set up by the member for Kooyong. It is a bizarre site—now much neglected and little updated—where the little red line of efficiency savings continues to rise every time the government changes the word 'facsimile' to 'fax' in the next round of legislation, but never seems to move backwards every time this government implements regulations that imposes direct costs on industries and businesses.

The bill will add more regulatory burden to industry super funds. The government has already admitted that this added regulatory burden will cost $8.5 million in start-up costs and a further $12.3 million in ongoing costs annually. There will be increased remuneration costs associated with the new governance requirements, as well as other significant costs, including search and engagement costs and legal costs. These costs will have to be absorbed by fund members.

Industry super is a low-cost, low-fee super option. Enforcing costly regulations will have a direct impact of less money for people when they retire. The bill does not come close to meeting its proposed objectives. It is inappropriately heavy handed, forcing a 'one size fits all' approach, regardless of a respective fund's business model or membership. Our super system intentionally provides for alternative governance models, which has delivered undeniable benefits for competition since their implementation.

Industry super funds are popular because they have both employer and employee representation on their boards. It is a system that has worked for decades. It does not make sense to abandon the industry fund model of equal representation when it has worked so well for so long. The bill does not try to implement an additional quota of so-called 'independent' positions on boards, but plans to replace equal representation with a third 'independent', and then leave the rest to open slather. It could have disastrous consequences for industry funds, and for competition in general.

APRA cannot interfere in a bank like the government is proposing it can interfere in industry super funds. Giving power to an authority to decide whether a person is independent even if they comply under the statutory definitions really reveals the government's true intent here. Superannuation trustees are already regulated by corporations law, financial services law, state and territory trustee laws and superannuation industry statutes.

The new Prime Minister told the Australian people that things would be different, but this legislation was proposed, written and prosecuted by the former Prime Minister. It has the former Prime Minister's ideological obsessions written all over it, and its continuation in this parliament gives us a glimpse into the real member for Wentworth—someone who is just as keen to prosecute similar ideological attacks on the union movement as his predecessor.

This is bad legislation—plain and simple. The bill calls for the arbitrary application of government intervention, the removal of employee and employer representation, and illogical quotas. It will do nothing to influence the behaviour or competence of board members; it will only weaken employee representation. People who hoped that a change in leadership would see an end to the government's agenda will be saddened by the Prime Minister's decision to continue with the policies of his predecessor and the prioritisation of short-term ideological objectives over long-term gain for everyday Australian workers. Of the top 50 performing super funds, 19 are industry super funds and only two are retail funds. Of the bottom 50, seven are industry funds and 40 are retail funds.

The facts are there for everyone to see. This is just another coalition attack on not only the trade union movement but the retirement savings of all Australians. That is why Labor will oppose it.

Mal Brough (Fisher, Liberal Party, Special Minister of State) Share this | Link to this | Hansard source

It is always interesting when you have debates on superannuation, because people—both sides, I guess—like to take ownership. It was a Labor government that introduced compulsory superannuation, and former Prime Minister Keating has a lot to be proud of there. But, when it comes to industry funds and retail funds, it always bemuses me that it is a 'them and us' argument when it should not be. We all get the right to choose—or most of us. There are some small sections of society who still do not have the right to choose because of some legacy issues in their particular industries, but, by and large, the Australian community gets to decide who is best to meet their long-term retirement needs by looking after their nest egg in the form of superannuation. It is a very serious issue because, over time, it is the largest investment that we will all make. It will determine the sort of retirement that our families can enjoy and, in doing so, determine whether we will or will not be a burden on the public purse. Of course, our period of retirement is, happily, growing longer. As I get closer and closer to it, it is something that I pay a lot more attention to. As, on average, Australians now live to 80 or 80-plus, people should be looking forward to a post-pensionable age of at least 15 years. Now, with the preservation age being approximately 55 or 56, depending on your date of birth, it could be a considerable period longer.

That brings me to the point and the purpose of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. It is about the people you entrust—that is the word here. Trustees are entrusted with the care, the management and the investment of your retirement income. For many of us, we almost do it with blind faith; therefore, we expect legislators, people sitting in this place, to make sure that there are safeguards and provisions that are going to protect our nest egg and ensure that it is there when we need it. This is not about one form of fund—retail versus industry—it is about the qualities, the experience, the qualifications and the diversity of the people whom we would seek to have look after our nest egg. That is why this bill is being enacted. It is here to give further assurance that we have that independence—that third-party look-through to ensure that nothing untoward occurs and that the best intellect and experience are brought to bear, along with all of the investment advice that is gathered independently and professionally by the superannuation funds.

When we are talking about a $2 trillion asset, that is a heck of a lot of zeros. We need to say to ourselves, 'Isn't it prudent for the parliament to continue to review the legislation that protects people's assets and retirement income to ensure that we meet community expectations and do everything in our power to give those mums and dads, the workers of Australia, whose superannuation is going into these funds the confidence that their interests are being protected?' Having the existing boards of these organisations look outside for qualified, independent, experienced personnel to add the grunt that they need to their boards to protect that investment is something that we should all applaud.

So you have to ask yourself: why is it that only one side of this House has an issue with genuine independence and agrees that this is strong? I know from personal experience of speaking to industry funds that at least one that I am aware of has independently already taken this step. It has got ahead of the curve and said, 'This is the right and proper thing to do on behalf of our members.' It has reached out to the corporate world, given that diversity to its board and, in doing so, made it a board that can provide more holistic, rounded advice and can protect people's interests.

There is no downside to this. There is no ideological bent on the part of this government. This is about good governance that should underpin the superannuation system, because $2 trillion is a lot of money and it is a big interest that we should all be ensuring that we protect for the long term. I commend the bill to the House. I know that there are other speakers who will add their voices to the debate, but I ask those who come after me to reflect: do we really want independence? What is there to be afraid of with independence? Perhaps you could reach across the aisle and embrace something that is actually good for everyone in Australia who needs their superannuation for their retirement.

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

I am keen to take up the invitation from my esteemed colleague opposite, the member for Fisher, to look at some of the issues around, in particular, independent directors on superannuation boards. I do want to make some other remarks in this debate on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, but, given that the member has extended the invitation to talk about this, I will. When you look at this issue of the value of having independents, you have to put it in the context of the broader reform process, as you call it, that has been launched in this space by this government about the way in which super funds are governed.

If for a moment we had evidence that by changing the ratio of representation on the boards of superannuation funds there would be a distinct lift in return rates or an improvement in the performance of these funds, then I would be all ears to receive that evidence. If there was proof that the post-retirement incomes of those superannuants would be improved by this reform, I would be very keen to see it. But the fact is that there has not been much evidence of that. I have no issue with us having independents on superannuation boards. My issue is that this reform process is not evidence based, that the evidence itself is very light on and that this is more reflective of an ideological determination to not have a particular group of people sit on superannuation boards at the same representation level that they currently do, and that group of people is union officials. That is basically the argument. What is driving this is not evidence; it is ideology. That is a problem for me and it is a problem for others on our side. This is not about improving governance in a way that will reflect in the rate at which the investments held in superannuation funds for the benefit of members will be improved.

This is all about ideology. If you look at it on the evidence, on the basis of facts, the numbers do not lie: industry super is much stronger in performing its job than are retail funds. That is not seeking in any way to besmirch or undermine the value of retail funds or self-managed superannuation funds by any stretch. But, as the saying goes, if something ain't broke, then don't fix it. And the fix here is claiming to improve the way in which these funds are run by putting more independents on. The existence of more independent directors will not of itself improve the running of those funds. There is nothing there to say that. That relies purely on a numerical reflection of the number of independents on a board. There is nothing in this that will improve the quality of decision making by the independents on that board or in fact by the entire board. There is nothing to say that when you put these people on they will, by virtue of their very existence, change the way in which decisions are made on those funds and therefore lift the return rates. There is none of that here.

It will not achieve its stated goal of improving super fund governance. Rather than focusing on the behaviour or the skills of those directors, it will just basically focus, as I said, on the issue of quotas. It will not address any of the governance challenges in superannuation. In fact, if it does change the governance of the most successful super funds—the representative model—it will fail to address the governance issues associated with consumer losses in, for example, the bank and wealth management industry. What does it do, for example—as we have raised questions about in times past—about the way in which banks that might offer superannuation products in a retail capacity might offer a subsidiary product to lure people in, quite separate to super? Maybe they would give them a discount on some of the other products the business uses in the superannuation offering to its employees. It is that type of questionable practice where you sign up to a bank to provide superannuation products to a business's employees but also get a discount on some of the other banking services you use. This is not a decision based on the best interests of the member; this is a decision based on the best interests of the business that is contracting a financial institution or a bank to provide superannuation.

This is simply wrong. You will not hear anyone on that side of the House raise that issue, but it is a serious one. And we are here talking about this bill, which is supposed to improve governance, while these other practices that we know about out there are occurring. But there is no movement whatsoever to look at that. At the moment we have a supervisory system in place through APRA, which is recognised internationally as being very solid and very robust. There have been very few instances of breakdowns in that system around governance within the superannuation space. If they are there, then put forward a regime that will actually deal with it in an evidentiary way, or rely on the evidence itself, to lead to a series of mechanisms that would improve governance.

Again, I come back to the point that this legislation is not based on evidence; it is based on an ideological obsession driven by some of those opposite. I have seen it at play within the House of Representatives Economics Committee when we have had APRA before us and there has been question after question after question about union involvement on the boards of superannuation bodies—trying to pick one little thread here and one bit of string there to see whether it brings down the entire framework and superstructure of superannuation in this country and the way the governance is managed within it. And there is very little evidence to support it. But the evidence is clear: when you look at the returns received by members of industry super funds compared with others, industry super fund members have a reason to have a big smile on their face, because they are getting stronger returns.

We are also being invited to embrace a proposition whereby we will see a massive turnover in director numbers. The cost of changing those directors on superannuation boards is estimated to be fairly significant—and a push for red tape at the desire of the coalition to see this change through, not because of evidence or demonstrated problems in the system; rather, they cannot stand unions and they do not want to see unions involved in superannuation. When it comes superannuation, those opposite see superannuation as the preserve of those on stronger incomes and are working out how to have a post-retirement income scheme that benefits higher income earners.

From my perspective, I am happy with that for higher income earners who have had to manage risk in their lifetime, been involved in senior positions, been involved in companies where their jobs can go at a moment's notice if they make the wrong call or started up their own businesses and have been managing them—I totally get it. But, from my point of view, if we are particularly focused on making sure we have a post-retirement income system that is not heavily dependent on the pension, we need to have a system in place that delivers returns for the bulk of Australian employees not just for one end.

One of the best commitments we have been able to see to the superannuation system is to have the people who represent working Australians—unions—sitting on those boards. It is also broadening their view. This is the other thing too. When union officials sit in a director's role, they are very conscious of the fact they have to make decisions in the best interest of members. Unless there is evidence to demonstrate otherwise, that decisions have been made and a vote taken on those boards that runs counter to the interests of fund members, which there is very little evidence of, those directors put themselves in a serious position. They would be making decisions against members' interests.

For those union officials who sit on boards—in full disclosure, and I have been one of those directors—it certainly does open the breadth of vision about the way business operates in this country. I would have thought that it would be far better to involve people to get a much more holistic view about the nature of our economy and the investment decisions made within it, rather than having a bunch of independent directors—and I can just imagine it will be the same small group of people doing the rounds. It is not like we are creating an industry that will pump out independent directors and it will be easy to make selections to these boards to help in governance arrangements. That will not be the case whatsoever. We are requiring a wholesale change that will require greater costs to be embraced by superannuation funds to change the representational arrangements that exist at the moment—all for ideology, not because evidence dictates that this should be the case. This is a big problem.

So we have had the issue of no evidence. We have had the issue that super funds perform much stronger. We have had the issue that related party arrangements will not deal with this in any shape or form—something left unsaid, unspoken and undealt with by those opposite. We have the issue that this will require a lot more cost to be borne by superannuation funds. When we look overseas, there is no like movement to embrace the type of change that is being foisted on us by this legislation—none whatsoever. In fact, when you look overseas and see, for example, research on American public pensions funds, the proportion of outside trustees has no significant relationship with the excess performance of the funds.

As the member for Rankin and shadow minister has observed, this government have basically said that independent directors are better. Based on international experience, there is absolutely no evidence that that will be the case. If no-one overseas is doing this, if the local funds are performing stronger with a balanced representation between employers, employees or their representatives and independents, if there is no evidence to suggest that they are underperforming relative to retail funds and there is no evidence that this government are serious about tackling some of the other issues that we have concerns about in terms of related party transactions, then you have to ask the question again: why are we doing this, other than for ideology? We should be a lot more responsive and a lot more responsible about how we set policy in this space than what is currently being forced upon this House and ultimately the other place in accepting this legislation.

If we are expecting directors to make decisions that represent the best interests of members, that is certainly not the type of behaviour that is being reflected right here, right now by this government. They are not asking us to make decisions in the best interests of the members of those superannuation funds. They are not asking us to make decisions that will improve the rates of return and therefore the post-retirement incomes of those people being represented. This government are asking us to do something that we would not allow existing board members of funds to do—that is, to make decisions on things other than fact or evidence. They are asking us to make decisions quite contrary to the way that existing directors have to made decisions. They are asking us to make decisions based on their ideology, not on evidence, not on proof, not on the wellbeing of the people being represented. That is the biggest hypocrisy. At its heart, the great hypocrisy of what we are doing here, we are being asked to support legislation that runs counter to a decision-making process that we would require of independent board directors. That is what sticks out in this and it is wrong. For that reason, we raise a series of objections about this bill. It is not about proof; it is about ideology and that is simply wrong.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the Superannuation Legislation Amendment (Trustee Governance) Bill 2015—surely a perfect example of the Abbott-Turnbull focus on the past. We can see by the number of speakers opposite lining up to talk about this legislation that it is a dog. The advisers in the adviser's box outnumber government speakers by five to one. This is not a good piece of legislation.

Any time a piece of legislation comes before the chamber we need to ask, 'Why is it here?' Why would you want to change the governance arrangements for industry super funds? I should just explain what industry super funds are for those listening. Industry super funds are where the employer and employee representative groups, mainly unions, of an industry such as the childcare sector, building sector or education sector have come together and said, 'Let's look after our members' financial interests when it comes to retirement.' Industry super funds have a mix of 50 per cent union—that is, employee—representatives and 50 per cent employer representatives. The chair of that board can come from either of those groups.

You might well think that the government has brought on this bill to make governance changes to industry super funds because they have not been performing as well as retail funds. That would be the logical presumption as to why you would bring in this horrible, short-sighted, ideologically motivated and not practical piece of legislation. You might perhaps assume that there have been some issues around the governance of these funds because you have employer groups and employee groups. They are two groups that often have industrial action; you might think they do not get together when it comes to the retirement funds for their members. You would be wrong on both counts.

Do not just listen to me. You can even go and listen to that well-known rabid unionist John Brogden! He represents the peak body for these union funds. Who is John Brogden? He is a former leader of the Liberal Party in New South Wales. So he is not some former union member. He is actually a representative of the right. Industry super funds, as John Brogden will tell you, have consistently outperformed retail funds. Nineteen of the top 50 performing super funds over 10 years are industry super funds. Only two of the top 50 are retail funds. There is no evidence of any governance problems or even performance problems with industry super funds.

I will declare that I am in an industry super fund. I am in QIEC because of my time spent in private school education. At the moment QIEC is chaired by Terry Burke. I should declare that Terry Burke gave me a job many years ago. He is the chair of QIEC who has been outperforming the previous chair of QIEC. Terry Burke works for the Independent Education Union, the union I used to work for. It is a union that looks after private schools around Queensland. They are not usually a hotbed of unionism. Before Terry Burke, who is an employee representative, QIEC was cheered for 20 years by Allan Fazldeen. How does the board make decisions? The chair of the board, Terry Burke or Allan Fazldeen, would look at the majority of views. They always, like any sensible organisation, were able to make decisions in the best interests of their members.

Industry is aware of this, so this bill is a misguided attempt to fix something that is not broken. It could do damage. Industry super funds have had longstanding governance arrangements where 50 per cent of representation is employers and 50 per cent is employees. That is perfectly balanced. And now the government is trying to bring something into the mix that sounds good—'independent'. We all like independence, even on the floor of this chamber. We respect the concept of independence. However, the problem with an independent person on such boards is that they will not be committed to the members. We want our umpires to be independent. We want them to be disinterested and not have an interest either way. They can then make a fair decision. But when you are talking about decisions for your members, be they an employee or an employer, you want someone who is committed to those members and their long-term interests. That is what industry super funds are. This bill is attempting to change that longstanding arrangement and replace it with a bizarre requirement that one-third of the representation on these boards be independent. But, bizarrely, there are no requirements for the remaining two-thirds of these boards. There will be no guarantee that employers or employees will have any representation. This is in a situation where, as I said, 19 out of the top 50 performing super funds have been industry super funds.

There is obviously at play here an agenda of this government. This is another example of the Abbott-Turnbull government where the Prime Minister is not really leading his team; he is following the government's short-sighted agenda. I find it quite incredulous that this government would impose a requirement on industry super funds that would tear down a system of governance that has been the most successful governance model.

Industry superannuation funds enjoy a reputation as having a 'members first' culture. Good employers are passionate about the best returns for their employees. That culture flows from having equal representation. That equal representation model of governance makes industry superannuation funds different to retail funds. There is no doubt about that. But there is also no doubt that industry superannuation funds have been more successful than retail funds. That is the motivation for this legislation, I would suggest.

There is no evidence that any one type of governance is better than others. Justice Owens in his HIH royal commission report—we all remember HIH and how good they were; I think they had balanced governance arrangements—released in 2003 said about governance structures that:

I am not so much concerned with the content of a corporate governance model as with the culture of the organisation to which it attaches … the key to good corporate governance lies in substance, not form.

The financial system inquiry report, when discussing the governance of superannuation funds, said:

… there is little empirical evidence about the relationship between quality of governance in Australian superannuation funds and their performance …

The government is trying to fix something that clearly is not broken.

This bill was introduced to the House on 16 September this year. In the explanatory memorandum it says that the measures in this bill are consistent with the financial system inquiry report's recommendations. That report was released on 7 December 2014. Until this morning there had been no response from the government to that inquiry report. There are 44 recommendations in the report. It is curious that, without having responded to the report, the government thought it was urgent to bring a bill before the parliament to address this one recommendation.

The government make plenty of noise about getting rid of red tape. Because they are starved of a legislative agenda, they have these red tape repeal days where they celebrate hunting down commas and jumping on semicolons and stamping out a couple of brackets or parentheses. This bill is a sneaky attack on unions. That is what this piece of legislation is all about, and it costs money. This bill is actually nothing but red tape. It is setting up the over-regulation of an industry that is already performing well and is well regulated, an industry that has no allegations of scandal or impropriety. There is no rational reason for imposing this mandatory change to governance on industry superannuation funds when they are performing well ahead of retail funds.

The members of industry super funds—like me—are in a much better position to fund their retirements because of the performance of their industry super funds. There is real reform that the government could implement in the superannuation sphere, but the government have no reform agenda and no ticker for reform. They have no ideas about real reform. Yet our retirement income system is badly in need of sensible reform. It is unsustainable under the current arrangements.

Australians deserve to have a comfortable standard of living in retirement. By design, tax concessions are an integral part of the superannuation system. But this great Labor initiative—because, remember, superannuation was an initiative of Labor, working with the unions—was not designed to be a tax haven for wealthy Australians. The financial system inquiry found that 10 percent of Australians receive 38 per cent of Australia's superannuation tax concessions. There are 475 people in Australia with superannuation balances of more than $10 million each. Those people earn tax-free income of $1.5 million each year. That is not a sensible set of arrangements. How can this government continue to hit those who can least afford it—the pensioners, our youth, our schools, our families—when we have our most wealthy earning $1.5 million each year tax free. It is unsustainable and unfair.

Unlike the Abbott-Turnbull government, Labor has a superannuation reform plan. Labor would target superannuation tax concessions to those that need them the most. This is how the superannuation system was designed to be used. It is about providing retirement income for all Australians. Labor's reforms would affect approximately 60,000 superannuation account holders with superannuation balances in excess of $1.5 million. Earnings above $75,000 from those accounts would not be tax free but, instead, would attract the same concessional rate of 15 per cent that applies to earnings in the accumulation phase. Those people would still be very comfortable in their retirement, and good luck to them. However, such a change would make a huge difference to the retirement income system as a whole.

It is estimated that the revenue from Labor's proposed reform would collect $9.2 billion in the first 10 years. I know the Treasurer has been prevaricating in question time, but the reality is that the government does have some revenue challenges. This is sensible reform. It is not unnecessary red tape. It is not motivated by a union-busting agenda. This is the type of reform a good government would deliver. Labor is passionate about the superannuation system. It was a creation of the labour movement. Labor wants it to be sustainable and to deliver the outcome it was designed to deliver: to allow all Australians to fund their comfortable retirement.

This bill does not assist people with their retirement income. In fact, it could do the opposite, as I said in my opening remarks. This bill does not make the superannuation system more sustainable. What this bill does is single out industry superannuation funds—the ones that are working well; the ones that are outperforming retail funds—and tie them in knots with red tape. It is compelling them to change the governance structures that they have had in place for decades and that have been operating with no problems. As I said, with 50-50 employer-employee representation there is balance. These are funds that have members that benefit from the performance.

There is no need for this unnecessary red tape and regulatory burden. There is no need for it and, obviously, like any red tape, it comes with added financial burden. The explanatory memorandum to the bill confirms that this amending legislation will result in $8.5 million in start-up costs and a further $12.3 million annually in ongoing costs. That is $20 million that will be thrown away. That is the sort of excess that would make Kathy Jackson blush. This is a financial cost that will be imposed on industry superannuation funds and will impact on the returns that their members receive. The regulatory burden on the funds will include an obligation to report annually on whether they have a majority of independent directors and, if not, to explain their lack of compliance.

This bill gives unprecedented powers to the Australian Prudential Regulation Authority at a time when industry funds are outperforming their retail equivalents. APRA will have power to determine if a person does not qualify as independent for the purposes of the governance of a fund, even if that person meets the statutory definition. Isn't that a great use of members' money—to pay for someone to investigate whether or not this person is committed to the industry! This power goes further than APRA's powers with respect to banks and insurers.

These measures are unwarranted. They will create unnecessary regulatory burdens on industry super funds. They will create added regulatory costs for industry super funds. They will impact on the returns received by members of the industry superannuation funds. For those reasons and for every sensible reason, I would ask the government representatives opposite to look at this agenda. This is an outdated political agenda linked to the Prime Minister who was knocked off a few weeks back. This is not a sensible, forward thinking government. I think what we have opposite is a Prime Minister who has shackled and welded himself to the Abbott agenda but likes to talk about the future. Here is an opportunity for the new Prime Minister to actually do something positive. Why would any sensible business person look at the empirical data and say, 'We need to bring in extra red tape. We need to slam a $20 million cost on the retail funds'? As I said, 19 of the 50 highest performing super funds over the last 10 years are industry super funds. They have the balance right now. It is 50-50. But every single board member in an industry super fund is committed to that industry. That is the difference. By bringing in this independence they will sabotage that strategic focus. That is why Labor will not be supporting this legislation.

Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Labor's position is to oppose the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, as previous opposition speakers have noted. The government is proposing to end more than two decades of successful joint governance by employer and employee nominated fund directors and instead force boards to take on both an independent chair and one-third independent directors. It is passing strange that a so-called liberal party is seeking to mandate how independent investment funds structure their activity, and it is clear, as I will outline in my speech, that the effect of the government's proposals would be to increase administrative costs for funds and thereby drive down member returns. Perhaps we should not be surprised that a so-called liberal party that opposes the use of markets in tackling climate change is again wanting additional red tape when it comes to Australia's superannuation funds. The Mckell Institute has nicely summarised the government's bizarre motivations on the issue by asking: 'When a system is working better than the alternative, why tamper with it?' Alas, I am concerned that this is being driven by ideology and not by evidence.

The superannuation industry now has assets valued at $1.6 trillion, set to increase over the coming decades. The 2010 Super System Review, the Cooper review, estimated that Australian superannuation savings will exceed $6 trillion by 2035. The number of Australians 65 and over seeking to access their retirement savings is expected to double by mid-century. That pool of savings has been important. We have compulsory superannuation because of two benefits that superannuation savings bring to the rest of the community. One is reduced reliance on the age pension. The second is that having a large pool of domestic savings can have benefits for the national economy at times when access to overseas funds is limited. We saw this in the global financial crisis, when Australia's pool of superannuation funds was important for ensuring that certain loan markets did not dry up.

So it is appropriate that we provide some tax concessions to the superannuation sector, although, as Labor has argued, those superannuation tax concessions, in our view, are neither fair nor sustainable. But it is absolutely important that we get our superannuation governance settings right, and it is vital that we are guided in this by evidence and not by ideology. The evidence is clear. The studies show that having more independent directors on boards does not automatically lead to better results.

Andrew Laming (Bowman, Liberal Party) Share this | Link to this | Hansard source

It sure helps!

Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I am afraid it does not, Member for Bowman, and I am happy to go to those studies in a moment for you. Studies show that Australians get higher returns from superannuation funds that are governed by employer and employee nominated fund directors. SuperRatings shows industry funds with employer-employee boards have outperformed retail funds by 1.66 per cent over the past decade. That means, if you are in the average industry fund rather than the average retail fund, your retirement savings are $16,000 higher than if you had been in the average retail equivalent. Multiply that over the course of a working life and you can see someone in an industry fund ending up with retirement earnings which are equivalent to what they would have gotten if they had spent an additional year in the labour market. Put another way, the typical retail fund investor has to work another year to get the retirement savings that the typical industry fund investor gets. And yet we see those opposite, as so often, going into bat for the worst-performing part of the sector.

McKell Institute research found that not-for-profit superannuation funds generate 1.8 per cent higher returns for their members. The institute concludes that not-for-profit superannuation funds allow investors to retire eight years earlier than if they had invested in a for-profit fund—even higher than the one year that I mentioned a moment ago. The McKell Institute concludes:

With superannuation funds, the not-forprofit representative trustee model has outperformed its for-profit appointed trustee competitors on virtually every important criteria of superannuation performance over a long period.

The representative governance model in superannuation has promoted higher levels of diversity amongst trustees, more effectively minimises conflicts and interest and generates higher net returns for fund members.

According to Industry Super Australia, had all superannuation funds had the same returns as these not-for-profit funds, Australian retirement savings would be $88 billion higher than they are today. Over the past financial year, we can look at the top 10 best-performing super funds, and in that list we find eight industry funds and just two retail funds. But, if we push out the time horizon further and we look at the past decade, we find 10 industry funds and no retail funds. This is not just in Australia. Internationally, research on 296 financial firms in 30 countries found that those with more independent directors experienced the worst returns in the global financial crisis. Given the strong performance of the industry superannuation funds, it is not surprising that the former Assistant Treasurer—sorry; we need to clarify that, don't we; we have had three Assistant Treasurers under this government; I meant the member for Kooyong—recently switched his work superannuation from a retail fund to an industry fund.

These changes are going to mean lower returns for members and higher fees and expenses. A research paper by Monica Tan and Marie-Anne Cam from the University of New South Wales found management fees and operating expenses rise with the number of independent trustees sitting on a fund's board. They found that larger boards are linked to higher investment management fees and expenses, operating expenses and trustee and audit fees. In short, a larger number of independent trustees do not benefit superannuation fund members. Studies in the US have found similar results. Tufano and Sevick studied the US mutual fund industry and found that larger boards are linked to higher fees for shareholders due to higher bureaucracy costs. A 2006 review of research on the relationship between chair or board independence in the US mutual fund industry, undertaken by the Office of Economic Analysis of the Securities and Exchange Commission, found:

… no consistent evidence that chair or board independence is associated with lower fees and/or higher returns for fund shareholders …

Importantly, the higher fees and expenses that will result from the government's proposals will be paid for out of members' savings. That means that more independent directors will translate to lower after-fee returns.

The importance of fees has been highlighted by a superannuation report, carried out by the Grattan Institute, that finds no correlation between fees and returns. They argue that the policy and rationale in superannuation governance should be to get fees as low as possible. That was the goal of the former Labor government's MySuper reforms, which targeted getting fees down, because we understood that higher fees eroded post-fee returns.

In order to meet the government's proposed rules, industry funds will have to find and appoint 64 new chairs and bring in 295 new directors. Industry Super estimates this would cost up to $168 million and those higher fees and expenses will be paid for out of members' savings. So much for cutting red tape. If having more independent directors on super-fund boards does not improve returns—and may actually reduce them—why is the Turnbull government so fixed on making this change?

Former New South Wales Liberal Treasurer Peter Collins has referred to these changes as 'designed to damage the current industry super fund model, for no good reason' and 'There is no evidence to support that having a majority of independent directors will give rise to better performance or better governance.' He notes these measures 'totally change the game' and 'The current legislation was never flagged in the previous term of the parliament and represents a very significant departure from what they did propose.' Industry Super Australia CEO David Whiteley criticised the bill for 'dismantling the governance structure of the successful non-profit super sector while not addressing the scandals and underperformance of the bank owned sector'.

What these studies have found is that the most important characteristic of corporate governance is not independence, it is representation. Representative governance is seen, widely, as an important way that corporate governance structures attempt to resolve the collective-action problem of ensuring corporations act in the interests of members and shareholders.

The government's motivation is—as always, in superannuation—purely ideological. The coalition opposed universal superannuation in 1992. In 1996 they came to office promising not to touch the pace of the increases and, then, went ahead and froze them. In 2013 they came to office promising not to slow the rate at which universal superannuation increased but, in 2014, they froze it again. In fact, I cannot recall a single occasion in which coalition members, in this House, have ever cast a vote in favour of superannuation that benefits ordinary Australians.

This ideology does not just apply to their opposition to superannuation. This government has a pathological dislike of unions and wants to weaken the role of unions in every aspect of public life. They do not care that unions play an important role in mitigating wage inequality, in keeping Australians safe at work, ensuring that workers in tough sectors, such as construction and mining, can go home to their families at the end of the day. They are studiously avoiding the very facts that have been outlined in careful academic research, that combined governance of funds by employer and employee representatives delivers the best outcomes for Australia's super savers.

The proposed superannuation governance changes are being driven entirely by prejudice, rather than by evidence. They will cost Australian households thousands of dollars in retirement incomes. Australia's industry super funds do not need drastic governance changes. What they need is a government that is less focused on vendettas and more focused on making sure that all Australians can enjoy a dignified retirement. Our superannuation system is too important to be left to dogma and ideology.

Lisa Chesters (Bendigo, Australian Labor Party) Share this | Link to this | Hansard source

Let us be frank about what this Superannuation Legislation Amendment (Trustee Governance) Bill 2015 is aiming to do. It is about knocking off union representations on industry super boards. It is another attempt by this government to drive through its anti-union anti-worker legislation. This is a government that is a little jealous of how well our industry super funds have performed.

They have performed really well, as we have heard from previous speakers on this side of the House, compared to retail bank owned super funds. Why? People on industry boards are there for one purpose: to ensure that their members get the best possible returns. They are not driven by commissions. They are not driven by shareholders. They are driven by outcomes for their members. That is why industry super funds continue to outperform retail super funds and continue to do so every single year.

Industry super funds was first established in the eighties to protect Australian workers' superannuation from the high fees and commissioned products that were common in the retail superannuation market. There is a reason they were established. It was to ensure that hardworking people got decent super returns when they retired. Industry super funds have never paid commissions or incentives to their own staff or any financial planners. People who work for them do so—like union officials—to ensure that their members get the best outcomes. Industry super funds are run only for the profit of members. They are governed by a trustee board made up of both employers and employer organisations, including representatives from the trade union movement.

Industry super funds aim to provide above-average investment returns to its members while keeping fees as low as possible. They continue to have lower fees than retail funds. Industry super funds are committed to quality long-term infrastructure and building investments, in Australia, because they benefit their members throughout the broader economic growth as well as in healthy investment returns.

Industry super funds have a proven track record of delivering for their members. Why, then, is this government bringing on this reform? If the industry super funds, with their current board make-up, are performing so well, why on earth is this government driving this legislation and trying to force it through the House? Government ministers and backbenchers cannot hide the fact that it is purely for ideological reasons. Perhaps it is jealousy, because their mates in business and big banks cannot match the profits and the amount of returns that industry super funds are making for working people. Perhaps it is the fact that they have a couple of mates who would like one of these cushy board positions. But we know through what other speakers have said and through the facts and the figures that industry super funds continue to deliver for working people.

And we are talking about the people who are our cleaners—the cleaners who clean here at Parliament House and who have a Australian super fund account. We are talking about the people who work as security guards or as early childhood educators, who many years ago through their union fought to establish industry compulsory super. Let us just remember who created compulsory super in this country—it was a Labor government. Workers were asked to give up a pay rise to create the first compulsory super scheme. And they did so. They saw that it was important that they as Australian workers started to put aside for their retirement. That is why today in 2015 we have more and more people able to retire on a part-pension and industry super—the super that they have. That is why in the future we will have more and more people doing that until we get to the stage where super accounts are large enough for the majority of people to retire on that income.

That is, of course, if we keep the current model, where we trust the industry super funds to keep doing what they are doing. But this government wants to take a wrecking ball to that. This government, through these changes, is trying to impose that one-third of directors are independent of employer and employee groups and of union representation. This government, through these reforms, is going to create more red tape and burden on business. These amendments will result in an increase of $8.5 million in start-up costs and a further $12.3 million in ongoing costs. This is annually.

This government likes to talk about abolishing red tape, but when it comes to industry super funds, when it comes to unions and when it comes to Australian workplaces then time and time again in this place we see this government proposing more red tape—more red tape to increase the cost and the burden on Australian workers, Australian workplaces and their employees.

Just take for a moment what those in this government have done in previous years when it comes to super. They tried to introduce choice. They said that employees could have a choice between an industry super fund or another super fund. It did not result in a big uptake by workers switching to a non-industry super fund. That was one of the previous reforms they brought out. I can remember it coming up in workplaces—the choice form. Nine out of 10 still stuck with their industry super fund. Why? It gave a better return.

Time and time again industry super funds deliver a better return, because the people on those boards care. They are the representatives of the low-paid workers—Australian workers. They are the people who have been elected or appointed in their organisations to care about retirement income. That is what superannuation is: it is a worker's wages that have been deferred—compulsory savings for when they retire. But rather than trusting the people who have the best interests of those workers at heart, this government wants to take a wrecking ball to that and impose that one-third of the board be independent. Furthermore, the proposed changes are really vague and fraught with danger. As Justice Owen said, speaking in his capacity as the HIH royal commissioner:

… any attempt to impose governance systems or structures that are overly prescriptive or specific is fraught with danger.

The experts out there are saying that these proposals are fraught with danger and that this extra red tape will create more problems and cost in this sector.

Furthermore, the government's proposed changes to the criteria to meet the definition of 'independence' are very broad and are likely to exclude considerable numbers of qualified and expert people from being independent directors. So who do they have in mind to take up these positions? If the definition of 'independence' is so broad, then how on earth are they going to get the expertise and the qualified people to take up this compulsory one-third of independent directors?

These reforms are about one thing. They are not about independence and they are not about delivering better returns for the people who are members. They are purely and simply about smashing a model that works, a model that was created by previous Labor governments with regard to industry super. This was a model that was driven from the workplace—from employees who said, 'I want to take responsibility. I want to be involved in saving money for my retirement, and I want my union and my industry super fund, through my union rep, to make sure that I have a good retirement income.' That is why we consistently see industry super funds outperforming retail super funds.

Retail super funds—I will just spend a few moments on what is going on in our retail super funds. Unlike industry super funds, banks and insurance companies use their funds to generate corporate profits which return a dividend to shareholders, not to the superannuation policy holders. Big banks are behind the big four retail super funds. These include BT super, which is owned by Westpac; MLC, which is owned by NAB; Colonial First State, which is owned by the Commonwealth Bank; and OnePath which is owned by the ANZ bank.

Whilst the banks which are behind the retail super funds regularly make enormous profits for themselves, over the last 10 years the average retail fund has delivered around $16,000 less to their members than the average industry super fund—$16,000 a year less! That just means one thing: if those superannuants do not have that money—that $16,000 annually—it means that eventually the government might have to pick up the tab through pensions. So rather than empowering these workers to have the kind of financial security that we want them to have, they may rely on a government pension. Or it could mean that there is less money that they are able to spend as disposable income in our economy.

This reform before us today is about red tape—increasing red tape and taking a wrecking ball to what is so critical to retirement incomes. It is not about ensuring that we have independence and transparency. That is just a smokescreen. This is about the government's ideological agenda to smash up unions, to smash up industry super and to tear down a system that is working. Industry super is critical. It is about delivering returns, and the current model is working.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Order! The debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour.