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Tuesday, 23 April 1985
Page: 1393

Senator BUTTON (Minister for Industry, Technology and Commerce)(6.25) —I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

This Bill is the culmination of a comprehensive process of review by this Government of the operations of the Superannuation Fund Investment Trust which began with the concerns expressed by the Auditor-General in his report on the Trust's financial statements for 1981-82. The Auditor-General's report was tabled in the Parliament on 7 December 1983.

In response the Government established, in January 1984, an inquiry into the management and operations of the Trust which was conducted by Mr J. V. Monaghan. This inquiry addressed both the specific matters raised by the Auditor-General and a range of more general concerns. Mr Monaghan was then a Commissioner of the Public Service Board and is now Auditor-General. Following receipt of Mr Monaghan's report, a working party, which included representatives of the ACTU and relevant industrial organisations, was established to examine and consider a number of matters associated with the conclusions and recommendations of the report. The Monaghan report and the report of the working party have been tabled in the Parliament.

The management of the Superannuation Fund by the Trust and the investment performance of the Fund are important to both the contributors and the Government.

Contributions made by members of the Commonwealth Superannuation Scheme are held in the Fund. It is from the Fund that members' retirement or separation benefits are paid in addition to any Government financed benefit to which they may be entitled.

The Government established and maintains the Scheme in its role as a responsible employer, concerned for the well-being of its employees not only during their working lives but in their years of retirement. The income of the Fund is a very important element of the benefits which contributors receive and the Government would wish to see the maximum possible return accruing to contributors.

I should make it clear that the Government in its role of employer does not make any contributions to the Superannuation Fund but meets employer-financed benefits from moneys appropriated for that purpose. The Fund is made up solely of employee contributions and the income earned from investment.

Since its establishment in 1976 the Trust has under the Superannuation Act 1976 been independent of any external direction of its management and investment decisions. This Bill will not alter that position. The Bill does, however, provide for changes that will:

Clearly define the Trust's objective and duties;

Strengthen its ability to manage and invest the Fund in the most effective and efficient manner;

Enhance its accountability; and

Enable it to operate in competitive financial markets with a degree of freedom and flexibility in investment no less than that afforded the larger private sector superannuation funds.

In the future, the Trust's specific objective will be to manage and invest the Fund so as to maximise the return earned. In doing so, the Trust will be required to have regard to:

The need to make payments out of the Fund;

The need for equity among contributors so that as far as is possible, one generation of contributors is neither advantaged nor disadvantaged in relation to another as a result of investment strategies pursued; and

The need to exercise reasonable care and prudence to maintain the integrity of the Fund.

The majority of the specific duties set down for the Trust are designed to ensure that the Trust operates efficiently and effectively to achieve its objective. Among other things, the Trust will be required to establish investment policies and programs, to establish strategies designed to achieve the investment policies and to develop and maintain appropriate plans and procedures to implement the strategies. It will be required to ensure that it has available the resources necessary to achieve its objective.

In addition, the Trust will be charged with the duty of informing contributors and appropriate industrial organisations representing contributor interests about the management and investment of the Fund. As a major investment institution the Trust comes into possession of and, indeed, generates a good deal of sensitive commercial information. In providing information to contributor organisations the Trust will be required to take into account the need to protect commercially sensitive information.

To strengthen its capacity to manage and invest the Fund in today's intensely competitive business environment the Trust will be increased in size from three to five members. These five members will be:

A full-time principal member who will be nominated by the Minister for Finance for appointment by the Governor-General after consultation with the ACTU;

An additional full-time member nominated by the ACTU after consultation with relevant industrial organisations representing contributor interests; and

Three part-time members, two of whom will be nominated by the ACTU after consultation with relevant industrial organisations and one by the Minister.

If the Minister so decides, the additional full-time member may be appointed as deputy principal member of the Trust with the duty to act as may be necessary for the principal member with all the powers and duties of that office.

This revised structure of the Trust recognises that the Fund is comprised solely of contributor's moneys and that both contributors and the Government have a real and substantial interest in the outcome of the Trust's operations.

The Government considers that the Trust is accountable both to contributors and, as a statutory authority, to the Parliament.

Accountability will be enhanced by several means. Additional representation on the Trust by persons nominated by the ACTU after consultation with relevant industrial organisations representing the interests of contributors to the scheme is one means of emphasising accountability to contributors, as is the duty to inform those organisations and contributors generally about the management and investment of the Fund.

Members of the Trust will also be required to fully divulge any interests they may have, whether of a pecuniary nature or otherwise and whether direct or indirect, to their fellow Trust members. Arrangements will be maintained to ensure that Trust members will not participate in decisions on any matter in which they have a direct or indirect pecuniary interest, unless the Trust as a whole considers participation to be appropriate in all the circumstances. It may not, for example, be inappropriate for a Trust member who has a personal small holding of shares in a large public company to participate in the Trust's consideration of investment in the shares of that company.

While the Government expects that the Trust will endeavour to accommodate both the letter and the spirit of publicly stated Government policies bearing on its functions and operations, it also recognises the Trust has responsibilities to contributors.

Accordingly the Bill provides that the Trust will be required to specifically consider the import of any statement of Government policy relevant to its functions that may be provided to it by the Minister. A copy of any such statement of Government policy will be laid before both Houses of the Parliament within 15 sitting days of it being provided.

No statutory obligation will be imposed on the Trust to comply with policies brought to its attention by the Minister, but the Trust will be expected to include an account of action subsequently taken and appropriate comment in its annual report.

Accountability will be further enhanced by requiring the Trust to furnish to the Minister an interim annual report, together with financial statements, in any circumstance where it is unable to meet its obligation to report to the Parliament within the time specified by the Acts Interpretation Act 1901. The Minister will make such interim reports available to the ACTU and, upon request, to relevant industrial organisations representing contributor interests. This requirement will, of course, not absolve the Trust from continuing to make every attempt to have its annual report available as soon as possible.

To increase the freedom and flexibility of the Trust to compete for attractive investment opportunities with the larger private sector superannuation funds, significant changes will be made to its investment powers.

Investment will be defined in the widest possible terms to include any expenditure designed to obtain a present or future financial return, whether by way of income, profit or otherwise. The Trust will be able to enter into any form of investment, alone or jointly with others, constrained only by the need, expressed in its objective, to exercise reasonable care and to have regard to equity considerations.

In addition the Trust will be empowered:

to use external investment managers to invest and manage some portion of the Fund, if that is considered by the Trust to be an appropriate course in the light of the Trust's own resources;

to underwrite or sub-underwrite investments; and

to control, manage, or to enhance or protect the value of its investments, or to enhance or protect the return from any investment.

In the sphere of Commonwealth Government functions, the charter of the Trust and the nature of its operations differ markedly from most other organisations. In recognition of this fact and that the responsibilities and duties of the Trust require independence of operation free from direction, the Bill enables the Trust to employ the staff necessary to carry out its functions, duties and powers. The Trust will be able to determine the terms and conditions of employment of its staff with the approval of the Minister.

The present staff attached to the Trust are officers of the Department of Finance. They will have the option of accepting offers of employment with the Trust under its independent staffing power or remaining as Department of Finance officers. It is expected that there will be few, if any, of the present staff who decline offers of appointment with the Trust.

Rights to re-enter the Australian Public Service for staff accepting offers of employment by the Trust will apply under the staff mobility provisions of Part IV of the Public Service Act. APS officers accepting employment with the Trust in the future will also be covered by these mobility provisions.

The staff of the Trust not covered by the mobility provisions of the Public Service Act will be able to compete for all advertised vacancies in the APS. If selected for an APS vacancy, a member of the Trust's staff who meets the normal APS requirements for entry will be appointed to the vacant office. Provided that the person has been employed by the Trust for 12 months, there will not be any requirement to serve a probationary period in the APS position.

The Bill contains a number of consequential and other technical amendments in relation to the Trust.

In addition, the Bill confers on the Commissioner for Superannuation, who is charged with administering all elements of the Commonwealth Superannuation Scheme not relating to the management and investment of the Fund, the powers of a secretary of a department under the Public Service Act. The present staff servicing the Commissioner's requirements will be established as a separate branch of the APS. Staff members will remain appointed or employed under the Public Service Act.

Finally, the Bill contains amendments to the cost recovery arrangements under the Superannuation Acts 1922 and 1976. The amendments will enable the Minister for Finance to:

Limit an employer's liability to the cost of the employer-financed share of any benefit that accrued under the Commonwealth Superannuation Scheme to an employee for service with that employer;

Determine that employers who, prior to 1 July 1981, were treated as if exempt from the requirement to meet the cost of superannuation benefits are formally relieved of the pre-1981 liability; and

Require an employer to meet its liability to the Commonwealth on a pay-as-you-go basis as if the Commonwealth Superannuation Scheme were funded, rather than let the liability build up until benefits are eventually paid.

There is no financial impact on government as a consequence of the changes in respect of the Trust. By regulations made under the Superannuation Act, all costs involved in the management and investment of the Fund, including staff costs, are borne by the Fund and this is to continue. The Government expects that removal of restrictions on the investment powers of the Trust will enable greater returns to be generated by the Fund for the benefit of contributors.

There are no implications for additional expenditure or revenue by conferring secretary powers on the Commissioner for Superannuation or establishing the staff required to service the Commissioner's functions as a branch of the APS. The cost of administration of the Superannuation Act, apart from the costs incurred in the management and investment of the Fund by the Trust, is presently met by appropriation to the Department of Finance. The same cost will continue to be met by appropriation, but to the Commissioner for Superannuation in future. There may be some small, unquantifiable saving in the attendant removal of the present minor duplication of administrative effort between the Commissioner's office and the Department of Finance proper.

The employers that under the cost recovery arrangements operating prior to 1 July 1981, were treated as if exempt from any liability would, but for the proposed changes, technically have a legal liability to the Commonwealth for the unpaid amounts. However, in practice, because the employers concerned would require additional funds from the Budget to meet the unpaid contributions, the payments by, and to, the Commonwealth would balance out, leaving the budgetary situation no different from what will be the case under the proposed amendment.

Contributors to the Commonwealth Superannuation Scheme have justifiable expectations that the return earned by the Superannuation Fund on investment of their contributions will be at least comparable to the returns earned by the larger private sector superannuation schemes. They are also entitled to expect that the body charged with investment of their contributions will invest with care and prudence and be fully accountable for its decisions.

The measures introduced by this Bill, which owe much to my predecessor as Minister for Finance, the Honourable J. S. Dawkins, MP, remove any impediment to the Superannuation Fund Investment Trust fulfilling these expectations.

I commend the Bill to the Senate.

Debate (on motion by Senator Reid) adjourned.