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Thursday, 4 December 2003
Page: 23948


Ms KING (11:50 AM) —I rise to speak on the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002, which will affect the retirement future of Australia's 8.8 million fund members. This bill seeks to provide employees with greater choice in the selection of employer sponsored superannuation. On the surface, it seems a sensible thing to propose. There are arguments to say that it could create greater competition in the super industry and lead to improved returns and that having people take greater control of their retirement future means that they will have more ownership over the decisions that they make. But equally the arguments against the bill are just as strong.

You only have to look at the United Kingdom to discover what happened when deregulation of their superannuation market took place without safeguards to protect superannuation savings. Even the most free market culture in the world, the United States, is not talking about this sort of deregulation. In some cases in the UK fees doubled and additional costs were also incurred by those seeking financial advice. The bill will potentially see an increase in advertising for the various products, with these costs being passed on to consumers. The Australian Consumers Association has stated, `Without adequate regulation, fees and charges would keep rising with superannuation in the same way that deregulation of banks has led to increases in bank charges.'

Without the safeguards proposed by the opposition, many more Australians will find that their superannuation savings rapidly diminish. With deregulation many Australian employees will consider making changes to their fund or their investment. But how are they going to make an informed choice? The government claims that employees will be protected by improved disclosure and an education program. The Australian Taxation Office will spend some $28 million over four years on establishing choice and deregulation. But no-one will be surprised to discover that half the money budgeted will go to the ATO for administrative costs. Only the remaining $14 million will be used to educate the 8.8 million fund members on super choice. That is $1.60 per member and, frankly, it is not enough to ensure that sufficient information is provided to make an informed and appropriate decision—a decision that could have a serious impact on your retirement future.

In principle, the concept of choice is fine when the choices are clearly set out and well understood. However, this legislation fails because it is choice without the necessary safeguards. Choice without the necessary safeguards does not serve the interests of either the consumer or the superannuation industry. Superannuation is a complex financial product. It is not like buying a CD, a house or a car. I have serious concerns that the level of financial literacy required to make the sorts of choices the government is proposing is not widespread amongst the Australian community. When you ask most people about superannuation many do not understand the scheme that they are in, they do not understand how it works or how their deductions work and they do not understand what is going to be needed to build enough retirement income in order for them to have a secure retirement future.

Encouraging consumers to increase their financial literacy is a good thing but you cannot just throw open the industry in the way proposed in this bill without safeguards, because if you do that you will just leave people to sink or swim. That is why Labor has introduced a `safe choice' system—choice that will give consumers the ability to decide where to put their superannuation moneys but within a framework that allows real choice accompanied by appropriate safety. Foremost amongst these issues is that of adequate disclosure, particularly on the effect of fees, charges and commissions on superannuation accumulations. Consumers cannot be expected to make real choices if they do not understand what they are choosing.

The government, of course, argues that the new disclosure regime, which was introduced as part of the FSR process, will resolve this problem. It frankly will not. Information and knowledge are two very separate concepts. The provision of information alone does not guarantee that consumers will have financial knowledge. Apart from the fact that disclosure alone will not be enough to ensure that consumers fully understand the choices they are making, recent research on the ASIC disclosure model has shown that there are major problems with this model and that even with recommended changes the model is inadequate.

As I have already mentioned, experience overseas has shown that increased competition in the retirement savings industry has not led to cost savings. In fact, costs have increased. But will charges increase? Shouldn't increased competition mean reduced costs? One needs only to look at the banking industry for an idea of what might happen. Costs have increased, in line with the increased marketing and advertising that super funds potentially will have to undertake to attract investors. These increased costs will naturally have to be passed on to investors. Amendments proposed by the opposition will see fees, charges and commissions capped, thereby protecting savings. Without a cap or some control over fees, charges and commissions, retirement savings will dramatically be reduced. The government may consider a small annual fee increase of, say, two per cent as insignificant. This two per cent increase will reduce the final retirement accumulation by 40 per cent. Labor cannot let that happen.

But not only can administrative fees be increased; entry, exit and switching fees may also be affected by this bill. I can easily imagine a scenario where a fund may have unrealistically low entry fees to attract investors and then costly exit fees to ensure that investors remain. Telstra's mobile phone contracts are a real example of such control. Another positive amendment proposed by Labor is to ensure that entry, exit and switching fees are kept fair. This will be achieved by prohibiting fees beyond reasonable administration costs. This will help maintain the nest egg that so many Australians will be depending on in their retirement years.

It is not just the employee that will be affected by the bill as proposed by the government. We all remember the difficulties faced by many small businesses in collecting the GST for this government. We all remember the problems that small businesses had in completing the BAS return. We all remember the additional cost burden placed on small businesses getting their accountants to help them through this complex task. We also remember the time it took mums and dads to complete this form—time away from their families and from their businesses. This burden cannot be allowed to be replicated through complex and onerous procedures being imposed on small business people. Concern has already been expressed by a number of employer organisations. The Motor Traders Association, the National Farmers Federation, the Australian Industry Group and the Queensland Retail Traders and Shopkeepers Association have all expressed concerns over the possibility of increased red tape and increased administrative obligations.

Australian small businesses are still smarting over the increased workload and costs flowing from the tax collection role inherited through the GST. Australian small businesses do not want to go through this again with superannuation fund choice. But what will happen should a small business not be able to meet the increased compliance costs or negotiate their way through complex forms and procedures? They will face the possibility of significant penalties and potential legal action. Labor has proposed that the bill be amended to exempt small business from the choice regime, an amendment supported by the Council of Small Business Organisations of Australia.

Liberal members have been spruiking the right of choice in super funds, but they will not provide that same right of choice of domestic partner for superannuation purposes. Now that we are living in the 21st century, isn't it time that we all grew up and acknowledged that there are people living in committed and stable same-sex relationships? These relationships may be a little different from the Leave it to Beaver family of the 1950s or the Brady Bunch of the 1970s, but it does not make them any less significant or meaningful for the people involved. This bill as proposed by the government discriminates against same-sex couples by not allowing them to enjoy the same equity as others. We believe that same-sex couples should have that equity. They also have the right to feel secure and confident that their partner will have rights should one predecease the other. Again, Labor has proposed that the bill be amended to provide equity for those in same-sex relationships.

Our proposed changes will ensure that retirement savings are protected for the future and not eaten up by fees and charges. Our proposed changes will ensure that employees can make well-informed decisions on where to place their savings and in what investments. Our proposed changes will ensure that small business operators are not burdened with complex and onerous procedures. And our proposed changes will ensure that all Australians are treated equally with regard to their superannuation choices, regardless of their sexuality or domestic arrangements.

Labor does not support a bill that will introduce unsafe choice. The second reading amendment to the bill moved by the shadow minister, the member for Kingston, strengthens the bill and should be adopted. The bill is an unsafe choice because: there is no provision for clear, simple and comparable disclosure so that consumers can understand the total impact of fees and charges; excessive entry and exit fees, which act as barriers to choice, are not banned, nor is there provision for the regulation of any fees, charges and, in particular, commissions on investing the compulsory nine per cent superannuation guarantee contributions, which can significantly erode superannuation savings; there is no exemption for small business, further burdening it with red tape and paperwork and the consequential financial costs; it causes complications for those superannuation funds which provide low-cost life insurance for members, with the consequence that many funds will cease to provide a life insurance option; there is no provision for a comprehensive and effective consumer education program; there is no provision to include same-sex couples in the choice regime, further perpetuating the existing discrimination against same-sex couples in relation to superannuation rights; and there is no prohibition on financial service providers offering inducements to employers to direct superannuation to a particular fund, where the fund selected may not be the one that best represents the employees' interests. The changes proposed by Labor to the Superannuation Legislation Amendment (Choice of Superannuation Funds) Bill 2002 will ensure that this bill meets the needs of the 8.8 million fund members. I commend the second reading amendment to the House.