Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

Finally it is here. There has been a lot of talk, a lot of waiting and a lot of anticipation about when we were finally going to see the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 and have the opportunity to debate it. I thank the government for bringing this forward on the agenda today so that we will have the opportunity to put forward our views on it.

Let me say from the outset that this is a bad bill that is attempting to fix a problem that does not exist. This is a bad bill that does not warrant the support of this chamber, that does not achieve what it purports to achieve, and it fundamentally risks damaging one of the most successful types of governance models. Let us be clear what this is about. This is an ideological agenda against industry super, an agenda this government has always had. This is laying the groundwork for what the government has always wanted to do—that is, take away default super. This is about damaging and destroying one of the most successful models we have. Also, at the end of the day, when it comes down to it the trustee model of governance works. It works because the proof is in the pudding. The proof is in the actual returns that are given to consumers. It is a model that works and it does not need to be tampered with. This legislation does not do the right thing.

I am concerned that this bill will impose a significant ideological shift from a model of trustee governance to a model of shareholder governance, and there is no clear or compelling evidence that the changes are warranted. There is widespread concern that the definition of independence contained within this bill is ambiguous. The most concerning aspect of this bill is that it blindly conflates and confuses trustee governance with shareholder governance, rather than contrasting the two. Under the trustee government model the board of directors have a fiduciary duty to their trustee members, the customers who are buying into the fund. Under a shareholder governance model, the board of directors have a fiduciary duty to their shareholder owners only. This bill will impose a model of shareholder governance on boards currently operating under a trustee governance model.

Hearings have revealed supporters of this bill demonstrating a troubling pattern of cherry-picking favourable data, attempting to present unrelated data, and failing to present quantitative evidence to support many of their assertions. An alarming majority of submissions expressed concerns at the ambiguous and prescriptive definition of independence contained in the bill, including some submissions expressing in-principle support.

This bill fundamentally attacks at the heart of what is the trustee model of governance, a model of governance that is based around and built around putting the interests of the fund members first. It does so without any compelling case or any compelling need. That is why this is a bill that should not be supported. I note that this bill was dumped into the House of Representatives by outgoing Assistant Treasurer Josh Frydenberg two days after the leadership spill that ended Tony Abbott's prime ministership. The bill demonstrates an ideological commitment to replace a model of trustee governance with one of shareholder governance. In Minister Frydenberg's second reading speech to the House he makes several factual errors, including some that are contradicted in the explanatory memorandum. The most egregious claim is his assertion that the bill will bring Australian superannuation funds in line with international best practice. He said:

This bill amends the Superannuation Industry (Supervision) Act 1993 to introduce a higher standard of governance for superannuation funds, in line with domestic and international best practice.

But he is contradicted by his own explanatory memorandum. Paragraphs 2.48 to 2.50 of the explanatory memorandum clarify that pension funds in New Zealand, Canada, the US and the UK operate quite differently, usually under an equal representation model. In his speech, Minister Frydenberg explicitly restates his commitment to a model of shareholder governance:

The changes fulfil the government's election commitment to align governance in superannuation more closely with the corporate governance principles applicable to ASX listed companies.

But the changes proposed in the bill go far beyond a simple alignment with the ASX principles, which offer a voluntary framework for boards to consider. This bill will impose highly prescriptive changes, coupled only with an ambiguous definition of 'independence'. This was confirmed during the hearings of the Senate Economics Legislation committee in testimony provided by Vicki Wilkinson of Treasury, who clarified that 'it is broader than the ASX definition'.

Mr Frydenberg goes on to wrongly claim that the bill is consistent with the Cooper review recommendations, stating:

The changes this bill makes are consistent with the Cooper review recommendations and observations.

But the changes proposed in this bill are not consistent with the Cooper review recommendations, which propose, in dense detail, that non-equal representative trusts—that is, retail and bank-owned funds—should have a majority of non-associated trustee directors and that, for funds with an equal representative trustee structure:

… no less than one-third of the total number of member representative trustee-directors must be non-associated and no less than one-third of employer representative trustee-directors must be non-associated.

Despite the unfortunate circumstances surrounding the introduction of this bill and the wrong claims by the then minister, Mr Frydenberg—and I want to acknowledge some of the work done through the committee process in this space—the Senate Economics Legislation Committee held a series of hearings, with fairly short notice. Noting the strict time period that was given, I want to note the government senators who provided us with the opportunity to have two full days of hearings to allow us to explore a lot of the concerns that we had. I think it is fair to say that the processes that were undertaken and the debate we were able to have via the committee allowed us to better inform our positions on this matter. I think realistically that perhaps all of us went to this debate with some fairly strong views already, and I note that, while those views themselves have perhaps not changed, the process that was used to allow a further debate and a further discussion was constructive.

I also want to note and acknowledge that the government had flagged that this legislation was coming for a while. There has been a public debate out there. There has been an opportunity for different views and different discussions to take place. That is a demonstration of this chamber working well. That is a demonstration of this Senate at its best. That being said, I do no believe that this is a good bill. I do not believe that this is a bill that should be supported. And fundamentally I believe that this is a bill that really conflates two different models of government.

As I have noted, both Minister Frydenberg's second reading speech and the Treasury's explanatory memorandum conflate and confuse shareholder governance with trustee governance rather than contrasting the two. But there has to be a recognition that a one-size-fits-all model, the model that is used by the larger banking organisations, is not necessarily the right model for everybody. And the success of industry super funds that have consistently performed well has been built in part—not entirely; there are other factors at play—by a successful governance model. This bill goes to the heart of destroying that governance model. And, again, what amazes me is that this is a solution in search of a problem. If there was a problem, if the boards that had a trustee governance model were performing badly, if the boards on the super funds that had these models were giving lower returns, then there could be an argument for reform. We are reforming the one part of the super industry that is performing the best, and I think the danger here is that by tempering with a successful model—for what I believe are solely ideological purposes—we actually risk destroying it.

I also want to note this whole issue of what the word 'independent' means, and the definition of independence, because there has been a major concern about what the definition of the word 'independence' is going to be as part of this. Again, 'independence' is one of these motherhood words; it sounds fantastic. We talk about how there should be more independence, and at a principle level it is a truism in many cases: the idea of independence is something that most people are favourably predisposed towards. But we also have to ask, 'What do you mean when you say independent or independence?' A majority of submissions expressed concern at the ambiguous and prescriptive definition of 'independence' contained in the bill, including many submissions from people who may not share my concerns about the conflating of the two different models, even those who support the government's reforms—again, not reforms that I support. But even those who did support them highlighted their concerns regarding independence.

So, the definition of independence has been raised, and I just want to give you a couple of examples of different groups and different organisations that raised their concerns in their submissions to the inquiry. The Governance Institute of Australia says that you can set out the principle of independence but not prescribe a definition. Mercer consulting said that it would prefer a principles based definition. The Australian Institute of Company Directors said that the definition 'could be broader'. The Australian Industry Group has said that the definition is overly restrictive. And, in its submission to the inquiry, the Association of Superannuation Funds of Australia, ASFA, offered a considered critique of the definition of independence, which for them is a critical component of the bill, saying:

ASFA recommends that the definition of ‘independent’ in the legislation be amended to enable organisations to retain the ability to have common independent directors on the boards of RSEs under the same financial conglomerate group, rather than having to rely on APRA to make a determination on a case-by-case basis.

We believe that, on balance, this is an appropriate exclusion given that there are no limitations proposed in the revised draft legislation on an individual holding office as director on multiple unrelated RSE licensees.

In our view, allowing directors to sit on multiple unrelated RSE licensees where the RSEs are in competition with each other but not sit on multiple related RSE licensees within the same financial conglomerate group as an independent director would be a poor policy outcome.

ASFA continues to critique the government's definition of independence, noting that it should exclude otherwise entirely well-qualified directors from consideration:

ASFA recommends that the definition of 'independent' in the legislation be amended so that recent executive officers and directors of firms that are suppliers to the RSE licensee, but who themselves have had no previous dealings with the RSE licensee, should be allowed to be appointed as an independent director.

Again, what we have here is an overly prescriptive, unclear definition of what the word 'independent' is going to mean.

This is a bad bill. This is a bill that goes to the heart of one of the most successful governance models that we have for Australians. This is a bill that is driven more by ideology than by policy. It is a bill that is searching for a problem that does not exist. It is a bill that fundamentally will attack the model we have successfully used for the savings of many, many Australians. And it demonstrates that this is a government that will always place its ideology and its agenda ahead of what is in the interests of Australian consumers and in this case in the interests of the members of superannuation funds.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to 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.

Sean Edwards (SA, Liberal Party) Share this | Link to 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)

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I indicate that I do support the second reading of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015, but I still have significant reservations about a number of the clauses in this bill, and I reserve my position in respect of the third reading. I have just had a very useful and short private discussion with the Minister for Finance, Senator Cormann—I hope he does not mind me saying that. Because this has been brought on, perhaps, unexpectedly—and I suppose in this place you need to expect the unexpected—there are some issues that need to be dealt with substantively in terms of proposed amendments and concerns that I and, no doubt, others, including a number of my crossbench colleagues, have in respect of this bill.

The Assistant Treasurer, Kelly O'Dwyer, has been incredibly helpful and consultative in respect of this. I was due to meet her last night but because of other commitments I could not. I am due to see the minister again today at midday—high noon. I understand the government may be putting a number of proposals forward. I am not sure what they may be, but I think it is important that my crossbench colleagues and I, including the Australian Greens and, of course, the opposition need to have an opportunity to see whether the government have any different proposals or any changes in terms of what they are proposing, as they are entitled to do.

To put it in context, I would urge the minister to not go into the committee stage of this bill. It would be too premature. Amendments are being drafted. We are doing our level best to deal with this matter. If the government is of a mind to do that, as I hope they will—and I think the minister has indicated that they will be doing so—that is welcome. This is a big deal. We are talking about trillions of dollars worth of Australians' retirement incomes in superannuation funds. I think it is in the order of about $2 trillion. It will be trillions more in years to come. As the superannuation guarantee increases, it will be more and more and exponentially increase. That is a good thing.

A great legacy of Paul Keating, even though he called us in here the 'unrepresentative swill'—I am not sure what that hand gesture is, Acting Deputy President Sterle—he did do the right thing in terms of superannuation, in terms of Australians having a solid source of retirement income so that they can have a comfortable retirement. We are still short of that goal, particularly for those who have been in super for 10 or 15 years. If you do not have the benefit of a defined benefit scheme, for instance, you are behind the eight ball, if you have only been contributing to your super scheme in the last 15 or 20 years and you are on the cusp of retirement. I welcome this debate. I welcome this bill in terms of superannuation governance because it raises a whole range of issues that I think do need to be looked at and some do need to be reformed.

I want to touch on four specific issues. I know that Senator Edwards, on behalf of the coalition, gave a good summary of the coalition's point of view and I commend him for that. If I could outline areas of interest. The key issue for the government appears to be having one-third independent directors. That is something that I have been sympathetic to in the past. A number of arguments have been put to me expressing concerns about that, whether that gives the best outcome for members of superannuation funds. And it relates to issues of transparency as well.

I think it is desirable that there be an independent chair of a superannuation fund, independent of the employers, independent of the employees through their union. I think that is absolutely critical. I do not think there should be any argument in respect of having an independent chair as, for instance, a number of unions have, such as the SDA. I saw Mr de Bruyn, a legend in the SDA, recently where he said that the SDA does have an independent chair and it has been a good governance arrangement in respect of that.

On the issue of having one-third independent directors, there have been previous reports and independent reviews carried out where there has been a suggestion that there ought to be at least half independent directors. The government has come up with what it considers to be a compromise position of one-third independent, one-third employer representatives and one-third employee representatives. The question that has been raised, and I think it is a legitimate one, is how you define a person who is independent. In the context of directors of a superannuation fund, that is fraught with some difficulty in the current drafting and is something that needs to be explored in the committee stage.

What I will be suggesting for consideration by the Senate, and I will have a draft in writing and in a form that can be considered by the Senate, is to have a requirement for a superannuation fund to set out why it has not reached a target of one-third independent directors, to explain to its members why it has not done so and the reasons for that; not to mandate it—perhaps that may be a bridge too far. But, of course, I am open to discussions with the government in respect of this. Going down that path may be, perhaps, a halfway house, but it puts it firmly on the agenda and it may lead to more superannuation funds reaching that target of one-third, one-third, one-third.

In the same way—and this is an issue that I am not giving up on—on the issue of gender equity I think it is desirable to mirror a bill that I introduced with a number of my colleagues to ensure that, if a board does not have 40 per cent women and 40 per cent men, it needs to provide a report. It is not a quota and is not mandating it; it is to set out very quickly why they have not reached that target. I think with the SDA, for instance—and this is not a criticism of them—their board representation is way, way below 40 per cent women, and I think that a majority of their members would in fact be women. So I think that being part of that cultural shift to have that gender equity and to have more women on boards—or more men on boards, for that matter, if it is a union where for some reason 70 or 80 per cent of that board are women—is a reasonable goal, but again it is not mandated. I raise now, in a preliminary way, that a similar approach to the one in respect of independent directors may be an alternative approach to this. It is not the desired approach of the government, and I understand that, but I think it ought to be looked at.

There is another issue that I wish to raise that I am very passionate about, and that relates to the issue of having an annual general meeting type arrangement. I say 'type arrangement' because it would not be an annual general meeting strictly in accordance with the requirements of corporations law, where resolutions can be passed and where the requirements of the corporations law for a shareholders general meeting would apply, but it would be an annual general meeting in this sense: members of a superannuation fund can attend a meeting where the chairman and the board of directors will be present at least once a year, and members will be able to put reasonable questions to that board as to how their fund is performing and ask them to justify their decisions.

For instance, Mr Acting Deputy President, you are aware that I hold a few hundred dollars worth of shares in Qantas, so I can go along to Qantas annual general meetings on behalf of my many constituents who are Qantas employees and who want me to ask questions on their behalf about the performance of Qantas. My shares are now probably worth in the order of $1,000. I can ask the chairman, the CEO and the directors of Qantas as many questions as I reasonably can about how they perform. If I have $100,000 or $200,000 or half a million dollars in a superannuation fund, I do not have that right, even though my retirement savings and the income upon which I can live from those savings are at stake. I do not have that right, and I think you should.

It is an issue that I have raised publicly. I have raised it with the former minister, Mr Frydenberg, and with the current minister, Ms O'Dwyer. I think it is an important transparency measure. If you are a member of a retail or industry super fund, you ought to be able to go along to what is styled as an annual general meeting and ask questions, and the board should be able to answer those questions as to what the fund is doing, why they have made the investment decisions they have, why they have such and such a composition of directors, their governance, and all those sorts of issues. It might make some boards uncomfortable, but so be it. We are talking about the retirement savings and the retirement incomes of millions of Australians.

What I am proposing is that as long as there is an electronic notice given—in other words, the compliance and administrative burden is minimal—and there is a prominent notice on the website of the superannuation fund advising of the meeting, I am sure that it will be adequately disseminated. That is an amendment that is currently being drafted so that it can be circulated for consideration by the Senate, and I hope that it is not looked at through a partisan prism. I think that it is something that needs to be dealt with in a way that I think will improve transparency and governance of superannuation funds. I would welcome bipartisan and crossbench support for that.

The issue of related party transactions is something that industry super funds have raised with me, and retail funds may have their own issues with transparency, which I am happy to listen to. There is an issue as to the transparency of related party transactions. It is something that should apply to all super funds—retail and industry super funds—that they must set out details of related party transactions to ensure that the transaction was at arm's length and was on commercial terms. I do not think that retail or industry super funds would have any difficulty in complying with that if they are doing the right thing—if the transactions are defensible and genuinely at arm's length. Related party transactions must be done on a commercial basis so that no favours are seen to have been done. I think that is important for transparency.

Again, these are matters that are being drafted. I understand the opposition may be considering an amendment along those lines in any event. This is a big deal. It is important. I think the government and the previous government have looked at the issue of superannuation governance. I believe there is scope for improvement. I understand what the key battlegrounds will be, but I would like to think that at the end of this process, by the time we get to the third reading stage of this bill, we will have a package of measures that will advance transparency, in a way that is not seen to be counterproductive in terms of some of the other measures proposed, and that we will at the very least ensure that anyone who is a member of a superannuation fund will have the right to attend an annual general meeting and ask the questions that need to be asked, particularly if that person has their lifetime of savings in that superannuation fund.

So they are the issues. I propose to go into much more detail should this matter go into the committee stage, as I hope it will. I think it ought to go into the committee stage. The second reading of this bill ought to be passed, because I think the government deserves to have these significant amendments debated and appropriately considered in the committee stage of this bill.

Ricky Muir (Victoria, Australian Motoring Enthusiast Party) Share this | Link to this | Hansard source

I rise to make a contribution to the debate on the government's Superannuation Legislation Amendment (Trustee Governance) Bill 2015. The bill makes various changes to the Superannuation Industry (Supervision) Act 1993, or SI(S) Act, with the main changes being a new requirement that all new superannuation funds regulated by APRA have at least one-third independent directors and appoint an independent chair. The issue of whether there should be a mandated number of independent directors is not a new one. I am not going to go over all the history. I think most people who are interested in this debate know enough about it.

It is no surprise that this change is being pursued by the government. One of the key reasons behind the change dates back to 2010, when the ALP-initiated Cooper review was published. At page 54 of the Cooper report, it stated:

Equal representation was an important aspect of the governance structure established by the SIS Act in 1993.

…   …   …

However, the Panel has come to the view that changes in the industry over time and certain implementation practices mean that equal representation no longer seems to achieve its original stated objective.

…   …   …

Equal representation leaves significant groups 'unrepresented.' Key among these are members who are pensioners (and potentially other post-retirement members in the future) and members who have joined the fund because they exercised fund choice. These groups of members, already sizeable in some funds, can be expected to grow in the future.

In responding to this and other recommendations, the then ALP government considered:

… beyond the existing regulatory framework, the composition of a trustee board is a matter for the board to determine, but will refer to APRA the need for guidance on managing conflicts of interest.

It also considered:

… the current arrangements requiring equal representation remain appropriate in ensuring members are able to participate in the management and protection of their retirement savings.

Well, five years later and here we are. I have a feeling that, if this issue is not resolved now, we will be back here looking at it again in 2020.

In assessing this policy change, I asked myself this simple but important question: is there sufficient justification for imposing a mandatory number of independent directors on all super funds? I knew that, if I answered yes to this question, I could then look at whether the legislation gave effect to this and also examine any unintended consequences that may arise. There were some solid arguments, but in the end I answered yes to that question. One of the main reasons as to why I arrived at this position was a meeting that I had with the Association of Superannuation Funds of Australia, or ASFA.

ASFA appealed to me because their membership includes corporate, public sector, industry and retail super funds that represent of 90 per cent of the 14 million Australians with superannuation. They seemed to approach this issue with the hope of finding a compromise position while still giving effect to the main policy change that the government wants, much like what I and my colleagues on the crossbench do from time to time. ASFA support the government's policy change, which will see at least one-third independent directors on super boards as well as an independent chair. Importantly, ASFA stated:

This support should not be seen as a criticism of current governance structures, but instead recognises changing community expectations, increased complexity and risk in running superannuation businesses, and significantly higher regulatory standards and liability.

The superannuation system has changed and will continue to evolve into the future. Many super funds are public offer, meaning that anybody in any industry can join. As a result, we are seeing super funds which traditionally only had members who were from specific occupations broaden their member base.

Many industry super funds decided to become publicly available to the whole community over a decade ago. This is the basis for widespread advertising by industry funds such as Hostplus and AustralianSuper which sponsor football teams and other sporting codes. Currently there are 161 public offer funds and 125 non-public-offer funds. Most importantly, the public offer funds account for 89 per cent of the members and 78 per cent of the funds under management. All public offer super funds have elected to be publicly available to consumers from all types of employment. As a result, all public offer funds have both a legal and a fiduciary responsibility to all their members, regardless of their field of employment. Do these funds require special board arrangements to suit particular sectors when they are obliged to serve the interest of all consumers, not just a subset of their membership, or should the requirement of a mandated number of independent directors apply only to public offer funds?

Arriving at the position of agreeing that there should be a mandated number of independent directors is, however, only one hurdle. There are two other issues that I have had to carefully consider, and these two issues have been the main obstacle as to whether I can support this bill. These are the removal of the representative governance model from legislation and some of the consequences that will occur as a result of the definition of 'independent'.

Removing the representative governance model has attracted a lot of criticism. When this bill was considered by the Senate Economics Legislation Committee, the Department of the Treasury told the committee that, although the equal representation model had been appropriate in 1993, when superannuation was made compulsory, it had lost its utility. The Treasury noted the Cooper review, which found that industry change had lessened the need for equal representation. The Treasury submitted that the equal representation model was now detrimental to governance:

The current equal representation model in the Superannuation Industry (Supervision) Act 1993 (SIS Act) hinders the natural refreshing of boards because of the restrictions on the number of independent directors that can be appointed to some registrable superannuation entity (RSE) licensee boards.

In contrast, Mr Alan Kirkland, the Chief Executive Officer of CHOICE, told the committee that, although they supported the introduction of independent directors, the changes set out by the bill were significant. He told the committee that the bill takes quite a big step in repealing part 9 of the act and, in doing so, removing the definition of a 'member representative' and 'employer representative' as well as the basic equal representation rule, which seems like a very big change in the context of the overall aim of this bill.

Representatives of the ACTU told the committee that the equal representation model was successful in fostering consensus in board decisions. Further, the ACTU told the committee that change was not needed while the system was successful. Further, ASFA submitted that its members expressed strong concerns regarding the repeal of the equal representation provisions and recommended that those provisions remain in the legislation.

I note that Senator Bushby, while questioning representatives from the Australian Institute of Superannuation Trustees, stated that if the bill was passed it would still be open for a fund:

… to decide to maintain … equal representation with the two-thirds that are not required to be independent directors or to do something different if that board in particular thinks that it is in the interests of members to do so. Certainly if the board decides it wants to maintain that equal representation , it can. On that basis, it abolishes a legislative requirement for it but it does not abolish equal representation.

Mr Garcia from the AIST said in response:

The presumption there is that it will be maintained in the trust deed. From what we understand, our members will maintain it if this government legislation goes through.

This was a big concern to me, which is why I am considering moving an amendment which will keep the representative model in legislation. I am currently consulting with and will continue to consult with relevant stakeholders on this amendment prior to circulating it. I think there needs to be some serious debate on this amendment and other issues relating to this bill, and I will support the second reading in order to see this bill moved into the committee stage. I have not indicated my final position on this bill to the government, but I am hopeful that we can negotiate a way forward—and it seems to be a common theme in the chamber.

In relation to the definition of 'independent', some submitters raised concern about the proposed definition of 'independent' for the purpose of meeting the requirements of the bill. For example, the Governance Institute of Australia suggested that legislation should 'set out the principle of independence but not prescribe a definition'. ASFA recommended that two changes be made to the definition. In their submission to the economics legislation committee, they stated:

ASFA recommends that the definition of ‘independent’ in the legislation be amended to enable organisations to retain the ability to have common independent directors on the boards of RSEs under the same financial conglomerate group, rather than having to rely on APRA to make a determination on a case-by-case basis.

We believe that, on balance, this is an appropriate exclusion given that there are no limitations proposed in the revised draft legislation on an individual holding office as director on multiple unrelated RSE licensees.

In our view, allowing directors to sit on multiple unrelated RSE licensees where the RSEs are in competition with each other but not sit on multiple related RSE licensees within the same financial conglomerate group as an independent director would be a poor policy outcome.

ASFA also recommended that the definition of independent in the legislation be amended:

… so that recent executive officers and directors of firms that are suppliers to the RSE licensee, but who themselves have had no previous dealings with the RSE licensee, should be allowed to be appointed as an independent director.

For example, a former tax partner (within the last three years) of a firm that currently provides audit services to the fund, but who has never themself had any dealings with the fund, should not be precluded from being appointed as an independent director.

ASFA considers that such situations can be adequately addressed as part of the RSE licensee’s conflicts management policy and procedures.

I think these recommendations improve the definition of 'independent', and I will support amendments that give effect to them.

Before I finish, I want to touch on some of the masses of emails that my office received. The emails included a line that said, 'Please vote to stop the government handing over our super to the big banks.' My response to this is that it is simply not true. Industry funds are corporate trustees where the relevant union and employer organisation own half the shares in the trust each. For example, the shareholders in AustralianSuper are the ACTU and the Australian Industry Group. The unions and employer groups will retain control over which independent directors should be appointed to the board. If the unions and employer organisations wish to appoint independent directors with backgrounds other than in finance, such as consumer representatives, they are entitled to do so.

Time and time again I see these campaigns that are full of misinformation. By all means, I want people to have their say and to let me know how they think I should vote, but I would prefer if their say is based on the facts and not blind ideology. If I wanted to make decisions based on ideology, I would not be on the crossbench.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

One of the tragedies of being in this place for nearly 20 years is the fact that my involvement in the superannuation sector takes me back to 1992, when I was a superannuation officer for the transport workers superannuation fund. I have been at the coalface and I have actually competed with so-called 'independent' funds, so I have dealt with ASFA both as an employee and for six or seven years when I was shadow financial services minister. I know ASFA well and I know the superannuation group sitting in the lobby well. The problem with ASFA is it no longer represents anything other than bank funds. There is been such a consolidation of superannuation funds around this country that ASFA is essentially nothing more than a mouthpiece for banks and their superannuation funds.

Let me take you back to 1998. The then head of the National Farmers' Federation wrote a full page in what was then a magazine called The Bulletin, an influential magazine, and it talked about the rising power of industry funds. They always call them 'union funds' to be pejorative. It said, 'We will be looking forward to checking the returns of the Electoral Commission to see how much money these union superannuation funds are going to give to the federal ALP in their election campaign, because they are just the puppets.' This was an article written by a bloke called Andrew Robb, then the head of the National Farmers' Federation. If you want to talk about ideology, those opposite—who now propose to caringly reform the most successful innovation of the Hawke-Keating government period, spreading superannuation to every Australian—voted against, every single time, every single increase that has been mandated for ordinary workers. Those opposite have voted against every single one, and every single time the banks have cried poor because the industry funds outperform them and have lower costs.

I was a superannuation officer. My job was to walk around at 5 o'clock in the morning at truck yards, stand on the dock and explain to them why they should be in a super fund. Do you know how much the average three per cent was back in 1992? It was about $10 a week. I had to convince people not only that this was a worthwhile thing for them to be in but also that they should put more into their superannuation because it was good for them. So I stood there at the coalface. Do you know what the bank funds used to do? Do you know what the other funds used to be doing? They were offering deals to employers to try to get the employer to sign up to one of their funds and they could give them a better deal for the employer. A lot of responsible employers around this country rejected these sorts of approaches and have participated magnificently while they have been on the 50 per cent representation, while they have been on these boards. And they have done a great job.

Let me be clear. They are not actually a stakeholder; this is the members' money. They are not elected by the members; they are the bosses of the members who have worked and recognised the importance of giving financial security to their members, to their employees, over many, many years. This is a structure that has stood the test of time, but it is a structure that terrifies the life out of the big banks because the big banks have, for years, paid commissions. Senator Muir, you have sat through some horrific stories about the behaviour of some of the banks and some of the financial advisers. I did not get paid a cent as a trailing commission. I got paid an annual salary. I got not one cent if I was successful in convincing someone to join the fund. Not one cent. I stood there and had to talk to people and convince them that it was about their future, about their kids' security in the future, and I did not get a cent for it. I am proud of that. But ASFA represents the trailing commission group, the bank group. Banks are being dragged slowly—because of all the exposure that you yourself have done, Senator Muir, and others have done in this chamber, in exposing the rorts and the trailing commissions. But it is still deeply embedded in their culture.

I have gone to meetings, as shadow minister, of the Financial Planning Association, and I have stood there and said, 'It is time to professionalise your sector. It is time to start moving away from commissions.' I have been shouted at, screamed at and howled down. The first question I was asked, when I finished my speech and a person strolled up to me, was, 'Now you've demonstrated you know nothing about the financial services industry, I want to ask you the following.' That was the first question I got back in the late nineties and early 2000s when I looked after this portfolio area. We had a superannuation committee that was the longest-running statutory committee of this parliament. Nick Sherry was in charge of it and we were on it for many years together.

Then you want to count Jeremy Cooper. Let me give you a very succinct view of Jeremy Cooper: he is the village idiot. I do not think I have met a dumber human being that has ever been appointed to the ASIC board. He is arrogant and uninformed. I take zero notice of his recommendations, and the previous government took almost no notice of his recommendations, for good reason. His logic was flawed, his arguments were weak. For those who would point to Jeremy Cooper as an icon in this area: he has no experience whatsoever in superannuation. He was an accountant.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

You appointed him.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

I am saying that we took no notice of plenty of what he said.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

But you appointed him—

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

No, I didn't appoint him.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Your government did.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

He was appointed to do a review and he came up with recommendations that were worthless—something I predicted.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

You were part of the government that did it.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

This was under the Rudd government, mate. This was done under the Rudd government. Cabinet had little to do with it. Let me be clear: the individual involved has no experience in the superannuation sector. None. Absolutely none. This is the banks trying to do two things. They want to weaken the board structures to put on more of their mates, under the guise of independence. Let me tell you why it so irks me, Senator Muir. Let me really tell you, because you, under this system, could almost certainly never qualify to be a director of a superannuation fund, no matter how well you had performed as a director. I object that truck drivers are being told that they are not good enough to be on the board of the super fund that has so successfully managed their superannuation fund. I have got friends who are directors and who are former truck drivers, and you want to throw them off because the big end of town do not like the fact that truck drivers want to represent their members' interests. This is an amendment that will throw truck drivers, timber workers and metal workers off boards. People who have been elected by their unions as representatives are going to be tossed off their boards. I am all for professionalising the industry. I am all for the training. I have supported, and we have advocated for, training for those representatives of the fund that I am still a member of and have funds in, and I trust the board of my fund. But I really object to the big end of town and their mouthpieces over on the other side, and people like Jeremy Cooper—who is nothing but a mouthpiece for the other side of the chamber—saying that a truck driver is not good enough to be on the board of a superannuation fund. Those truck drivers have done a bloody good job in representing the members' interests. They have delivered a cheaper fund, better investment decisions, no trailing commissions, and they have absolutely represented their members. They have absolutely represented their members' interests, including mine. I have still got money in my fund, and I am proud to say I have got money in my fund, because they do a bloody good job. I cannot believe that someone with your pedigree, your background and your genuine care in this area would fall for an argument that says that a truck driver or a timber worker is not good enough to serve on these boards—because that is what your amendment does. They will not tell you that, but that is what it does. You are going to say, 'You and you, you're not on the fund anymore.' That is truck drivers, timber workers, metalworkers. Do you know who is going to replace them? It will be a bunch of suits who do not have the culture, who do not have the understanding, who do not have the care for the members of these funds. They are not there to represent the absolute interests. They come from the end of town that supports trailing commissions. You will be putting people who have always traditionally supported trailing commissions onto an industry fund.

I accept the banks, thankfully, because of the great work that you and others in this chamber have done in exposing the shonks and the actual, real impact. Hundreds of thousands of dollars are lost to members because of trailing commissions and all the other deals and the lifestyle of the bank funds. Hundreds of thousands of dollars that should be in timber workers' pockets and in truck drivers' pockets is lost because of the structures that you now want to introduce to begin this process.

This chamber has rejected this over 20 years because the argument has not been made that there is something going wrong. If the definition of something going wrong is that I have got a better performance than bank funds, that I have a cheaper cost base than bank funds, let it all go wrong, because what I am proudest of is my time when I worked as a superannuation officer for the truck drivers fund. I am proudest of defending that structure for the last 20 years in this chamber.

This is not the first time I have stood on this issue. I apologise, as I say: I am sounding like a really old senator. But those who are owned by and are mouthpieces for the banks in this country, who sit on that side of the chamber, are not genuinely interested in the interests of timber workers and transport workers. They are not. They actually want to deliver to their mates at the big end of town. Do not forget what this bill actually started as: it was to take the default fund out so members of a site could actually negotiate with their employer and say, 'We’re in the TWU superannuation fund,' or 'We're in the Cbus fund,' or 'We're in this fund.' They want to take away the right for them to do that. As far as I know, you have all sensibly, hopefully, continued to say, 'There is not a chance in the world. We are not opening it up for the big end of town to start offering inducements,' and, believe me, they are very clever at how they do it.

So I am hoping that one is off the table. But this one is about saying truck drivers and timber workers are not good enough to be on this fund. They have not done the job, and we are going to get rid of them so that a few suits from the big end of town can start to wheedle their way in here. They do not understand the culture. They are not interested in the culture. They will be the mates of the big end of town.

It is really important that the structure of the super funds continue to maximise the benefits for the members. If there are people sitting outside this chamber who are telling you, Senator Muir, that it is okay to vote for this, they are not representing the unions—

David Bushby (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Through the chair.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

Absolutely! Thank you for your admonishment, Senator Bushby, I accept it. If there are people sitting outside these walls right now, Senator Muir, who told you, 'No, it's okay. This is okay,' they are not representing the workers in this super fund. They are not representing the Transport Workers' Union members when they whisper in your ear it is okay to vote for this. They are not representing them, because I can tell you that transport workers are bloody happy with the returns and the performance of their fund and the cost base of their fund. They were very happy that I was not getting a trailing commission when I convinced them to put more money in—which, back then, was pretty hard, I can tell you. Five o'clock in the morning in a garbage truck depot is not a great time to convince people to put another 10 bucks into the super fund, let me promise you that.

I was not immensely successful, but my financial remuneration did not depend on it. So I did not have to fib to them. I did not have to con them. But if you start voting truck drivers off boards, then I say that I cannot believe you would do that, Senator Muir. With your background, your genuine concern in this area, your understanding of ordinary working people in this country, I cannot believe you would fall for the spivs from the big end of town—just like they told you they would be kidnapped, and we have seen through that. I congratulate you and I acknowledge that. You saw through that, and this is another one. This is nothing more than putting some suits on and taking some representatives of working people off these funds—truck drivers, metalworkers, timber workers. These are people you know, people you spend every day of your life with and people I know you care about.

You are saying they are not good enough to be on these boards. I absolutely find that offensive. I am used to them. I get them. I cannot believe you would fall for it. I genuinely cannot believe, Senator Muir, you will move an amendment to vote transport workers, truck drivers, airport workers and timber workers off these boards simply to appease the big end of town. I repeat what I said at the beginning of this contribution: ASFA do not represent the truck drivers in the fund that I am a member of. They absolutely do not. They once represented an incredible mix of funds, but if you look at who ASFA's members are now it is the big end of town calling the shots. I have dealt with them for 20 years—I love them—from when Sue Ryan, a former Labor minister, was in charge of ASFA right through 20 years of this history.

So I ask you to think carefully. I know you do genuinely listen to the debate in the chamber. I know you do genuinely listen to the concerns that are raised with you. But, genuinely and seriously, you are going to vote working people off the boards if you put this amendment up that you are talking about doing. I hope we get a chance to continue the conversation. You have said you want to. I appreciate that. But, please, I ask you: understand what it is really about. The Liberal Party and the business community and the banks, particularly, hate industry funds because they challenge the business models of those institutions. They are challenging them successfully. They are challenging them with better products, with cheaper prices and better returns for their members. So they will do anything; they will make up any argument. I am surprised not to hear that there are going to be kidnappings of superannuation fund officials if this does not happen! That will be the next thing they will try, Senator Muir, but I know you will not fall for that one.

I hope this bill gets defeated on the second reading, because it should be sent off to where it belongs—back into the bottom drawer of the big end of town and the banks, who want nothing more than to begin the destruction of industry funds. Do not fall for ASFA's line. I know ASFA intimately. They are now controlled by the big end of town and the big banks, who are the big funds in ASFA. They provide all the funds, they drive all the policy and you should not draw solely on them as your inspiration. I am not saying you are, but I am saying you should not draw on them. You equally should not necessarily draw on some of the people who are pretending they are out there representing the funds. You should be talking with actual elected representatives of the people whose money is in the funds. When you elect your union leadership, you then knowingly elect the directors of your fund. They are elected by their members to be on these funds. That is how the system works. I have sitting with me a former member of his superannuation fund, Senator Bullock. He was elected as a union official and, through that, onto the fund board. The members elect them, and you want to take away that right.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

That's not true.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

You do. You are saying there has to be a reduction in the number of representatives on the board. I know you want to increase it so you can have 10 mates on the board who all then get paid more fees. They will love it. It is a big trick. The next argument will be that they have got to rationalise the number of people on the board. I have been through this for 25 years or longer, as an employee of a union. I have watched how these funds operate. They are not absolutely perfect and at times they have needed more training. If you were to say, 'We've got to make sure that they've done all the professional training standards, make sure they do the courses,' I would support that. The truck drivers who are on the board of the TWUSUPER fund would absolutely support that. They have always got a thirst for more information and more knowledge, but it is not like they have been making the wrong decisions. If it is about making sure that they have the best representation possible, go for it, and this chamber, I am sure, will support you on it. But, if it is simply about making sure that some truck drivers and some timber workers are kicked off, then I am going to stand up and say no, and I am going to say it with a heartfelt appreciation for the people who are on those boards who are doing a great job for their members today. I hope that we get a chance—well, I hope we do not, because I hope the second reading goes down— (Time expired)

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I thank all senators who have contributed to this debate on the second reading of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015. Let me just address some of the issues that have been raised during the debate, in particular some of the issues that have just been raised by Senator Conroy. The first point that I would make is that this bill will deliver very important improvements to corporate governance when it comes to superannuation funds. With the greatest of respect to my good friend and valued colleague and member of Her Majesty's most loyal opposition Senator Conroy, the world of superannuation has changed since 1992. That was actually a key finding, a key observation, of Jeremy Cooper in the Cooper review, which I note that, in Senator Conroy's contribution today, he sought to disown but which was commissioned by the previous Labor government. The previous Labor government asked Jeremy Cooper to inquire into the superannuation system at the time and to make recommendations on how it could be improved. His finding—not the coalition's finding, not the Liberal Party's finding, not the National Party's finding but the finding, the very considered conclusion, of the Cooper review—was that the equal representation model originally enshrined in the SI(S) Act, where employer representatives and union representatives make up in equal numbers the boards of various industry funds, is no longer contemporary.

There are a range of reasons why it is no longer contemporary. Firstly, this is big business now. The superannuation system generally, including industry funds, is looking after a very big pool of capital. It is looking after the retirement savings of a lot of Australians, and we have got to make sure that the corporate governance arrangements are such that the interests of those members are appropriately and adequately protected and looked after. The other big change is that the composition of the membership, including the composition of the membership of industry funds, is very different to what it was in 1992. Some people have made the point that these funds—and it is fine—advertise for additional members. A growing number of their membership are not related to the industries that originally made up those industry funds. So to say that somehow employer reps and union reps elected by members employed in an industry that is connected to a particular industry fund are best equipped to look after the interests of everyone, including those members that are not actually connected to that industry, is just false.

Senator Muir, I have to very directly address a very inaccurate and dishonest point, if I may say so, that Senator Conroy made—that this is somehow about kicking truck drivers and timber workers off industry super fund boards. That is just completely false. There is absolutely nothing preventing an industry fund from having a truck driver or a timber worker on its board in the future, assuming that he or she has the appropriate qualifications and the appropriate capacity to contribute. I am sure that there are many timber workers and truck drivers who would be able to make a good contribution, and there is nothing in this bill that would prevent that from being the case in the future. So I completely dismiss that.

What we are trying to do in this bill is to say that at least one-third of the directors on the boards should bring an independent perspective. This is just part of modern high-quality, best-practice corporate governance. This is to ensure that there are appropriate tensions within the board to ensure that the interests of all members in that fund are appropriately taken into account.

There are actually a number of industry funds that do not find this prospect that scary. I was the shadow minister in opposition for financial services and superannuation and I remember very well a dinner that I had with the board of Hostplus—an industry fund. Senator Muir, you would be interested to know that, on its board, Hostplus—they have got an independent share for starters—has one third independent directors, a third employers and a third union representatives.

Let me say to you: it works very well for them. It is a very good fund, and they have done a very good job under that sort of corporate governance structure. It is all about moving with the times. It is all about making sure that the governance structure, which sits over the top—

Kim Carr (Victoria, Australian Labor Party, Shadow Minister Assisting the Leader for Science) Share this | Link to this | Hansard source

The banks have always had the position they have now.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

of looking after the growing volume of retirement savings of people across Australia is of an appropriately high-quality standard.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

The banks have gouged millions.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Listening to the Labor Party yell and scream here—this is clearly something that goes right to the core for you, because you are here doing the bidding of a vested interest. We are here to pursue good public policy. We are about making sure that the corporate governance arrangements in superannuation are more closely aligned with corporate governance arrangements when it comes to publicly listed companies. That is not something that we came up with on our own; this is something that was recommended by your review—the review that was commissioned by the Rudd Labor government, in which Senator Conroy, when I last looked, was deputy leader. He was the Deputy Leader of the Government in the Senate of the government that commissioned this review.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

And we rejected it!

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

He now tells us that, as deputy leader in the then government, he had no influence in the decisions that were made by that government. That is what he was effectively trying to say—

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

That's right.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

He is still trying—he is saying that this is one of the things that the Rudd Labor government got wrong.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

That is why I refused to serve a second time.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Let me just say that one of the few things that the Rudd Labor government got right was to commission the Cooper review into superannuation. After superannuation in the more modern form with compulsory superannuation and so on had been in place, it was quite appropriate for there to be a strategic and comprehensive review into how the system was operating and how the system could be improved. One of the central recommendations that the Cooper review made was to ensure that there was appropriate provision of independent directors—at least a third independent directors on relevant super funds boards.

We took this policy to the last election. We said that we would ensure that this policy would be implemented and, as a result of this bill, super fund boards will be required to have at least one-third independent directors and an independent share. The changes will not apply to self-managed superannuation funds—obviously, people in those are looking after their own affairs.

The changes in this bill will align governance and superannuation more closely with the corporate governance principles applicable to ASX-listed companies. This will increase the proportion of independent directors of superannuation funds and ensure that directors with the best experience and expertise are represented on superannuation boards, enhancing decision making and producing better outcomes for members who are minimising the costs to the superannuation industry. Not only did the Cooper review come to the conclusion that this was necessary; the Financial System Inquiry also concluded after consulting widely that superannuation fund members would benefit from greater independent representation on fund boards.

These changes represent international best practice. As a result of the changes, superannuation fund members will benefit from international best practice governance with independent board members in line with the governance arrangements applicable to other financial institutions regulated by the Australian Prudential Regulation Authority. This is appropriate as superannuation fund members' contributions are frequently compulsory in nature and less accessible than the funds held on behalf of depositors and policy holders in banks and insurers.

This bill will apply to all APRA-regulated superannuation funds. With these funds, member balances involve compulsory payments, access only upon retirement and management of the funds by someone other than the member. These considerations do not vary, if the fund is a corporate industry, public sector or retail fund. Bringing governance arrangements into line with international best practice, requiring independent directors on all boards, best ensures that decisions are made in members' best interests and not in the best interests of others.

I can see that there is some furious last-minute lobbying going on at the back of the chamber of Senator Muir. I have to say: I found Senator Muir's speech in relation to this very compelling. The government has put, obviously, a set of proposals on the table with this bill. I am proposing, at the conclusion of this second reading debate, to put this bill to a vote for the second reading and then adjourn before we go onto the committee stages. There will be the opportunity for further conversations with all interested parties on how this bill can be further improved, and let's get back to it next week perhaps.

I completely reject the notion that this is somehow a terrible sneak attack on unions or employer representatives and the role that they have historically played in industry funds. This is driven by improving corporate governance standards. This is driven by a desire to ensure that the corporate governance arrangements in superannuation across the industry move into the 21st century, and that the increasing diversity of people who are members of superannuation funds have the confidence that the corporate governance arrangements maximise the focus on their best interests in making sure their retirement savings are safe and that investment returns are maximised.

Senator Muir, a very good speech—I found your arguments very compelling; they certainly align with the way the government is looking at this particular public policy issue. The arguments that Senator Conroy made were either false, like the proposition that truck drivers and timber workers would not be able to serve on these boards—that is just wrong.

The suggestion that we should rely on Senator Conroy's experiences in 1992 as a superannuation officer in order to make a judgement in 2015 on the merits of this bill just proves everything we need to know about this. Senator Conroy is still stuck in 1992. We actually have a responsibility to look after the interests of people across Australia in 2015, and we need to make sure that the corporate governance arrangements help ensure that happens.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

You are gouging them on credit cards, gouging them on home loans and gouging them on super funds.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

The yelling and screaming! I did not interrupt Senator Conroy once. The yelling and screaming is another piece of evidence of everything that you need to know about Senator Conroy's approach to this legislation. We are interested in a reasoned debate. We are open to conversations with interested parties in the Senate over this next week on how perhaps through relevant amendments this legislation can be further improved. But we do really hope that the Senate will give this bill a second reading today so that we can do some more work over the next week and perhaps come back in the committee stages of the bill with some further amendments later in this sitting fortnight. With those few words, I commend the bill to the Senate.

I table an addendum to the explanatory memorandum relating to the Superannuation Legislation Amendment (Trustee Governance) Bill 2015.

Stephen Parry (President) Share this | Link to this | Hansard source

The question is that this bill be now read a second time.