Jane Hume (Victoria, Liberal Party) Share this | Hansard source

I rise today to speak on an exceptionally important matter—one in which I have a particular interest. I of course refer to the legislation introduced to this place designed to strengthen superannuation fund governance, the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 and the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017

There will inevitably be many, many impassioned speeches in the Senate chamber over the coming days, but this is an issue about which I am particularly passionate. Indeed, without wishing to blow my own trumpet, there is hardly a senator in this place with the personal knowledge and professional experience in this particular policy area that I have. Prior to coming to this place, superannuation policy was what I did on a daily basis. In fact, it was at the largest industry super fund in Australia, the industry super fund that Senator Gallagher treasures so dearly. I have worked within the superannuation system and I have seen firsthand its evolution, its opportunities and its milestones, but also its challenges. I have never been shy about expressing my views, where appropriate, on the appropriate direction of this vital pillar of the Australian financial system. It was therefore a privilege to chair the Economics Legislation Committee, which has extensively inquired into this particular piece of legislation. We received 38 submissions and we held hearings over two days. I can confidently stand here and give my full-throated support to these reforms.

The legislative package delivers on the recommendations of a number of major government reviews commissioned not only by this government but also by the opposition while in government. In a move to strengthen member outcomes and governance arrangements for public offer superannuation funds, the Turnbull coalition government has introduced legislation mandating that one-third of board positions and the chair be considered independent. These reforms, which are so vital for the continued success of our thriving superannuation sector, are supported some of the greatest minds in the area. As Mr David Murray AO, the author of the Financial System Inquiry—probably the broadest financial systems inquiry that this country has seen in decades—said in the economics committee hearing:

When a governing body sits to serve the interests of the people it's meant to serve, it shouldn't be constrained by peripheral interests. That's why, in my view, independence is very important—independence from the executive and independence from peripheral interests.

Due to the obligatory nature of the superannuation system, society ought to expect higher standards of governance from superannuation trustees than even those required of directors of publicly listed companies. Investors in listed entities have the luxury of divesting their holdings should they lose faith in the governance of the company. They also have the luxury of appealing to those directors at an annual general meeting. Sadly, for superannuation funds, due to the inherent passivity of members' attitudes—many members' attitudes, not all, I should say—towards their fund balances, as well as the still entrenched nature of the default fund status for many awards, this is often not an option for fund members.

Government has not just a right but also, more importantly, an obligation to step in to ensure good governance practices are upheld for superannuation funds so as to best protect members' interests. And this is a government that realises the importance of the superannuation sector to the Australian economy and, in turn, realises the importance of good governance practices to that sector. These reforms, prosecuted ably by the Turnbull coalition government's economic team over considerable time, are vitally necessary in ensuring the longevity and the continued success of the Australian superannuation sector.

It's worth taking a step back here. Australia's superannuation system is credited with many, many benefits, from restoring national savings to providing the weight of investment money that saw Australia through the global financial crisis. But its most important role is, of course, providing millions of Australians with income in retirement that substitutes for or supplements the age pension. We must not lose sight of this core purpose of superannuation.

There are those here who will tell you that the sector began through political expediency rather than through altruistic objectives. In fact, it was union demands for a pay rise in a period of high inflation and during the death throes of a Labor government that saw Paul Keating trade off a compulsory but sequestered additional two per cent of salary in exchange for industrial harmony in the face of a looming election. Now, that would be a cynical view. Whether it was foresight or good fortune, I personally think that credit should be given to Paul Keating's and Bill Kelty's political marriage of a private sector solution to a public policy challenge.

Mine is the first generation to have lived their working lives with compulsory superannuation. I have no intention of retiring for many years to come, but, as you can see, despite the fact that it is 25 years old, our superannuation system is not yet mature. As the sector reaches this 25-year milestone and surpasses $2.3 trillion, it is time now to reflect not only on what the system has achieved but also how we can do it better. Any industry that controls trillions of dollars in assets will always have a large number of people expressing truly strident opinions about its operation and direction, but one clear message emerges from that cacophony: the voices that shout the loudest all work in the superannuation industry and stand to financially benefit from their policy positions. The hypocrisy and evident self-interest of those voices is galling.

Among all those voices, who then is representing the savers? Who then is genuinely representing the members? This is the great policy challenge of the coalition government, and it is the policy challenge that we are tackling by reviewing the operation of a 25-year-old system. We will focus not on those who stand to benefit from an expansion in the industry; we will focus on the members, the superannuants, that the industry is supposed to serve first and foremost. There quite simply shouldn't be any greater loyalty for vested interests than to the superannuation members themselves. Superannuation does, and always should, exist to best serve the interests of the members. And, given the compulsory nature of superannuation—workers are compelled to relinquish nearly one dollar in 10; in light of this, the government clearly has a duty of care and a solemn obligation to get the policy settings right—governments have a vested interested in getting the settings right, because otherwise, working on behalf of future taxpayers, they may be held responsible for funding the age pension of those future generations—that is, those who do not have adequate superannuation savings to support themselves. The imperative is an efficient and effective superannuation system beyond the next 50 years, for that is the potential life of a superannuation fund for someone who is currently entering the workforce. The super system must engender investor confidence and be managed with a robust framework with appropriate oversight and the highest level of skill and integrity. One of those settings—indeed, some might say, the most important one—is the independence and the associated diversity and skills of the people who serve on the boards of those funds that manage the retirement savings of millions of Australians.

Standards of superannuation governance must reflect the industry as it is today, not as it was 25 years ago. In fact, 25 years ago the majority of superannuation funds were defined-benefit funds run by employers. It was right at that stage to have representatives from management and staff to oversee their operation. But with the demise of the defined benefit fund, and as funds opened up to become public offer and opened up to any person regardless of their job or trade, the equal-representation model has become less relevant. Indeed, some would go as far as to say that it is entirely irrelevant; it is a legacy of the past. Today, directors appointed by employer and employee groups are less likely to represent the broader membership of those funds. Ultimately, the one key question when evaluating the composition of a superannuation-fund board should be: is that board best structured to serve and add value to the fund and to its members? It should not be focused on whether a board has been structured to allow an interest group to be represented. As Professor Graeme Samuel noted in the Senate Economics Committee hearing:

I don't draw a great distinction between the structures of corporate governance; I'm more concerned about the reality of it … Where you've got proprietors or sponsors that are heavily involved in the board and are appointed as representatives of proprietors or sponsors, there's a tendency for the skills metrics to be less relevant. That's where independent directors then become much more relevant and where the skills metrics and the qualities that they can provide become far more relevant.

Good governance promotes confidence in a fund's leadership, capacity and capability. Study after study shows that independent directors change the dynamics of boards for the better. Diverse skills and backgrounds on boards are vital for optimising performance, strengthening conflict management and countering that uncritical group-think mentality. Superannuation boards are, of course, no exception to this rule.

Of course there is a natural reluctance from industry-fund players. Human nature compels us to protect our sphere of influence and, of course, our source of income. The powerful and well-funded advocates of industry superannuation will defend the status quo with an attack contending that members have been well served by the current system and that, if it isn't broken, it shouldn't be fixed. But this sort of uninformed and uncritical approach is not adequate. It isn't adequate to take a 'not broken; why fix it' approach. Government's role is bigger than that. Certainly we've seen that today. Government's role is better than that, and this government is simply smarter than that. Internationally accepted best practices for corporate and organisational governance must be adopted to ensure the best interests of superannuation members are continually met. This is an industry that needs to move beyond the legacy of the past 25 years and plan for the next 50. It is an industry whose size already outstrips GDP, and is projected to reach a staggering $9 trillion by 2030. Best practice in government standards should not be an optional extra. Superannuation funds should in fact embrace this change as an opportunity to inject new ideas, new skills and new perspectives onto their boards, which potentially are very set in their ways.

Commenting on the need to modernise the governance model for public-offer superannuation funds, Mr David Murray AO also said that there are risks of maintaining the 1992 model of governance:

… different interests can take over; that is, interests of employee representatives who have other issues to pursue or interests of employers who want to bargain the super fund in with their other commercial deals with whoever they are dealing with. Either way, it is better off. And we are aware that employers, for example, might do a better deal with a bank if they throw in the superannuation, in the interests of the company. At the same time, we could not understand why the advertising of industry funds was the way it was; the advertising and the cost of that advertising didn't seem—