Sue Boyce (Queensland, Liberal Party) Share this | Hansard source

I would like to acknowledge Senator Xenophon's contribution and the thought he has put into the issue of personal superannuation. One of the biggest problems that I see in this area is, of course, that lack of engaged consumers. People do not see their superannuation money—it comes out of their wages before they receive their wages—and, until their minds are focused by wanting to retire or a desperate need for funds, on the subject of super people often behave as though it is not really their money. So it is incumbent on this parliament not only to come up with good suggestions to make consumers more literate and to try to encourage them to engage more but also to make sure that the governance around superannuation is as good, as strong and as practical as possible. That is certainly something this legislation does not do. We have the usual charade from the government of dribbling through bits and pieces of legislation which leave all the stakeholders saying: 'We think the intention's good. We're a bit worried about the detail that we can understand and, of course, until we see the whole picture'—which they never do—'we can't say whether we support this legislation or not.'

The Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 that we are looking at will make a number of changes. It is basically part, but only part, of the government's response to the Cooper review in 2010. What has happened is that the government have picked out little bits and pieces. It is impossible to understand the criteria they have used for picking out the bits and pieces they have, other than thinking that very firmly in their view is the idea of ensuring that the union industry funds are well supported so that they can continue to support the Australian Labor Party. The first step in this continuing saga was the introduction of the Superannuation Legislation Amendment (MySuper Core Provisions) Bill in 2011. That bill established MySuper as a standardised, low-frills, no-fee superannuation product available as a basic option but not compulsory. It was intended to be the default fund that would be automatically chosen if employees did not make a decision. Now we have a second bite of the cherry in the Stronger Super reforms.

Certainly one thing that came through during our inquiry into this legislation was that the government's staggered release of bits and pieces of the legislation around super was not aiding clarity or consistency and it was creating uncertainty and confusion in the sector. Of course, the uncertainty and confusion are not helped by the fact that this bill also introduces new definitions and new trustees' duties which are unclear, not least because they depart from the current regime of trustees' duties. I cannot imagine anyone in their right mind choosing to be a trustee or a company director if they did not know what the rules of being a good trustee or company director were. So this will make it almost impossible for trustees and directors to comply with the legislation, because they cannot understand the core components of it, and it will expose directors to uncertainty and risk. Why would anyone take it on in that circumstance?

The Law Council of Australia, in its submission to the Parliamentary Joint Committee on Corporations and Financial Services, said:

In order to promote compliance, legislation should be clear and certain. This is particularly the case when personal liability can flow from a breach—

as it can for a company director or a director of a superannuation fund.

Legislation should also be consistent. There are examples where the Bill uses terms found in case law and other legislation, but in slightly different ways.

Pity the poor judge that has to sort out what that means—and inevitably, of course, there will be cases when this sort of confusion is apparently deliberately put into the law. The Law Council went on to say:

Again, this raises the question of whether differences in language reflect differences in duties or standards.

So here we are dealing with a poorly drafted bill which rather than assisting the superannuation industry and the beneficiaries, who we need to remember are the workers of Australia, in many respects creates ambiguity and because of that increases the level of risk and the level of complexity and, of course—something that this government is excellent at—increases the level of red tape. Trustees and directors will need to watch their back because of the uncertainty in this legislation. In some ways I guess this bill captures the very essence of the government led by Prime Minister Gillard: it is poorly thought through, it is badly drafted and the people who will wear the consequences of it over time will be Australian superannuants.

A survey recently by the Australian Taxation Office found that only 10 per cent of people were aware of the superannuation reforms that the Gillard government was undertaking. So much for engaged consumers! So much for efforts from the government to even try to engage consumers! I suspect that there is quite a happy group who think the less workers know about what is happening to their super the better. I would encourage people to take note because the government is doing a very good job of messing up what should be significant and useful reforms. And we are talking about, of course, the livelihoods and income of older Australians.

There is currently $1.3 billion annually put into the super funds, and the industry is boosted, of course, by the compulsory nature of superannuation contributions, which are currently nine per cent but are going up to 12 per cent over the next six years. Once again I urge all policymakers to think about the need for people to see and be engaged with the taking of superannuation from their pay packets. I think Senator Xenophon's suggestion of an annual information night or something might be a starting point, but certainly superannuation bodies and the government are not doing enough at the moment to keep consumers informed about superannuation, let alone engaged in the question.

I would also like to look at one of the worst features of this bill: the scale test. We on the coalition side see that as a standout example of bad policy; and, unless there are amendments here, we will not be supporting this bill. We have serious concerns about the new scale test provided in the bill which requires trustees of superannuation funds, according to the explanatory memorandum:

… to determine on an annual basis that there is sufficient scale, in terms of assets and beneficiaries, such as to not disadvantage the financial interests of beneficiaries relative to the financial interests of beneficiaries in MySuper products in other RSEs;

The first question is: how on earth does a superannuation fund know whether its scale disadvantages the financial interests of beneficiaries comparable to other funds? Industry experts such as the Financial Services Council have said that such external comparison would be impossible to conduct in practice as a trustee would not have sufficient knowledge of other registerable superannuation entities so that they could carry out this test. Is the government suggesting that we have open-book funds? If so, perhaps they should be putting some legislation through on that.

The scale test is based on a presumption that, the larger the fund, the more likely there will be lower fees and higher returns to members. Once again we have no evidence whatsoever to indicate that this presumption is true. It may be true in some cases, but there is no evidence to suggest that it is correct in all cases. Gut feeling might tell you that, the bigger the fund, the lower the fees and the higher the returns, but that is all we have here. There has been no proper analysis done by the government. There has been some fudging of figures by industry super funds to try to ensure that their funds look cheaper without showing the entire picture of the costs and the benefits of each fund.

The scale test, if implemented in its proposed form, would be another potential source of advantage to the larger industry superannuation funds because they already have that existing scale in terms of assets and beneficiaries. The scale test would create a significant new barrier to entry for new funds by making it very difficult for them to scale up to the level where they could be confident that, for the first year or so of operation, they were not disadvantaging the financial interests of their beneficiaries.

The scale test is also anticompetitive, which is not at all what I believe Jeremy Cooper had in mind when he made proposals around the scale test. He said in the Cooper review that MySuper products should have a scale test but that the trustees should:

… actively examine and conclude whether, on an annual basis, its MySuper product has sufficient scale on its own (with respect to both assets and number of members) to continue providing optimal benefits to members.

That, of course, is quite different from expecting trustees each year to work out if their fund was the best fund. Where do we end up with this if any financial disadvantage is the issue? Do we end up with one fund? Inevitably some funds will function better in some years than others. No wonder directors are very concerned about this legislation.

The Association of Superannuation Funds of Australia said during the hearing that our committee conducted into this:

… the current wording of the scale test is problematic. On speaking to Treasury, we believe that guidance will be provided by APRA.

That is wonderful, isn't it? APRA might provide some guidance—not some law or some regulation but some guidance. The Association of Superannuation Funds went on to say:

In terms of being able to provide for fund members, size of portfolio and number of members are certainly two factors, but there are other factors as well. In our view, fund trustees, as part of their best interest duties, have to look each year at whether or not they are able to provide services in the best interests of their members. So our initial view is very much that the—and certainly part of the consultation process—whole scale test may produce the wrong results.

The Corporate Super Association also said the scale test was unnecessary, and they took the view that investments and risk covenants for all RSE trustees are sufficient requirements, that trustees should not be operating a fund or MySuper product when assets and member numbers do not lend sufficient economies of scale to support a viable product.

I hope Minister Shorten is aware that in fact there is no correlation between the size of a fund and the size of individual portfolios within that fund, so why a scale test on this particular basis is included in the bill is beyond me. The issue of scale must be a matter of judgment, and legislating for an exercise of judgment simply will not work. We are giving directors rules that are impossible for them to function within and asking them not to use their own judgment on what they think constitutes being in the best interests of their beneficiaries but rather what Minister Shorten thinks might be in the best interests of the industry super funds.

The scale test is anticompetitive. Large funds will be precluded from investing in small and medium-sized companies. The bill actually legislates against one of the very foundations of an investment strategy: having a diversified portfolio. Not only do we have this as a barrier of entry for new funds; we also have this problem where there will be fewer funds flowing into small and medium-sized public company shareholdings. The requirements of the scale test will be difficult, if not impossible, for trustees and directors to comply with because there is no clarity around the terminology and there is a lack of certainty with the benchmarks against which trustees are required to measure their fund.

The coalition is particularly concerned that the government has picked up bits of the Cooper review in some areas and ignored it completely in other areas. I have no idea why you would try to improve governance by telling directors to measure themselves against everybody else in the market but not include some of the other governance matters Cooper canvassed. In the area of conflict of interest, for example, the government has completely ignored the recommendation for the disclosure of conflict of interests being made mandatory. Why has it ignored that? The disclosure requirements vary depending on the type of superannuation fund. And it is quite reasonable that publicly listed funds have more robust disclosure requirements. But the level of disclosure should be uniform across all superannuation funds because they are dealing with the same product and the same group of clients, the same beneficiaries—the superannuates of Australia.

Taking a lead in this regard, the Financial Services Council, which represents the for-profit funds—the people that one suspects the government rather dislikes—released a voluntary code in March in 2012 with the following features: superannuation funds must have an independent chair; the majority of directors must be independent; remuneration of directors and senior management must be disclosed when they are paid from the trust; directors must not hold multiple and competing superannuation fund board positions; the fund must develop an environmental, social and governance risk management policy that is made available to members; and the fund must develop and publicly disclose a proxy-voting policy and publish its Australian proxy-voting record. This would be an excellent code if only this government would pick it up and apply it to the industry funds. But the massive conflict of interest within the union dominated industry funds is exactly what the government is shying away from doing anything about.

AustralianSuper, which is the largest industry fund, oversees $42 billion of retirement savings. On its board we have people such as Paul Howes from the Australian Workers Union and Dave Oliver, the ACTU Secretary. They are representing the interests—the individual interests, remember—of every beneficiary: the individual interests of 1.8 million workers. AustralianSuper invests in companies such as Woolworths, BHP and Rio Tinto. So I do not know how people such as Mr Howes or Mr Oliver can be on that board representing the best individual interests of the beneficiaries of the fund while, at the same time, planning industrial action against some of the shareholding companies. How does that work? How is that not a blatant and obvious conflict of interest? It is impossible to criticise a company by saying, 'Frankly, monkeys could do a better job,' which is what Mr Howes said about Rio Tinto, while, at the same time, saying, 'I have bought the shares in this company to assist our members to make a profit.' It is a ridiculous sham. This legislation must be amended.