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Thursday, 16 February 2012
Page: 1574


Mr SHORTEN (Maribyrnong—Minister for Financial Services and Superannuation and Minister for Employment and Workplace Relations) (09:13): I move:

That this bill be now read a second time.

When most people go on an extended holiday they will find someone they trust to look after their home, a person they have confidence in to do all the things that might be necessary to protect their home while they are away.

For most Australians, superannuation will be their second greatest source of wealth after their home but usually we will not know the people we have entrusted to look after this important asset.

As participants in a compulsory superannuation system, Australians are entitled to be confident that the governance across the superannuation industry is of a high standard and that their superannuation is being managed efficiently, prudently and in their best interests.

However, the Cooper review, which was initiated by this Labor government, found that superannuation governance standards had not kept up with developments in the industry. It suggested there were difficulties for trustees and directors on trustee boards to understand what was expected of them. Further it found that, as the industry consolidated and became more integrated, conflicts of interest could arise more regularly. The Cooper Review also found that there was a need for:

… a more finely calibrated capacity for APRA to supervise and regulate the superannuation industry …

Consequently, a critically important part of the government's Stronger Super package is reforming the governance and supervision of our superannuation system.

This is the objective of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012.

A key element of the bill is to close a regulatory gap, by providing APRA with the ability to make prudential standards. APRA already has this in banking and insurance.

As Ross Jones of APRA put it recently:

That is something we have been after for a long time—10 years—to try to ensure that the quality of supervision in superannuation is what you get in other industries.

Prudential standards will allow APRA to develop, in consultation with the industry, targeted rules that improve the management of these institutions.

Prudential standards will provide APRA with greater flexibility to effectively adapt to industry developments in superannuation and the ability to provide regulated entities with clearer and more tailored legal requirements.

Prudential standards will be able to be made on any prudential matter that includes:

protecting the interests of members;

ensuring that the conduct of an RSE licensee or connected entity meets the reasonable expectation of members;

keeping an RSE licensee or connected entity in a sound financial position;

ensuring the conduct of an RSE licensee does not cause or promote instability;

the appointment of auditors and actuaries; and

the conduct of audits and actuarial investigations.

Prudential standards can apply to APRA-regulated superannuation funds, connected entities of those funds, a specified class of fund or connected entity or any individual fund or connected entity.

Prudential standards are disallowable legislative instruments. Therefore, APRA must comply with the Legislative Instruments Act 2003 in making any prudential standard, including conducting appropriate consultation with the industry.

There will also be new duties applying to trustees and individual directors.

New duties for trustees include:

exercising the same degree of care, skill and diligence as a prudent superannuation trustee;

acting fairly in dealing with classes of beneficiaries and beneficiaries within a class; and

where a conflict exists, giving priority to the duties to, and interests of, beneficiaries over other persons.

Trustees will have expanded requirements in relation to their investment strategies. In developing an investment strategy the trustee must have regard to valuation information, expected tax consequences and expected costs in their investment strategies, and offer a range of options sufficient to allow members to choose a diversified asset mix.

Trustees will have a new requirement to develop an insurance strategy for members of their fund. This reflects that insurance provided by a trustee has a direct impact on the retirement benefits of members. Trustees will have to consider the kinds and level of insurance that is appropriate for their members having regard to the cost of that insurance and whether that cost may inappropriately erode retirement incomes of members.

Trustees will also have to develop a risk management strategy and meet a requirement to maintain financial resources, either as trustee capital or as fund reserves, to cover the operational risks of the funds they manage.

Duties applying to individual directors of corporate trustees of superannuation funds will be separately identified. These duties include:

acting honestly;

exercising the degree of care, skill and diligence that a prudent superannuation entity director would;

performing their duties and powers in the best interests of beneficiaries;

where a conflict exists, giving priority to the duties to, and interests of, beneficiaries over other persons;

not entering into a contract that would prevent the director or corporate trustee from properly performing their functions and powers; and

exercising a reasonable degree of care and diligence for the purposes of ensuring that the corporate trustee carries out its duties.

These new requirements for trustees and directors will improve trustee decisions, fund efficiency and effectiveness, and thereby help grow member superannuation entitlements.

However, a trustee's responsibility will be no greater than the responsibility they owe to those members who accept the default MySuper product.

Therefore, trustees that are authorised by APRA to offer a MySuper product will also have additional obligations. This reflects that these members have effectively delegated all decisions for their superannuation to the trustee.

There will be a primary obligation to promote the financial interests of members of the MySuper product, in particular returns after the deduction of fees, costs and taxes.

A primary focus on the returns put into the pockets of members will ensure that members of a MySuper product can have the confidence that they will receive the maximum possible superannuation at retirement.

Supporting this obligation, a determination will have to be made on an annual basis whether a fund has sufficient assets and members for both the MySuper product and superannuation fund as a whole to continue to meet the obligation to promote the financial interests of members of the MySuper product.

Trustees will also have to clearly articulate a target investment return and a level of risk appropriate to the MySuper product. This highlights a trustee's obligation to focus on the returns to members after the deduction of fees, costs and taxes.

I am proud to introduce this bill today as it marks this government's ongoing commitment to improve the superannuation system for all Australians.

This is especially so given the government's historic commitment to increase the superannuation guarantee to 12 per cent, which combined with existing growth is expected to see superannuation assets in Australia reach $6.2 trillion by 2036.

Subsequent tranches of legislation will introduce further Stronger Super reforms that will improve system transparency.

Full details of the amendments are contained in the explanatory memorandum.

I commend the bill to the House.

Debate adjourned.