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

The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 deals with two issues—choice of fund and closing the salary sacrifice loophole. I note at the outset that the choice of fund provisions most likely affect about one-tenth of the number of people affected by the issue of unpaid superannuation. Accordingly, Labor will not oppose this bill in the House but will reserve our position until the Senate Economics Legislation Committee has reported on 23 October 2017.

The choice of fund provisions amend the Superannuation Guarantee (Administration) Act 1992 to require that employees under workplace determinations or enterprise agreements have the right to choose their superannuation fund. Those changes would apply to new workplace determinations and enterprise agreements made on or after 1 July 2018. Industry Super Australia estimates that, of those employees covered by enterprise agreements, about 7.4 per cent are affected and, as a share of the total workforce, only 1.9 per cent are affected. As I have mentioned, Labor will reserve our position on these proposed choice of fund changes until the Senate committee has reported.

The salary sacrifice loophole provisions reflect the fact that current laws allow employers to reduce their superannuation contribution if an employee chooses to salary-sacrifice into super. The Senate inquiry into the nonpayment of the superannuation guarantee recommended that the superannuation laws be amended to ensure that an employee's voluntarily sacrificed superannuation contribution cannot count towards the employer's compulsory superannuation obligation or reduce the ordinary time earnings base on which the superannuation guarantee is calculated. Labor supports this provision, which puts that change into effect and removes the current loophole.

But I do note that, while this change is welcome, it's nowhere near sufficient to solve the problem of unpaid superannuation. Unpaid superannuation is a massive problem in Australia. Industry Super Australia estimates that 2.4 million workers are losing some $5.6 billion in payments each year. That is equivalent to each of those workers losing $2,000 a year which should be going into their retirement savings. Unpaid superannuation is a problem affecting around 10 times as many people as choice of fund, and yet it is not receiving the attention from this government that it should.

Superannuation is part of a worker's pay and conditions. Employers are required by law to pay superannuation, and not to pay superannuation is, frankly, akin to wage theft. We need to do more to make sure people get paid what they earn and to make sure the 2.4 million Australian workers who are suffering from unpaid super get what's rightfully theirs. The government have failed to adequately respond to the problem of unpaid superannuation, instead focusing their energies on choice of fund, an issue which, not surprisingly, predominantly affects industry superannuation funds and affects around one-tenth of the number of workers affected by unpaid superannuation.

We support the closing of the salary sacrifice loophole. We will continue to work on the issue of unpaid superannuation, and we reserve our position on choice of fund until the Senate committee has reported. Universal superannuation is a Labor initiative. Labor will always look for ways of improving superannuation for working Australians.

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

Section 47 of the Competition and Consumer Act outlaws exclusive dealing. An exclusive deal occurs when one person trading with another imposes restrictions on the other's freedom to choose with whom, in what or where they deal. The Liberal Party is a political movement whose philosophy is grounded in maximising individual freedom. The Labor Party, on the other hand, is about limiting individual freedom, maximising government control and exerting the tyranny of the state on its people. As a movement, the Liberal Party will always seek to maximise the freedom of the Australian people, consistent with the freedom of others.

Third line forcing is a form of exclusive dealing and is illegal throughout Australia. Third line forcing occurs when a business requires a purchaser to buy goods from a particular third party. Third line forcing could occur if a computer store sold you a computer and required you to buy software for that computer from the software store next door, even if that software store was twice as expensive as the software store across the road. It's bad for our economy and consumers because it limits your freedom to choose and increases your costs. Businesses which engage in third line forcing can be hit with fines of $10 million for each and every breach.

It's therefore a curious peculiarity that, while we outlaw third line forcing for business, it's alive and well in a very damaging form in our superannuation industry. That is to say: there are employers of about one million Australians, who, under federal enterprise bargaining agreements, require their employees to have all their compulsory superannuation guarantee payments paid to one fund and one fund alone, usually, not surprisingly, an industry superannuation fund. If that employee has an account with a different super fund from a previous job, they are prohibited from having their new employer pay superannuation guarantee payments into that fund, even if that means they pay double the administration fees, double the insurance premiums and double the hassle of red tape. It does not matter.

What if a prospective employee refuses to have their super paid to a fund they don't like? Put simply, if they refused to sign away their freedom of choice, they'd miss out on the job, under federal enterprise agreements enforced on people without their choice or consultation. Put simply, this is the effect of these draconian and, quite frankly, immoral measures. They affect one million workers, or nearly 10 per cent of all Australians in work.

The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 ensures that those one million workers have freedom of choice, that they can choose the best superannuation to suit their future and their retirement. It ensures that they can eliminate the duplication of administration fees they pay to an unwanted industry super fund, that they can eliminate the duplication of unnecessary insurance premiums that they had no choice in taking up and that they can maximise the balance of their superannuation savings in retirement and minimise their dependence on the pension and future generations to provide for them.

Today there are approximately six million Australians with more than one superannuation account who are burdened by this duplication. The government's measure will reduce the number over time. According to David Murray, who chaired the 2014 Financial System Inquiry: 'The Financial System Inquiry found that the outcomes for members were weaker than they should be, the value in the system was weaker, and we found, as a consequence, that the value of the superannuation system to the broader financial system and therefore the economy was not as good as it should be, driven by a weakness in competition around choice of fund, choice of product, a sameness of asset allocation in the system and weaknesses in information for members.' I think David Murray is the master of understatement. There are many reasons why people want to be able to choose their own fund, including as a result of personal circumstances. But do you know what? It doesn't matter. It's their money, and they should have a choice as to where it goes.

The Heydon royal commission heard evidence from Mr Paul Bracegirdle, who, when he became a full-time employee of Toll Holdings Limited, discovered that he was not able to have a choice of superannuation fund under the arrangements agreed between Toll Holdings Limited and the TWU. Mr Bracegirdle had personal reasons for wanting to choose his superannuation fund. His daughter is disabled and will never be able to work. He wanted to choose his own fund because he believes that will enable him to plan the best future for her.

The trade union royal commission also heard evidence that TWU's super provides a large income stream each year to the TWU. For example, according to John Maroney, the CEO of the Self Managed Super Fund Association, a common scenario for many SMSF trustees, of which about 60 per cent are aged 55 or older, is to work in part-time jobs under an enterprise agreement while transitioning to retirement. The fact they can be employed under an enterprise agreement can dictate where their superannuation guarantee contributions go. We believe this is unfair and inefficient and it needs to be changed.

It's not just self-managed super funds that are affected by lack of choice. Arrangements that fail to give employers or employees any choices as to where their super guarantee contributions go may have widespread negative consequences, of which the most significant is accounts proliferation resulting in multiple sets of fees and insurance premiums, both of which can erode superannuation balances unnecessarily. Equivalent third-line measures, if adopted by the banks, would see uproar by the Labor Party and the Greens and calls for a royal commission. This is why I'm pleased to report that the shadow Treasurer, the member for McMahon, agrees with the proposals of this bill. In 2015, he said:

… there's a relatively small number of circumstances where an enterprise agreement says you can only go to that fund: that fund alone. And the Government has said that they'd introduce more choice. Of course, that's something which would be fine. Who could argue with more choice for members?

While I disagree that 10 per cent of Australian workers being impacted by this draconian measure is a small number, I'm glad that the shadow Treasurer agrees with the government's approach. This measure is further evidence of the Turnbull government backing workers. Malcolm Turnbull and the coalition government don't just say we have workers' backs; our actions prove it.

While the member for McMahon may back this change, there may be opposition from the Labor Party and the Leader of the Opposition to this freedom of choice measure, but that's because the Labor Party benefit from the impacted one million workers disadvantaged. While the Liberal Party stick up for the worker, the Labor Party prey on their vulnerability. Let's not forget that, over the past 10 years, industry super funds have given $50 million to unions which fund the Labor Party. Let us realise that it's estimated that the industry funds will give $22 million of workers' retirement savings to unions every year by 2027. While some may call this a gift, Australian workers would be justified in calling it theft.

I'm pleased that these freedom of choice measures will hit many industry funds where it hurts, loosening their unfair grip on workers' super and, further, preventing the Labor Party's hold over workers' superannuation. Let's bear in mind that it's these not-for-profit industry funds which spend millions of dollars a year on TV advertisements to Australians who are forced to buy their product. How is that to the benefit of the workers and account holders? Did you know that these same industry super funds, which one million Australians are forced to join, also spent several millions of dollars establishing a left-wing online newspaper? How is that to the benefit of workers? When it comes to protecting workers, the Leader of the Opposition and the Labor Party are all talk and no walk; all smoke and no chimney; all sizzle and no steak. Instead, their actions prove they are willing to sell workers out for their own personal gain.

It is true to say that the Labor Party and the Leader of the Opposition are to workers rights what Dennis Denuto is to the competent practice of constitutional law. During his time as the national secretary of the AWU, the Leader of the Opposition was part of the furniture in a culture of selfishness. His agenda entailed advancing two key interests: that of himself and that of the Labor Party, which was really all about himself. This Leader of the Labor Party stands for nothing but advancing himself. How did signing up the entire membership of the Australian Netball Players' Association to a union and invoicing them $9,000 without their knowledge benefit netballers? This was all so the AWU could have more votes in Labor Party preselections. How did this benefit workers? It didn't. How did the donation of $25,000 of union and workers' money to the Leader of the Opposition's own election campaign benefit workers? It didn't. The Labor Party may call this politics, but would the Australian people call it honest? Only the Turnbull government can be trusted to look out for workers.

This bill also rectifies another curious peculiarity. This bill closes a longstanding loophole which has been exploited by some unscrupulous employers to short-change their employees' salary sacrificed super contributions to reduce their own superannuation guarantee obligations. In other words, there are instances where employees who entered salary sacrifice arrangements discovered that their superannuation had increased by less than it should have because employers used salary sacrifice amounts to satisfy their superannuation guarantee obligation or based their superannuation guarantee contributions on the lower post-salary-sacrifice earnings base, a legal loophole which is really a form of theft. This loophole has seen an estimated $1 billion stripped from retirement savings by dodgy employers.

Consumer advocates CHOICE fully support these measures, describing them as a commonsense reform. Fixing this legal loophole was one of the key recommendations of the government's superannuation guarantee cross-agency working group. To address these inappropriate practices, we are taking steps to ensure that an individual's salary sacrifice contribution does not reduce their employer's superannuation guarantee obligation in any way. If hardworking Australians are to continue to have confidence in the integrity of the superannuation system, we must ensure employers are paying workers their full entitlements, whether they are wages or superannuation.

The government's changes will give members confidence that salary sacrifice contributions boost their retirement savings as they intend. These changes will no doubt also help the budget bottom line as people with more super will need less government assistance in their later years. I commend the bill and this measure to the House.

Rebekha Sharkie (Mayo, Nick Xenophon Team) Share this | Link to this | Hansard source

I rise today to support the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017. The two measures contained in this bill reflect provisions in my own earlier private member's bill, the Fair Work Amendment (Recovering Unpaid Superannuation) Bill 2017. The salary sacrifice integrity provision in this bill relates to item 5 from my own bill and closes a loophole that allows unscrupulous employers to claim an employee's salary sacrifice contributions as employer contributions. This is a pernicious loophole and closing it has long been overdue.

The second provision in this bill, choice of fund for workplace determinations and enterprise agreements, relates to item 7 of my private member's bill and returns the power to the individual employee to determine which super fund they wish to join rather than, through an enterprise agreement, forcing them into a fund they may not wish to join. This does not mean that default funds cannot still be recommended for those people whose knowledge of superannuation is limited, but it places the power to opt out back in the hands of the employee, and I believe that's the right place for it to be.

I would add that I do not believe the measure goes far enough, and that I cannot see why employees who are paid under some awards cannot be allowed to choose, if they so wish, a fund other than the default recommended fund. However, although the Nick Xenophon Team supports this bill, it does not go far enough. Although the vast majority of employers do the right thing, I have spoken at length in this parliament about the systemic problems of underpayment of superannuation by those few unscrupulous employers who are dudding their employees of their superannuation entitlements and dudding the Australian taxpayer because retirees must rely more heavily on the public purse and pensions to make up for their lost superannuation.

As I have also stated before in this parliament, the current process for recovering unpaid superannuation by the Australian Taxation Office is weak and ineffective. Too many of my constituents have waited for years for the Australian Taxation Office to act, but they have waited in vain—all whilst it is business as usual for some unscrupulous employers. This is just not good enough. I call upon the government to provide employees with a right of action to recover their own superannuation instead of forcing employees to rely upon the ATO to recover what is, after all, their own money and not the tax office's money. I also encourage the government to consider closely the other provisions in my private members' bill, which they have yet to adopt into parliament as parts of their own superannuation bill, all of which seek to improve the payment of superannuation to Australian workers.

In closing, I support this bill. I commend this bill, and I look forward to us in this parliament doing much more in providing employees with the protections they deserve under superannuation. Thank you.

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

I'm very pleased to speak on this Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017. There are two main provisions of this bill which I'll speak on now, and I'll also make some more general comments about the importance of the superannuation system to Australian employees and the government's activities in this area.

This first issue, related to schedule 1 of the bill, is of course about enabling people to have the choice of fund that they want so that they can choose where their money goes. I think that the overwhelming majority of Australians would agree that people should not be forced to put their superannuation money into any particular fund; they should be able to choose. I think that a lot of Australians would be surprised to know that there are currently about a million people who effectively don't have the right to choose where their superannuation money goes—usually because they are in a federal enterprise agreement. I think that a lot of people would be very surprised to know that. Obviously, it makes sense: it's your money and you should be able to put it wherever you want. What this bill will do is to ensure that that's the case. Under a federal enterprise agreement or workplace arrangement it will still be possible to have a default fund, and if people are happy for their superannuation money to go there then that's fine. But what won't be okay is for people to have their money go into that fund when in fact they don't want it to.

When you think about it, there are people who are at all sorts of different stages of their careers and who have all sorts of different priorities when it comes to investment. Younger people might want to invest in higher-risk funds with potentially higher-returns, but people who are closer to retirement might want a more conservative asset allocation. There are people who might want to invest in particular asset classes, namely local shares, overseas shares or infrastructure—whatever it is. Or, indeed, they might want a self-managed superannuation fund, which of course is an increasingly popular option. But the bottom line is that people should be able to choose, and I think that is self-evident.

As the member for Mackellar said, it's good that a couple of years ago the member for McMahon made sensible comments in relation to this issue. He said:

… there's a relatively small number of circumstances where an enterprise agreement says you can only go to that fund: that fund alone. And the Government has said that they'd introduce more choice. Of course, that's something which would be fine. Who could argue with more choice for members?

Indeed, who could argue with that? It's a self-evident proposition.

Nobody wants a situation where particular funds are advantaged by these default arrangements, and this bill that has been introduced by the Minister for Revenue and Financial Services will ensure that funds receive members' money when those members have actually chosen for that to occur or they've been happy with their money going to the default fund. What it won't allow is for funds of whatever kind, whether it's an industry fund, a retail fund or whatever, to effectively acquire these huge volumes of assets without the proactive choice of the members. Because it doesn't make sense for, say, an industry fund to be acquiring potentially hundreds of millions or billions of dollars of members' funds unless those members have actually chosen to join that industry fund. That concept applies to not just industry funds; it also happens to be a particularly prominent feature of some enterprise agreements—that is, employees are required to put their money into that industry fund—and this bill will change that. This is a very positive development. It would be hard to find an Australian out there who would say that it's a bad idea that people should get to choose where their superannuation money goes, and so it's great to be able to support this bill today.

Another important part of the bill is schedule 2, which addresses an unfortunate loophole that exists in the system at the moment in relation to superannuation guarantee entitlements. As you know, Mr Deputy Speaker, the bottom line at the moment is that employers are required to put 9½ per cent of the value of an employee's salary into their superannuation fund. That fund then enjoys the various tax benefits associated with superannuation. That's a good thing, because it means that those employees will, over time, accumulate funds, which will give them a much stronger position when retirement comes around.

However, there are a couple of loopholes can be exploited by unscrupulous employers at the moment, and this bill fixes them. When an employee elects to salary sacrifice some of their salary and take some of the salary in another form, there are occasions where that reduced headline salary can be used to reduce the value of the superannuation that is paid. For instance, if you have an employee who earns $100,000 a year and salary sacrifices $10,000, there are circumstances in which an employer can say, 'We'll apply the 9½ per cent superannuation guarantee not to the $100,000'—which is the true salary of the employee—'but to the $90,000.' This would effectively mean that that employee would get 10 per cent less in superannuation than they are entitled to. It's good to see the government moving so decisively to end this scenario. There are also some scenarios where the employer—again, this would only occur in circumstances where the employer was acting in an unscrupulous fashion—actually uses some or all of the employee's salary sacrifice amount of money to say that that can be put towards the employer's superannuation guarantee. So the employee's salary sacrifice is effectively being used, in theory, to meet the employer's obligations. That loophole will also be fixed by this important legislation, so these two elements of the bill are both very important.

This bill exists in the context of the broader superannuation reforms that the government is putting in place in the parliament—here in the House and in the Senate as well—as we speak. More than $2 trillion is now invested in superannuation. I guess that's what happens when governments mandate that a large chunk of employee salaries are compulsorily placed into a particular savings vehicle. More than $2 trillion—an extraordinary amount of money, and one of the largest pools of retirement savings anywhere in the world. It is very important that when you have such a massive amount of money you have government standards that are commensurate with what people would expect of those looking after their retirement savings.

If you look at the statistics on household wealth from the Australian Taxation Office, you'll see that for most families their No. 1 asset is their home and their No. 2 asset is their superannuation. With each year that passes, the superannuation savings of Australians go up. This is a very, very big deal. We need to ensure these funds are governed with the highest standards of probity, that the people who are on the boards of the funds have appropriate qualifications and that there is a degree of independence, because you don't want a situation where all the directors are drawn from one particular cohort. You don't want the directors to come from, say, a union group or, indeed, to all come from an associated employer group. You want a degree of independence such as we see in best practice in public sector boards and in APRA-regulated entities.

What the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill, which is currently before the Senate, does is require that entities have a minimum of one-third independent directors, including an independent chair, on their boards. That is good news for people with money in superannuation funds, because what they would want is independence, an objective review of what is best for their savings. Certainly, the last thing people would want is for key decisions about that critical asset—the second most important asset that households have—to be made by a very narrowly focused group, whether it's a group associated with a various trade unions or other groups. Independence is a very good principle.

The APRA-regulated funds hold $1.4 trillion, with $2.3 trillion being held across the entire sector, but the trustee boards that manage these funds don't have governance arrangements that reflect the important role they have in ensuring the retirement savings of their members. It is important that that changes so that their governance arrangements are closer to what we would expect in private sector groups of similar size. In 2014, the Financial System Inquiry recommended that all public offer funds should have a majority of independent directors, including an independent chair. APRA, the regulator responsible, has indicated that independent directors improve governance, and that is why APRA requires a majority of independent directors for banks and insurers. APRA suggests that having at least some independent directors on boards best supports sound governance outcomes. In APRA's view, the diversity of views and experience that independent directors bring supports more robust decision-making. That is eminently sensible from the very strong organisation that we have in APRA. But, today, there's no requirement for the boards of superannuation fund to have any independent directors among their trustees—not one. That's wrong. That needs to change. That's what this government is doing in requiring that the chair and at least one-third of directors be independent.

If you look at different bodies and governance standards, you'll see that the superannuation industry is somewhat out of step with other areas. For instance, for ASX-listed companies the ASX corporate governance principles say that the chair should be independent and a majority of the directors should be independent. If companies don't have an independent chair or a majority of independent directors they're required to explain to the ASX why that is the case. That's obviously a very sensible piece of legislation. The same applies to banks, which must have independent chairs and a majority of independent directors. So for that bill which is currently before the Senate and which is an important part of the government's superannuation reforms, it is important that all of these issues and all changes are very thoroughly aired, because they are inextricably linked. All members of this House, undoubtedly, would support strong governance arrangements through the inclusion of independent directors on superannuation funds. It is good to have an opportunity to discuss these important measures in the context of the minister's superannuation reforms.

These are particularly important provisions existing across the whole spectrum of the superannuation reforms. The measures in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 are exceptional measures which should be supported. I commend the bill to the House.

Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Link to this | Hansard source

I'd like to thank those members who have contributed to this debate, in particular the very eloquent and thoughtful contribution from the member for Banks, who also takes a strong and special interest in this subject as the chair of the House Standing Committee on Economics. I commend you, Member for Banks, for the great work you're doing there.

The measures in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 will ensure that choice of fund is provided for over one million more Australians and that salary sacrifice contributions are reflected in members' retirement savings. It is part of a broader package of government reforms that is squarely focused on protecting members' money and members' interests with a strong prudential regulator, APRA. Schedule 1 of this bill extends choice of fund to around one million people covered by federal enterprise bargaining agreements. David Murray, former chair of the financial system inquiry, said of the financial system inquiry at a recent Senate committee inquiry hearing:

… we found that the outcomes for members were weaker than they should be … driven by a weakness in competition around choice of fund, choice of product, a sameness of asset allocation in the system and weaknesses in information for members.

As a result of this measure, more people will be able to choose for themselves where their compulsory superannuation contributions are paid, including into a self-managed superannuation fund. It will no longer be possible to deny choice to individuals on the grounds that they are part of an enterprise bargaining agreement or similar determination.

An example which shows the problem that this bill will address is best demonstrated by evidence heard in the Heydon royal commission from Mr Bracegirdle, who, when he became a full-time employee of Toll Holdings Ltd, discovered that he was not able to have his choice of superannuation fund under the arrangements agreed between Toll Holdings Ltd and the TWU. Mr Bracegirdle has personal reasons for wanting to choose his superannuation fund. His daughter is disabled and will never be able to work. He wants to choose his own fund because he believes that it will enable him to plan the best future for her. The trade union royal commission also heard evidence that TWUSUPER provides a large income stream each year to the TWU.

The government wants people to be able to make choices about their deferred wages and to be active in making decisions about their future. It's great to see the member for McMahon here because I'm about to quote him. In 2015, the member for McMahon also agreed with extending choice of fund when he said in a television interview on the ABC:

… there's a relatively small number of circumstances where an enterprise agreement says you can only go to that fund: that fund alone. And the Government has said that they'd introduce more choice. Of course, that's something that's which would be fine. Who could argue with more choice for members?

We agree. To be clear, this measure does not prevent enterprise bargaining agreements from specifying a particular fund. It simply allows individuals to choose a different fund if it suits them better.

Schedule 2 of this bill will close a loophole that has been used by some unscrupulous employers to short-change employees who make salary sacrifice superannuation contributions. The CEO of CHOICE, Alan Kirkland, said of this measure:

Shutting down the salary sacrifice loophole which has seen an estimated $1 billion stripped from retirement savings by unscrupulous employers is also a great outcome for consumers.

…   …   …

This is a common sense reform which CHOICE fully supports.

There are instances where employees that enter salary sacrifice arrangements discover that their superannuation has increased by less than they were expecting because employers have used salary sacrifice amounts to satisfy their superannuation guarantee obligation or have based their superannuation guarantee contributions on the lower post-salary-sacrifice earnings base. To address these inappropriate practices, the changes in this bill will ensure that an individual's salary sacrifice contributions do not reduce their employer's superannuation guarantee obligation in any way.

If Australians are to continue to have confidence in the integrity of the superannuation system, we must ensure employers are paying workers their full entitlements, whether that be wages or superannuation. After all, it is their money. I commend this bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.