James McGrath (Queensland, Liberal National Party, Assistant Minister to the Prime Minister) Share this | Hansard source

It gives me great pleasure to rise this afternoon to speak on the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 and the cognate bill—two bills that are part of the coalition's commitment to deliver for Australians and part of our commitment to bring necessary reform across all elements of the finance sector. These bills will give Australians more control over their providers and a strong regulator to ensure their money is being managed in their best interests—and that's what this comes down to. This is about being on the side of the consumer and making sure that the consumer, the working man and woman who are putting money into these huge industry super accounts—the people who own the money, the people who earned the money—will have more control. This package represents important reforms that will strengthen the foundations of Australia's super system, in particular, for default MySuper members. The package has been developed with that clear objective: to improve outcomes for consumers.

The super sector has grown to over $2 trillion, largely as a result of the mandatory nature of the system we have here in Australia. The Australians who are earning this money expect the industry to be held to the highest standards of transparency and accountability. This bill includes previously introduced measures aimed at increasing choice and transparency. It also includes new measures to strengthen supervision of the super sector, boost trustee accountability and improve member engagement. Many of the measures in this bill have been on the policy agenda for several years and have been recommended by past reviews into the super industry. The bill also closes a legal loophole that has been used by unscrupulous employers to short-change employees who choose to make salary sacrifice contributions into their super accounts.

It's best that we go through the bill and look at it in detail, in terms of how the schedules are going to operate. In schedule 1, the outcomes test will strengthen the obligation on trustees to consider the appropriateness of their MySuper product on an ongoing annual basis. The outcomes test will comprise two stages: one which requires trustees to consider their MySuper offering—the design, investment, insurance strategies and scale—and another which requires the trustee to compare their MySuper product with other MySuper products. We believe that, in order to promote the financial interests of their members, trustees should give consideration to the overall quality of their MySuper product. The outcomes test is designed to help inform a trustee's assessment of their MySuper product; it is not meant to weaken or lessen the trustee's primary obligation to promote the financial interests of their MySuper members through net returns. The importance of net returns in promoting the financial interests of members should remain at the forefront of the trustee's mind when assessing the MySuper product.

Through the outcomes test, the Australian Prudential Regulation Authority, APRA, will be able to obtain a more comprehensive view of how funds are working to improve the quality of their MySuper products, and will have stronger grounds to engage with trustees where it has concerns. Trustees will also be required to publicly release the outcomes test determination and a summary of the assessment and comparisons that led to the determination. The government has also tasked APRA with applying a modified version of the outcomes test in relation to Choice products that will require relevant trustees to regularly assess how outcomes are delivered across their business operations and whether they are providing quality, value-for-money outcomes for Choice members.

Schedule 2 concerns the authority to offer a MySuper product: we want APRA to ensure that only suitable trustees are able to offer MySuper products, and that MySuper products are removed from trustees when they are no longer suitable. The MySuper authorisation changes will improve the quality of MySuper products by allowing APRA to refuse or cancel an authority to offer a MySuper product if APRA has a reason to believe the trustee may fail to comply with its obligations. The changes will provide APRA with more scope to ensure that trustees who are authorised to offer a MySuper product are in a position to provide products of sufficient quality to promote the financial interests of members.

We also need to make sure that we address director penalties, which are touched upon in schedule 3. The current gap in the criminal and civil penalty framework concerning misconduct of a director or a trustee will be addressed as a result of these changes. Directors will now be held accountable for their conduct in the same way as directors of managed investment schemes. A directors may be subject to both civil and criminal penalties if they fail to execute their responsibilities to act in the interests of members or if they use their position to further their own interests to the detriment of members.

Schedule 4 will give members a greater level of protection against fraud when a change of ownership or control of a trustee takes place. Given the potential detrimental outcomes that may arise through the mismanagement of funds, we believe that no-one should be able to own or control a fund without APRA's approval. This change will make the industry broadly consistent with the change-of-ownership requirements of other industries regulated by APRA.

In schedule 5, APRA's powers across the credit union, banking, friendly society, insurance and super sectors will now be harmonised. When APRA has prudential concerns, it will be able to intervene early to address its concerns in a way that ensures required actions are in the best interests of members. APRA's new powers will provide it with the ability to take action to ensure that the intent of the law is realised, including the new outcomes test and enhanced management reporting requirements being delivered as part of this package.

In schedule 6, we'll see a measure that will enable members and interested parties to see where funds are investing member contributions. This will ensure, amongst other things, that member contributions are being invested appropriately by empowering members and interested parties to make their funds more accountable. The changes will significantly reduce the complexity of the current law, which was introduced in 2012 but has never commenced. The bill limits portfolio holdings disclosure to assets held directly in investments through associated entities, including initial investments made into non-associated entities. We know that the performance of the super system has a direct bearing on the retirement incomes of each and every Australian. That's why it's important that members can see where their funds are being invested and can compare the relative performance of their funds to other funds. Requiring super funds to disclose their portfolio holdings is also consistent with international best practice. Australia is currently the only market of 25 international markets looked at by financial analyst Morningstar with no implemented, regulated form of portfolio holdings disclosure.

In schedule 7, we are improving accountability because we're requiring funds to hold annual member meetings where members have the opportunity to ask questions and get answers not just of their trustees but also of their executive officers, auditors and actuaries. All members will finally have the opportunity to ask questions about all areas of the fund's performance and operations. Trustees will have another way that they can improve their engagement with their members. Members will also be provided with key documents which outline their fund's performance and operations. To ensure that annual members' meetings suit their funds' members, trustees will have the option to hold their annual members' meetings electronically.

In schedule 8, we look at the choice of fund to workplace determinations and enterprise agreements. Given compulsory super's important contribution to individual retirement incomes, individuals should be able to decide where their compulsory super goes. This measure will provide choice of fund for more Australians employed under federal EBAs and workplace determinations. Expanding choice should reduce the need for multiple accounts, involving multiple fees and insurance premiums. This can help to improve people's super savings and standard of living in retirement. Giving more employees choice of fund also aims to promote member engagement and reduce fees through increased competition.

In schedule 9, we look at reporting standards. This measure will amend the Financial Sector (Collection of Data) Act 2001 to provide APRA with the ability to obtain information on expenses incurred by funds. This additional information will enable APRA and, ultimately, members to understand the full picture of how funds are using member contributions and will enable APRA to consider whether expenses of individual funds are in line with their obligations as a trustee.

In schedule 10 we close a longstanding loophole, to prevent employers from using people's salary-sacrificed super contributions to reduce their super guarantee obligations. The changes will prevent employers from using—

Debate interrupted.