Katy Gallagher (ACT, Australian Labor Party) Share this | Link to this | Hansard source

Thank you for the opportunity to speak this afternoon on the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 and the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017.

Let no-one be in any doubt about these bills we are starting to debate today. Despite the titles, these bills are not really about improving member outcomes in Australia's superannuation system. These bills are definitely not about addressing some of the very real issues facing our superannuation system that this parliament should be dealing with now. These bills do absolutely nothing, for example, to address arguments about adequacy. These bills do nothing for the one-in-three Australian workers who are not being paid their correct superannuation entitlements. There aren't any measures in these bills that go to addressing the gross inequity for Australian women, who are, on average, retiring with half as much superannuation as their male counterparts. There is no recognition by this government in these bills that work patterns in the 21st century are rapidly transforming, with increasing casualisation and growth in sole traders and contractors. There is nothing in these bills that ensure the retirement needs of members are being looked after in the retirement phase.

Instead, as has become usual practice for this government, irrespective of who the Prime Minister is, these bills are about achieving other ends while trying to masquerade as doing something. Labor will not be a part of that. These bills are another attack on the profit-to-member superannuation funds, plain and simple. This government can't stand the fact that unions, representing their members, many years ago now started to build a pool of workers' capital to ensure that ordinary working people had access to savings once their working lives had finished. Now that pool of workers' capital in industry funds totals around $500 billion. Prior to compulsory universal super, only the wealthy, the public servants, politicians and some selected industries, had the opportunity to be members of a super fund. This government is anti-union, plain and simple. These bills are just an extension of that ideology and should be called out as such.

Labor is proud to have worked with the union movement to create Australia's world-leading system of universal and compulsory superannuation. Labor has always been at the front of debates which ensure that Australian workers are able to maintain a comfortable living in retirement. It was the Labor Party and the union movement that prioritised the need to improve incomes for all workers in their retirement years. And it was the Labor Party and the union movement that recognised how inequitable access to established superannuation schemes were prior to universal superannuation. This inequitable access excluded the vast majority of Australian working people and, most particularly, low-income workers and women workers. We are proud of our connection to Australia's superannuation system, and we're proud of it across the political arm and the industrial arm. We're very proud of the involvement of the union movement's fierce advocacy for working people during their working lives and for the attention they have paid to workers in their retirement.

Let's contrast that record with the Liberal-National Party's record on super. Labor looks at every single Liberal superannuation bill very carefully, because we know their record on super. When a Labor government first introduced universal compulsory superannuation, the Liberal-Nationals voted against it. When Labor proposed and subsequently legislated increases in the rate of superannuation guarantee from its initial rate of three per cent, the Liberals voted against it. When Labor introduced the low-income superannuation contribution scheme, so that low-income earners would not pay tax on their superannuation guarantee contributions, the Liberals tried to abolish it. When scheduled increases to the superannuation guarantee rate were due to reach 12 per cent by 2019-20, the Liberals delayed them. When Labor put in place penalties for employers who don't pay their employees the right amount of super, the Liberals tried to weaken them. When Labor put in place ways to compare superannuation products across the industry, the Liberals delayed them. When people made decisions about their savings and their money and their super, the Liberals tried to make retrospective changes. And, finally, when the government woke up to the housing affordability crisis, instead of doing anything about it they decided that using super like a bank account would be a great idea, achieving nothing in terms of housing affordability but running counter to their own objective of super legislation, which, I might add, languishes on the Notice Paper because the government don't know what the objective of super actually is.

One thing is clear: the Liberals don't care about super. They never have and they never will. They've never believed in it. The position they took when compulsory superannuation was created was to oppose it. It is clear that the Liberals don't like unions and they don't want to have unions connected to superannuation. So it is with some scepticism about the Liberals' true motives that Labor approaches the debate on these bills. At the outset, I spoke about the pressing issues facing Australia's superannuation system. They are big issues with no simple solutions, but surely the government of the day has a responsibility to begin to address them. They are issues like adequacy and unpaid super. One in three workers are not being paid the superannuation they are legally entitled to—that is a third of all workers, many of them low paid and many of them women. What does this bill do to address that? How do we ensure that women and low-paid workers get a better deal from super? How do we keep super relevant in our changing labour market to ensure that people who do contract, casual and part-time work don't get left behind? On issues like longevity planning, how does super align with the age pension, with the healthcare system and with aged-care policies to ensure that they all work together in the interests of older Australians?

None of this seems to interest the minister or this government. It appears from the bills before us that all they want to focus on is the micromanagement of superannuation boards, attacking the union movement's connections to super and looking like you're doing something when you're not really doing anything at all. It's clear it's going to take the election of a Labor government to ensure that the big picture for super—that of the original architects, who saw the potential of building up a pool of workers' capital, not only for the individual good but for the country's good as well—is returned to.

The trustees arrangement bill before us today is this government's next attempt to introduce requirements for independent directors on superannuation boards, but it doesn't stop there. It completely abolishes the equal representation model of superannuation fund governance. The equal representation of employer and employee representatives on super boards has been central to the success of the industry fund model. It's a unique situation which brought together employers and employees from the beginning, from the outset, to work in employees' and members' interests, and it has been very, very successful. A balance between employers and employees, working at the highest level in the interests of members and workers, has helped create $500 billion in funds. These arrangements have worked well and have ensured members of these funds have seen their retirement savings grow faster than those in other sectors. The government has not made the case that there is a problem with these arrangements. It certainly hasn't provided any evidence that what it is proposing will actually lead to better outcomes for members. In fact, the evidence is irrefutable. It shows that the funds that operate with an employer and employee representative board—in the profit-to-member funds that the government is attacking through these bills—actually have significantly higher returns for their members.

Over the last 10 years, APRA's analysis shows that the profit-to-members funds have outperformed bank-owned super funds on average by more than two per cent. Over the last five years, they have outperformed bank-owned super funds by nearly 2.5 per cent, and, over the last year, by 3.3 per cent. Now, these may sound like just numbers, but when you're looking at your own retirement savings—perhaps not this year or not next, but as you get older and you look—this will make the difference of tens of thousands of dollars to what you end up retiring with. This is what the government is seeking to undermine through this bill. It's ignoring the reality that the profit-to-member funds are delivering superior returns, compounded year on year, that ultimately mean building the retirement savings of everyday Australian workers.

If there is no compelling reason for this change, and, in fact, if the evidence is compelling to the contrary, why does the government insist on doing this and insist on bringing this back when it has previously been rejected by this chamber? The minister let the cat out of the bag in November last year when she said in a speech that the government needed to:

… lift superannuation funds to at least the same standard as other financial services organisations like banks and life insurance companies.

Well, there you have it: to make the governance of superannuation funds the same as the banks—what an extraordinary objective! It goes to the core of this government and its belief in big business above all else.

Labor does not believe that the super funds should be required to have the same corporate governance model as the banks. Let's have a quick look at what that model has delivered for Australian consumers. We've seen, in recent years and, indeed, in debates in this chamber, scandal after scandal in the banking and financial sector. We've seen people being ripped off and losing their lifetime savings. We've seen unethical practices, irresponsible and dodgy lending, poor advice, unfair contracts, misconduct and cover-ups. We've heard allegations of money laundering and breaches of counterterrorism financing laws. Today, I noticed in media reports that ASIC is investigating the big four banks' tardiness in moving people from high-fee-paying super accounts into MySuper products. They were only given five years to get there! Now ASIC actually has to look at why it has taken the retail sector—the funds owned by the big banks—the length of time that it has to move people out of the high-fee funds, which they've been losing their money in, and perhaps into choice products, rather than into the low-fee MySuper funds. That is in the media reports today.

The member outcomes bill raises significant concerns for the opposition. The bill includes eight schedules, and will:

… require trustees to assess on an annual basis whether the outcomes that are being delivered by MySuper products are promoting the financial interests of MySuper members; allow the Australian Prudential Regulation Authority (APRA) to refuse, or cancel, an authority to offer a MySuper product if it has a reason to believe the registrable superannuation entity (RSE) licensee may fail to comply with its obligations; impose civil and criminal penalties on directors of RSE licensees who fail to execute their responsibilities to act in the best interests of members,

…   …   …

… enable APRA to refuse authority for a change in ownership or control where it has concerns about the person seeking ownership or control, give a direction to a person to relinquish control of a RSE licensee and remove or suspend an RSE licensee where it is subject to the control of its owner; align APRA’s directions powers in relation to the superannuation industry with its broader directions powers in the banking and insurance industries;

…      …   …

… require superannuation funds to disclose on a semi-annual basis investments that they hold directly or through associated entities and initial investments into non-associated entities; …

They will also:

… require RSE licensees to hold annual members’ meetings; …

And:

… provide APRA with the ability to obtain information on expenses incurred by RSE and RSE licensees in managing or operating the RSE; …

Labor supports greater protection for members' retirement savings and increased transparency for all funds. But the government has missed the mark with this bill. Firstly, Labor believes that priority in the proposed outcome assessment needs to be given to net returns to members. The bill should also include a requirement that trustees must promote the financial interests of members, with priority given to the net returns to members. Secondly, and perhaps most concerning, the changes do not apply to all superannuation products, so not all members will be covered. In particular, the changes to schedule 1 and 2 will not apply to choice superannuation products. According to Industry Super Australia analysis, the vast majority—83 per cent—are bank-owned. Other retail super assets are held outside MySuper and will be excluded from the requirements of this bill.

Labor believes that all superannuation products should be covered in this bill, not just some. While the government has advised that APRA will implement similar requirements to choice superannuation products through new prudential requirements, Labor believes that this issue should be legislated to put beyond doubt the arrangements that will apply and that these should apply across the board. Thirdly, schedule 2 of the bill strengthens APRA's power of approval in relation to RSE licensees offering MySuper products. Labor believes that these powers should be strengthened in relation to RSE licensees offering choice superannuation products.

Labor is concerned that the bill does not provide APRA with the powers to oversight bank-owned superannuation funds. The proposed extension to APRA's direction power in schedule 5 only applies to subsidiary companies owned by a superannuation fund but not to a parent or related corporate of the superannuation fund. This means that they won't extend to bank-owned super funds because banks are often the parent to the RSE licensee, not a subsidiary of a RSE licensee. Labor believes that APRA's additional powers should apply equally across the sector.

Finally, Labor believes that the changes to portfolio holdings disclosure in schedule 6 will water down the existing requirements for superannuation funds and could result in portfolio holdings not being disclosed for choice products which contain multiple investment options, which are the majority, of course, of choice superannuation products. Overall, the measures in this bill are inadequate as they simply do not provide those greater protections for people with choice superannuation products and will not put in place nor enforce adequate oversight and disclosure arrangements for bank-owned super funds.

As I have indicated through this speech, Labor will be opposing the Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017 for the reasons I have outlined. We will not be party to the government's continued political attacks on the union movement that this bill, at its core, represents. We are proud of the connection that the union movement and the Labor Party have to Australia's compulsory superannuation system. Every time and at every stage, the government has opposed the extension of the superannuation system to ordinary working people. That was at the beginning, and its position on this has not changed.

This bill seeks to remove the connection with the industrial movement and weaken the connection of the industrial movement to Labor's compulsory superannuation system. They were there at the beginning. They have been a core part of the success of the profit-to-member funds. There is no doubt that profit-to-member funds have made significant improvements on returns for their members when compared to other products. Just because this government doesn't like unions and has a particular ideological belief, it should not mean that this chamber does not support one of the key strengths of the success of Australia's compulsory and universal superannuation system.

It is time that we stopped these attacks on the industry model and instead focused on the things that are really going to matter to Australia's superannuation system in the years ahead. These are going to be things like adequacy, things like relevance as the labour market changes and things like what we are going to do about low-income workers and their super savings. What are we going to do about women and the fact they are still retiring with half the savings of men? These are the big issues. What are we going to do as people live longer? The health system ensures that we are living longer, but the adequacy of our retirement savings isn't keeping pace. What are we going to do about that?

Not to worry about any of that; let's just make sure you have an annual members' meeting, probably broadcast on a webinar once a year, to make sure that you look like you're doing something when you're not doing anything at all, other than undermining one of the central and successful planks of Australia's world-class leading super system. Labor's not going to be part of it. That's why we'll be opposing these bills today.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Order! It being 12.45, we shall now proceed to senators' statements.