Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

I present the report of the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the structure and operation of the superannuation industry, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

I seek leave to move a motion in relation to the report.

Leave granted.

I move:

That the Senate take note of the report.

The inquiry by the Joint Committee on Corporations and Financial Services into the superannuation industry generated substantial interest from a range of corporations, organisations and individuals. We received 96 submissions and held public hearings in Sydney, Melbourne and Canberra. Representatives of corporations, industry bodies, consumer groups, academics, government and regulatory agencies were all consulted.

In early 2007, total superannuation assets reached the $1 trillion mark, up from $761.9 billion as recently as June 2005 and four times the value of superannuation assets in June 1995. These increases have occurred through strong returns on equities and a guaranteed flow of contributions that some researchers estimate could double in size by 2015.

Despite the success of superannuation as a retirement savings vehicle, peak industry associations and other stakeholders argued that the laws and regulations governing superannuation have become too complex, onerous, and conflicting in some instances, and have not kept pace with industry developments.

The committee shares these concerns and recommends that the government undertake a comprehensive review of the laws and regulations governing superannuation to identify how they may be rationalised and simplified. The review should be carried out by the Treasury.

An inevitable consequence of choice of fund with regard to superannuation has been the emergence of promotional advertising in the sector. While funds should be entitled to advertise, the disclosure of expenditure on such activities is important. The committee recommends that peak superannuation bodies and the Australian Prudential Regulation Authority work with the Australian Accounting Standards Board to form appropriate compulsory accounting and disclosure by all funds for promotional advertising, sponsorship expenses and executive remuneration.

Another concern raised with the committee relates to the use of the term ‘not-for-profit fund’ where services are tendered out to related-party profit making entities. While payments to third-party service providers are compatible with being a not-for-profit fund, members ought to be getting value for money and transactions should be conducted at arms length. In this context, it was disappointing that representatives of Industry Super Network refused to answer questions taken on notice from the committee. In order to ensure transparency in this area, the committee therefore recommends that the government develop an effective disclosure policy to address deficiencies in reporting related-party transactions and that trustees of superannuation funds publicly tender key service provision agreements.

An area of some confusion during the inquiry concerned the responsibilities of trustees in the member investment choice environment.

This issue needs further clarification. The committee recommends that APRA release its legal advice on the role of the trustee in a member investment choice situation and consult further with industry to clarify the duties of trustees that offer member investment choice. It recommends that APRA review its written guidance and further clarify its interpretation of the role of the trustee to ensure that the reality of investment choice and the obligations of trustees under the SI(S) Act are better integrated.

A strong case was made for a mandatory unit pricing methodology for public offer funds. The committee agrees that unit pricing is the most appropriate way to allocate investment earnings and appears to be the best way to ensure equity for members who move between funds. The committee recommends that the government mandate a uniform unit pricing methodology for all public offer superannuation funds, including any necessary transitional arrangements.

Under Super Choice, portability and consolidation have become increasingly important. The committee is concerned at anecdotal evidence that some funds deliberately are slowing the process of transferring funds and placing administrative hurdles in the path of fund members. It encourages APRA to be conscientious in enforcing the new 30-day limit on funds transfers. The committee also heard evidence of the potential for exit fees to undermine competition. It encourages the government to monitor the application and quantum of exit fees, particularly in cases where fees bear no apparent relationship to the real administrative cost of exiting a fund.

The introduction of superannuation choice has drawn attention to the role of funds and professional advisers in helping consumers to navigate their way through the options they now face. There are concerns over the adequacy of the current regulatory arrangements to enable the affordable provision of basic advice on superannuation.

In particular, the broad definition of ‘financial product advice’ in the Corporations Act was blamed for increasing the cost and restricting access to financial advice on issues where consumer protection should not, on the face of it, be a serious concern.

In trying to achieve greater proportionality between consumer protection and accessibility of advice the government has proposed a measure to exempt advisers from providing a statement of advice where personal advice is provided that does not involve recommending a product or remuneration for the advice. The government also has proposed the introduction of a threshold for disclosure on a superannuation investment of less than $15,000, where the advice recommends consolidating investments or making additional contributions. These initiatives are both supported by the committee.

The committee also has recommended that further regulatory guidance be provided to enable funds to provide targeted information to different categories of membership and provide benefit projections to their members.

The role and regulation of accountants in this sphere was raised as well. The committee does not believe accountants should be exempt from holding an Australian financial services licence when providing financial product advice. However, the committee recommends that accountants be able to advise clients on altering their superannuation contribution levels and consolidating superannuation investments into an existing fund, without requiring an AFS licence.

The committee believes that the readability and comparability of disclosure material could be improved by ensuring important information is prominently displayed, in summary form, at the front of product disclosure statements. If this cannot be achieved by the industry of its own volition it should be mandated by the government. The committee recommends that the government conduct market research on the readability of superannuation product disclosure statements and consult with the industry to finalise a preferred standardised format.

The effect of different remuneration models on the standard of superannuation advice was a major issue during the inquiry.

The committee does not recommend the prohibition of commissions on superannuation products as many consumers cannot afford to pay for up-front fee-for-service advice on their superannuation. Banning commissions on superannuation simply would compound the problems of accessibility to advice that already exist.

The committee is more concerned about shelf fees. They can be anticompetitive and may encourage products to be listed and subsequently recommended that may not be in the best interests of a client. The committee recommends that ASIC work with the industry to provide investors more effective and detailed disclosure of shelf fees.

The effective disclosure of conflicts of interest is critical to ensure that consumers are able to judge their likely effect on the quality of the advice they receive. The committee is of the opinion that disclosure will not be effective unless the nomenclature attached to financial advisers accurately conveys to consumers the adviser’s relationship with, and interest in, the superannuation products they recommend. The committee therefore recommends that the government should investigate the most effective way to develop appropriate nomenclature where the product recommendation advice available to consumers is limited by sales imperatives. The committee also recommends that financial advisers be required to disclose the ownership structure of the licensee under which he or she is operating.

A priority must be to arm consumers with the skills to interpret the quality and independence of the advice they receive. The committee believes this challenge can be addressed effectively by improving the accessibility of advice for those already in the system, and ensuring that future fund members are provided with appropriate guidance during their school years. The committee notes with approval the government’s Better Super television and radio advertisements designed to inform and educate people about the reforms to superannuation that came into effect on 1 July 2007. The committee also supports the government’s Financial Literacy Foundation initiatives and recommends that they be reviewed when their effectiveness is able to be measured against clear performance benchmarks.

The committee heard evidence that the current limit of four individuals who can own and manage a self-managed superannuation fund should be increased in response to the prevalence of many family businesses and funds that operate over two or more generations. The effect of this restriction is likely only to worsen in the future, and should be addressed sooner rather than later. The committee therefore recommends that the Australian Taxation Office consider raising the maximum number of trustees for any one self-managed super fund from four—which currently applies—to 10, in line with current and future demand.

On the regulation of self-managed funds, the committee accepts that greater reliance should be placed on safeguards offered by accountants as the key interface between members and the regulatory and compliance system. The committee recommends that self-managed funds run by qualified accountants be audited annually for three years from their commencement and, subject to no irregularities, thereafter only every five years.

Consistent with its findings and recommendations from previous inquiries, the committee supports the argument by peak accounting bodies that the licensing exemption for accountants advising on self-managed funds should be extended to include general structural advice on all superannuation funds. The committee recommends that the exemption be broadened to enable accountants to provide advice on the structure of, but not investments in, superannuation funds, rather than being limited to advising on self-managed funds.

My thanks go to David Sullivan, the committee secretary, and the other committee staff for their support and expert contribution to our committee’s deliberations on this important subject.

I commend the report to the Senate.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

The report of the inquiry into the superannuation industry by the Parliamentary Joint Committee on Corporations and Financial Services that has been delivered today has been a long time in gestation, but it is a singularly important report. Broadly speaking, it will effect, hopefully, savings amounting to well over $1 trillion Australian dollars, so this is not a minor matter. There are 31 recommendations in the report, and it is a sign of the committee’s common conclusions that Labor have only disagreed in part or in whole with five of those. Of course, their point of view has substance, although with respect to their disagreement over the issue of unit pricing I am afraid that I think on balance that the majority report is correct. However, I welcome both the very short Labor minority report and the report itself as seeking to significantly advance an improvement in this sector.

Particularly important, I think, from the perspective of advancing legislation is recommendation 2, which asks the government, through Treasury, to conduct a review of the laws and regulations governing superannuation to identify how they may be rationalised and simplified. There are very real problems in terms of overlap, inconsistencies, complexities et cetera, and the committee has recognised that a major rationalisation would be to the benefit of industry.

The other recommendation I draw attention to is recommendation 5, where the committee recommends that the government formulate and implement an effective disclosure policy for both product disclosure statements and annual reports to address any deficiencies in reporting related party transactions—that is a critical recommendation. Recommendation 8 recommends that Treasury examine and report to government on the issue of overlapping, inconsistent and conflicting requirements of superannuation funds from a number of regulators. That, too, is vital to ensure an efficient and effective industry. I am not one of those who are persuaded by the view that APRA and ASIC need to be united; I think they are separate institutions which function effectively but could function much more efficiently, but I do not have a closed mind to the improvement of regulations in this field.

The committee notes of course the important role the regulators play in superannuation, and five of the 31 recommendations are devoted to APRA and five are devoted to ASIC, so not all the recommendations are directed at the government. In my own case I have a particular interest in the issues of nomenclature, an issue raised by the chair in tabling his report. I think that, until such time as consumers of superannuation products can easily identify the sort of advice that they need simply through letting their fingers do the walking through yellow pages or observing a sign, we are not going to get the kinds of advice channels to fit the consumers that are necessary. Much more needs to be done in that field. Many people do not understand what you mean when you say ‘nomenclature’. If you go to buy a motor car you know what a dealer is, you know to expect that a Ford dealer is entirely different from a Toyota dealer, whereas a second-hand car dealer would, of course, offer you many varieties of car, so it is that kind of nomenclature which is easy for consumers to understand.

There is one area in which I felt the report could have been enhanced, and that is the superannuation guarantee contributions. I am of the view that, because those contributions are required by statute and are compulsory, the superannuation guarantee contributions should be quarantined from being used to pay for commissions to financial advisers. I was not able to persuade other members of the committee to that view, but I think you have to deal with superannuation contributions which are compulsory in a different way to those which are voluntary and I am very wary of financial advisers being able to be ‘free-riders’, as it were, on compulsory contributions.

Overall, in my view, the chair, other members of the committee and the secretariat have done a very useful and helpful job with respect to this report. By its nature, of course, it will not be able to be rapidly implemented or responded to, but I do hope it contributes very materially to the greater efficiency, productivity and effectiveness of our superannuation schemes.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.