Sean Edwards (SA, Liberal Party) Share this | Hansard source

I rise to speak in favour of passing this bill. Senator Whish-Wilson and Senator Dastyari are here. Obviously, they were both involved in the hearing that we had in the inquiry we had into this bill—which, I must say, was much ado about not much at all. The inquiry attracted 27 submissions, which, on the scale of submissions into any inquiry, would have to be considered extremely low. So there was a low level of interest. Mainly the 27 were from industry super funds and unions of course, as you would expect—and I do not say that in a partisan way. They would be interested.

This is just simply good public policy. For those who are listening to this contribution, this legislation arose out of a review commissioned by the former government, the Labor government, called the Cooper review. This is where this good public policy has its genesis. The 2010 review's recommendations included that there be a minimum of one-third independent directors on fund boards and that it should no longer be mandatory for boards to maintain equal representation. I am sure Senator Dastyari is acutely aware of where this good public policy has its genesis.

You have heard other contributors here this morning talking about David Murray, who is an authoritative voice in this sector, having been involved in it most of his life at the highest levels. Everybody who is listening should understand that the 2014 financial system inquiry recommended mandating a majority of independent directors on the board of corporate trustees of public offer superannuation funds, including an independent chair. I think they do protest too much from the other side. This is just about ideology. The things that they do not understand they will resist. This change to having independent directors on super fund boards is consistent with international best practice on corporate governance. Nobody can deny that. Around the world, that is the modern view of how boards should be structured. I know that here has been a wedge attempted—the suggestion that trustees are different to directors and that they serve different causes. No, they do not. They all have to act with a fiduciary duty of care to their shareholders or their trustees. They need to maximise the returns to either their shareholders or their trustees. There is no difference.

Independent board members bring different skills and expertise. They hold other directors accountable for their conduct, particularly in relation to any conflicts of interest. This is not about union bashing. This is a progression of public policy which the Labor Party brought to the public space in 2010. We in this government have just continued the work. The Minister for Finance, who is in the chamber, understands the importance of this. We all get it. Why do we protest good governance? It surely could not be that the only people capable of presiding in an independent way are people that are members of unions or people appointed by unions. It could not possibly be that.

I will give you some examples of where change is needed. There have been mergers of equal representation super funds that have failed because they could not agree on the number of seats each board would receive on the board of the merged entity. They could not agree. This happened because each of the representative organisations, whether they be member or employer, wanted to maintain their ratio of positions. There are also situations in the retail fund space where a person sits as an independent on the fund and has, as an independent on a related company which provides services to the fund, an identified conflict. But some fund trustees say that this is manageable. Perhaps it is, but, at the very least, they should not be considered independent in the context of a super fund board.

This legislation does not prevent union representation on funds. No, quite the contrary—the bill will only require super fund boards to have a minimum of one-third independent directors and an independent chair. In the statutory authority space that governments fund through levies and different things around the country, that is not unusual. The timetable imposed on super funds by the bill should not create any great difficulties—there will be a three-year transition period for existing funds. That will commence once, assuming this chamber sees reason, the bill gets royal assent.

Senator Dastyari made a contribution about the definition of 'independent'. The existing definition of 'independent' is being replaced because it relates only to whether a person is independent of the members and the employers of the fund. It does not cover any other relationships. Let me be very clear: the new definition identifies two sets of conditions that would preclude someone from being considered independent. The first relates to ownership or structural arrangements and the second relates to other relationships, This will ensure a broader range of circumstances are taken into account when considering a person's ability to exercise independent judgement.

The Australian Prudential Regulatory Authority, APRA, of which the Economics Committee has intimate knowledge through the referrals we have had—we deal with them on a regular basis—will be able to determine whether someone is independent based on whether they have the ability to exercise independent judgement. This will allow APRA to respond to a situation where a person's circumstances—their capacity to exercise independent judgement—are not clear. That is very important. Where somebody does not meet the technical definition of 'independent' but may still have the ability to act independently, APRA will be able to make a determination. Any such determinations by APRA are of course reviewable. That is everyday work for them. So someone affected by a decision can ask APRA to reconsider if they think the decision was not fair.

There are many supporters of this change. As is often the case, it is only a very loud, very small minority of people who are, for whatever purpose, remonstrating with government—about an initiative, as I said, of the former Labor government that arose out of the Cooper review. We are only trying to progress it now after it became burdened with inertia in the last government. The super industry, the association of super funds—they are in favour. The former boss of the Australian Workers' Union, Paul Howes, has indicated his support for the change. The regulator, APRA, has indicated that independent directors improve governance. There are others. Choice are an example. They are a respected consumer advocacy group and their publications are widely referred to in the community. Their director of campaigns and communications, Matt Levey, said:

Ensuring that all funds are held to high standards of governance will mean more consumers have a secure retirement … The Government has proposed a model that uses the best elements of the Cooper Review and FSI—

the financial services inquiry—

proposals with a reasonable transitionary period.

This is not an impost. This is not a burden. We go to the Council of Small Business Australia—COSBOA, the acronym we know them by. They say:

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

COSBOA do not mind having a crack where they think they need to and they have plenty to say if they do not agree with government. But here they are, eminently sensible people saying sensible things about a reform which back in 2010 was a priority of the then Labor government.

The list goes on: the Financial Services Council; the Association of Superannuation Funds of Australia, the Australian Chamber of Commerce and Industry—and I will give you theirs:

Bringing superannuation governance rules in line with those of other regulated financial institutions, such as banks and insurers, is a balanced and reasonable reform that will strengthen the industry.

They have said further:

The decisions of trustees have significant implications for people's savings and would be strengthened by a greater involvement by independent directors.

The list includes the Australian Institute of Company Directors; Master Builders Australia; and David Murray, the chair of the Financial System Inquiry, who said:

Representative governance does not work in superannuation or in an industry.

The point about independent directors is that they can examine in a dispassionate way if policies are in the interests of members or for other reasons … that is very helpful. Independent directors are more likely to ask the right questions of where the interests of members lie, if there are enough of them.

That is pretty clear.

The National Australia Bank, Mercer and National Seniors Australia have all joined the chorus of support, as have the Self-Managed Super Funds Association, Suncorp and Sunsuper. Qantas superannuation chair, Anne Ward, said:

Personally, if I look at equal representation model it has served the industry well over the years, but it is time to change. The scale, the regulatory requirements and the sophistication that is required means the industry needs an influx of new talent and ideas.

The list goes on and on.

In Senator Whish-Wilson's contribution I heard his reference to 'if it ain't broke, we don't need to fix it' and the contention on the claim that industry super funds outperform others. Let's put that in perspective. Let's address that right here, right now. These claims require closer examination, and I am sure you will be very interested in this. The claim that industry funds outperform others is by an example. Many of the super funds performance figures are historical and do not take into account performance since the introduction of MySuper in 2013.

We need to compare like with like. We have to compare apples with apples and oranges with oranges. I see that Senator Conroy has joined in, hopefully to add his support to what is obviously a reform he initiated back in 2010 with the Cooper review. He was part of that government that thought well enough to have a look at this, to bring this to cabinet and try and get it through. Sadly, like many other good initiatives that were recommended by independent reviews, this was not adopted by that government. And here we are again trying to fix up what should have been fixed five years ago.

We will have a look at like with like; we will get back to that. APRA pointed out that many of the super funds' performance figures were historical on a number of occasions in the last few years. This is what they said in one of the inquiries:

… I have noted that comparisons of investment performance at fund level is not comparing apples with apples.

Although MySuper data is only available for relatively short period, it is starting to provide some useful comparative information as indicated by these next two charts—

which, clearly, you will not get in Hansard.

The first shows MySuper return targets and actual returns for the year to June 2015, while the second shows fees and costs disclosed for a representative MySuper member. Across the different industry segments, the median and range of returns for MySuper products is broadly the same, as are the median and range for total fees and costs.

That was delivered in a speech by Helen Rowell, an APRA member. It was governing superannuation in 2015 and beyond. APRA is putting some facts around this whole issue which are in complete support of what the government's agenda is here. It is also what the previous government's agenda was but, for whatever reason—I suspect it was because of the rhetoric that we are hearing from the other side—it was nobbled, like many good things. It was nobbled and did not see the light of day.

If we have a look at the September 2015 data, independent superannuation research and consultancy firm Chant West recently noted:

Industry funds and retail funds performed broadly in line with each other over the September quarter, suffering losses of 1.6 per cent and 1.7 per cent, respectively. However, industry funds hold the average over the longer term, having returned 6.9 per cent per annum against 5.5 per cent for retail funds over the last 15 years to September 2015.

While the majority of MySuper products had negative returns in the September quarter, there were 38 lifecycle products that had small positive returns.

Of the funds with positive returns, 22 were retail funds, eight public sector. No industry lifecycle funds had positive returns in the September quarter.

Fund performance is determined by a number of factors: fund profile, the legal structure and splitting investment returns between shareholders and members, the type of flexibility provided to fund members and the investment decisions. Stephen Anthony, the chief economist for Industry Super Australia, says that the key reason industry funds outperform their competitors is because they own and develop infrastructure and other unlisted assets with a long-term approach to capital allocation.

I do not know what contributions we will hear from the other side, but the dissenting report Labor senators provided when we inquired into this bill was thin and vacuous. I recommend that we support the bill. (Time expired)