Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

At the heart of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 and the debate we are having here today is an attack not only on the union movement, which is heavily involved with the successful model of the industry super funds, but also on the profit versus not-for-profit breakdown that we see in the superannuation industry in this country.

Where is the evidence that the governance model that currently exists has failed? Where is the evidence that it has failed in the industry super funds that are under pressure from APRA to appoint at least a third of their directors as independent directors? And on top of that APRA is saying that in the future there will be a show cause as to why a majority of directors are not independent directors. Where is the evidence that the governance has failed? I am sure that governance, in any organisation, can be improved. There is no doubt that, right across the board, governance is absolutely critical. Where is the evidence that it has actually failed? The Cooper review by the previous government did lead to a number of improvements around the governance of the superannuation trustee structure that we have in this country, but it stopped short of recommending what we have in this bill today.

I would like to point out that returns are ultimately what count, the returns to members. Superannuation is an essential foundation in this country for our future wealth and prosperity. It is a system that requires all Australians to save for a rainy day, to put away for their retirement. It is not perfect. I sincerely hope that the superannuation system in this country is tackled by this government, by all members and by the Senate so that we can improve it and make it fairer. Superannuation tax concessions are an example of what we need to see changed in this country. The Greens would like to see them being progressive. The super system is not perfect but it is absolutely essential.

The two things that are under attack at the moment from this Liberal government are the breakdown under part 9 of the SIS Act, where the board of corporate trustees for a standard employer-sponsored fund of five or more members must consist of an equal number of employer representatives and member representatives. That is the way it currently is. That equal representation rule is under attack because the government wants to bring it to at least a third of independent directors. Another big issue is around the default fund and how that is going to be structured.

I wonder where the motivation for this bill is coming from, and that is what I would like to deal with initially. If the returns to superannuation funds, to the industry super funds, over a 10-year period—and you can compare these returns on different time frames—have outperformed the retail funds, the for-profit or commercial funds, what is the problem? If the governance system they have in place is working, why are we looking to change it? Let's look at the motivation for that. Why do we need to bring in a third of independent directors? Under the current system an independent director can be appointed and has been appointed. I have met an independent director of an industry super fund and there are other examples that, I am sure, all senators have heard of. Why a third? Where did that number come from? And why the sudden change from APRA recently where they want to see a majority of directors as independent?

Senator Dastyari raised a very good point about the definition of independence. I think we need to separate two things here, which are independence and how it relates to a governance model of any organisation, and the necessary qualifications on a board. Under the model for publicly listed companies on the ASX, the Australian stock exchange, it is up to the boards how they structure their balance around governance and qualifications. That is not monitored and there is no prescription by APRA about how they should set up their governance model. That is up to the boards of ASX companies. So why is APRA, through the government, wanting a highly prescriptive model for industry super funds? Why is it different?

The answer is pretty obvious if you look at it at face value: industry super funds are not for profit. They are set up for the members, for the workers. Whereas, the other retail funds are for profit; they are for making margins for the banks and the big financial services companies. Somehow the concept that you are not for profit means you cannot be relied on to have a proper governance structure in place that looks after the workers and the members of those funds. I know that a majority of the industry super funds outsource a lot of their decision making around asset allocation. They make asset allocation decisions at the board level, but a lot of the expertise is outsourced to a whole bunch of IFAs. It is the same for Australia's big super fund—the Future Fund. They outsource a lot of their expertise and decision making. There is nothing wrong with that. Those people out there are experts and they pass that information up to the board and the board makes decisions. This is the current structure, and it has worked really well. Industry super funds have outperformed. You can argue that there may be some time periods when they have not, but over the long-term they have. You can break down different costs and cost structures but, generally, they have had lower costs and they have had a better performance.

So why the attack? The first thing that comes to mind is that this government is trying to put the unions in this country out of business, and they see fact that they have successful funds in place for their workers as something that the union movements take advantage of. That is the politics of this. I do not blame APRA for wanting to have the highest possible governance standards in place—that is an absolute fundamental given for any organisation. But why is it different for not-for-profit organisations, yet they are happy to leave for-profit organisations alone? This is an attempt to corporatise the trustee structure that is in place for superannuation funds. You wonder what kind of influence those independent directors are going to bring to the boards of industry super funds. Why are we not seeing these same prescriptive changes applied to other organisations?

Senator Edwards interjecting —

I have been quite outspoken since I arrived here, Senator Edwards—through you, Chair—about the vertical integration in the financial services sector in this country, especially amongst the big banks and the big financial services companies. As you are probably aware, I used to work in broking in banking and I remember when the banks first realised how much money they could make out of their client base, their retail clients—the people who had put their money into deposits from the time they were kids until the time they needed to borrow money for a home loan or for other products like credit cards. The banks realised, 'We have got these millions of people on our client base. Why don't we sell them financial products?' The banks have made tens of billions of dollars out of bundling products to offer to their client base. A lot of those products are—guess what?—superannuation products. They have vertically integrated: they manufacture the products, they have the platforms and they have the distribution networks.

I wonder why the retail funds, which are mostly owned by big financial services companies, have underperformed the industry super funds. Could it be due to related party transactions where the beneficiaries of the performance of these funds may actually be the parent entities—the big banks and the financial services companies? How much of the margin do they take? How much of the profit do they take to return to their shareholders? Why have they not outperformed? Is it because they are skimming the returns to pay to shareholders. Yes! That is exactly what is happening. Is this a conflict of interest?

Is it a conflict of interest that within a retail superannuation fund some of the executive or non-executive directors may be remunerated on the basis of the performance of the fund? That is not the case in industry super funds. Those on the board, under the equal-representation model, are paid to turn up and do their jobs, but it is a different model.

I would argue that there is a conflict of interest inherent within the whole vertical-integration business model. That conflict of interest is much bigger than just governance on superannuation. It is wide. We had the FoFA debate in this chamber. It is why we had financial planning scandals in CommBank and a number of the other big banks and financial services companies. It is all about making profits for shareholders. That conflict of interest did influence the culture within those banks, that for-profit culture. It is the simplistic breakdown, because there are corporate funds and other types of funds but, essentially, we have two types of funds within the trustee system: for-profit funds, and not-for-profit funds. The not-for-profit funds are for the workers and members, and the for-profit funds, the retail funds, are for making money, mostly for the big banks.

Is anybody not joining the dots, here? Perhaps Senator Edwards may not be yet. I will give him a few minutes to join the dots. This is an attack not only on the union movement—which is part of the government's overall ideological attack to put the union movement out of business, in this country—but also an attack designed to help the banks and the big financial services companies who have to compete against union—or should I say, workers through their unions—equal representation trustee models. This is an attempt to allow the big financial services companies, the retail funds, to profit at the expense of industry super funds. They are making it tougher for industry super funds. This is an attempt to give a leg-up to the big banks. That is the way I see it. It might sound simplistic to some but, as I have learnt in my short three-and-a-bit years in this place, I have come to expect that these things do drive decision making around legislation.

I go back to my original point. If the performance of the original industry super funds has been good, and I accept there are challenges ahead for all superannuation or investment funds, it is going to be a tough 10 years no matter whether you are a retail or industry super fund. It will not be easy. Returns are getting harder and governance models need to be solid. They need to be good. But why this prescription of a third of independent directors? It sounds ideological to me.

If the industry super funds were not performing or there had been significant blow-ups in corporate governance, in the last 10 years, I would accept that we had some evidence, here, in front of us. I have not yet tied the APRA concerns that have been expressed publicly, that are inherent in this bill, that somehow the model is not working or needs to change, with the evidence in front of us. I want to make it really clear that I accept there are risks and challenges ahead for all super funds, but I do not see the basis for supporting this bill. As my colleague Adam Bandt said in the House when we debated this bill, 'If it ain't broke why fix it?' At the end of the day, what we should be doing is looking at how we can prevent the conflicts of interest within the vertical integration of financial services, in this country. That is where the real debate needs to go.

I expressed disappointment when the Murray review was released that this was not, first and foremost, something he tackled. I have absolutely no problem with David Murray at all. But he was the CEO of the Commonwealth Bank during the period when the bank's did vertically integrate and bundle and sell products to their customer base. I was a bit disappointed—very disappointed—that he did not actually take this issue on in his financial services inquiry. Let's be honest, it was the elephant in the room. The media were speculating that he was going to break up the business model of the banks. That is what was being discussed in the media—will David Murray break up the business model of vertically integrated banks?

These conflicts of interest are so obvious. Let me tell you, they are evident in the retail funds that are competing against industry super funds. Here we are, having an argument around potential conflicts of interest on industry super fund boards. Why are we not having the same discussion about conflicts of interest on retail fund boards? The only conclusion I can draw is that because those retail funds are for-profit funds, somehow that is good. That is great—they are doing the right thing because they are making money. Yet, on the other hand, the industry super funds are there to make returns for their workers and for their members, so they are not to be trusted because they are not-for-profit organisations. They do not have any idea what they are doing. Somehow their governance model is not acceptable.

The irony is that when you actually look at the ASX corporate governance model, where the boards themselves have to decide the mix of qualifications and the governance model is dictated around their conflicts of interest, there are no proscriptions there. It is left up to them. Is that because they are the private sector as well? Is that because they are good at making money for shareholders and therefore we should leave them alone? Let them do the right thing, and if they come a gutser then they can be tackled, but let's just let them do what they need to do? We have industry super funds that are not-for-profit and are making returns for members. I understand that the directors on the industry super funds are not paid a huge amount of money. They are not really paid a lot of money. I have no doubt that the industry super funds do have to pay significant fees to the people they outsource their expertise to and the IFAs they deal with. But they are the private sector. They are the people who are out there making decisions.

I actually like the industry super fund models, where they do invest in long-term illiquid assets like infrastructure. Recently at a hearing—Senator Smith, it might have been the only one you missed—on the select inquiry into infrastructure funding we heard that the industry super funds make a 12 per cent return on their infrastructure holdings and they have nearly 20 per cent of their funds in illiquid, long-term infrastructure projects all around the world. That is a decision they have made. They deal with experts and they make great returns for their members. I think that is really good, and I think there is flexibility for us in the future to work with industry super funds to channel some of the savings of workers directly into large infrastructure projects in this country, where potentially a lot of the workers own assets.

There is huge potential in the way industry super funds can contribute to this nation. I really do not accept that there is enough evidence in front of us today to pass this bill. Adam Bandt MP, in the other House, made it very clear that the Greens will not be supporting this bill. I stand here to say that today there is no reason for us to support this bill. This bill in an attack on the union movement and it is designed to give the banks a leg up.