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Monday, 29 October 2012
Page: 12205


Mr STEPHEN JONES (Throsby) (12:47): I start by thanking the member for Cowper for both his contribution and his cooperation in this debate. The Stronger Super reforms introduced by this government are about improving the adequacy, the equity and the transparency of Australia's superannuation systems. These reforms underpin one of the most important Labor reforms, the introduction of our system of compulsory superannuation savings. This package of bills before the House today—the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 and the Superannuation Auditor Registration Imposition Bill 2012—is part of the Stronger Super reform process, and these new measures will further strengthen Australia's superannuation framework that has so well served working Australians in their retirement years. The government has, indeed, attempted to extend our early and revolutionary introduction of occupational superannuation during the period of the Hawke and Keating governments by introducing legislation to shift the compulsory contribution from nine to 12 per cent over a staggered period to ensure that future generations of Australians will have a more adequate retirement income.

Australia has high levels of national savings and even higher levels of national investment—that is to say, there is a gap between our level of savings and our level of investment. Compulsory superannuation, quite simply, is an important mechanism for closing that gap. Australian superannuation savings are currently worth around $1.4 trillion and are expected to reach $6 trillion by June 2035. For that reason, it is important that governance of superannuation is effective and is of the highest prudential standard.

I now turn to expand on some of the measures within these bills. The first measure, as set out in schedule 1, will remove income tax impediments to superannuation fund mergers by providing loss relief and asset rollover of both revenue gains or losses and capital gains or losses. The rationale for this amendment flows from the government's Stronger Super reforms, which have, quite simply, put pressure on superannuation funds to improve their competitiveness or reassess their viability in the absence of merging with another entity.

What we know in this area of investment is that, most often, bigger is better. The extinguishment of tax losses can be an impediment to fund mergers as trustees of superannuation funds are required to consider the adverse impacts in relation to tax on members' benefits of any fund merger. So this measure will apply to fund mergers that occurred on or after 1 October 2011 and before 2 July 2017, creating a window and an incentive within that window for funds to consider their size and consider the opportunities of merging with other funds with similar objectives.

Schedule 2 is about establishing auditor registration for self-managed superannuation funds, something that I and the member for Cunningham have a deep interest in because of the high number of constituents within our electorates who have lost significant amounts of money through the self-managed superannuation fund sector. I will have something to say about that.

Schedule 2 of the bill will establish an auditor registration for self-managed superannuation funds. Auditors play a critical role in the SMSF sector and, consequently, it is necessary that SMSF auditors have a high standard of competency. Many in this place know the high personal and financial cost that occurs when not only auditors but also regulators and corporate officers fail in their duty to investors, fail to pick up malfeasance, fail to pick up fraud and fail to pick up something that is within their statutory remit.

Unfortunately, as I said, the member for Cunningham and I know this situation all too well, with a large number of constituents in our electorates suffering enormous loss from the collapse of Trio Capital in 2009. This was a fraud committed on a grand scale, the biggest superannuation fraud in Australia's history. Around $176 million in members' funds were stolen through the fraud, money that belonged to hardworking Australians. Devastatingly, nearly half of these investors had directly invested in Trio through self-managed superannuation funds.

In the aftermath of the Trio disaster, considerable attention has been paid to the role of various regulatory gatekeepers in this fraud. Understandably for the Trio victims, the search for somebody to blame for this fraud is flavoured with strong emotion. If you put yourself in their position you would feel exactly the same. Every devastated investor who I have spoken to about the Trio collapse feels they took appropriate steps and, indeed, did everything successive governments have encouraged them to do—and that was to take control of their financial security in retirement by ensuring that they had a superannuation fund and to do that in a way that ensured that they did not take undue financial risks. Investors felt that they were acting responsibly and that Australia's strong financial system would ensure that they could rely on its regulatory systems. Fraud, by its very nature, is designed to get around those regulatory arrangements. It is designed to conceal and confuse.

KPMG and WHK, the auditors of Trio Capital, have come under considerable scrutiny since each year for six years they signed off on the financial statements of Trio and Astarra as being true and correct—and, quite plainly, this was not the case. These matters have been examined by the report of the Parliamentary Joint Committee on Corporations and Financial Services into the Trio collapse. WHK was the auditor at the time that Trio collapsed and gave evidence to the parliamentary committee that auditors take a risk based approach which is not designed to detect fraud.

This submission confirmed evidence presented to the committee in a submission by KPMG.

In its submission, KPMG outlined what it describes as the expectation gap, which is the difference between the public's expectation of the work of an auditor and what that work may disclose, and the auditor's own understanding of the work that is required to be done and reported upon in fulfilment of their duties. There is no doubt that, with regard to Trio, there is a clear gap between what investors perceived the role of auditors to be and the actual audit work that was done. The parliamentary report identified some key areas for further reform for ASIC to consider, including for more detail to be provided in compliance plans, for membership of compliance committees and related requirements.

It is important to note here that both the role of the Trio auditors and their evidence to the parliamentary committee was not of a high standard. Many issues remain with regard to the Trio collapse and the role of the auditors. Of great concern is that most self-managed superannuation fund investors appear to have had no idea that they were assuming the role of the trustee of their investment and thereby accepting a lower standard of prudential regulation.

Unravelling the Trio disaster and the level of responsibility, accountability and blame for each participant and gatekeeper in the collapse of Trio is a complex task. In the meantime the SMSF auditor registration measures in the bill before the House today will raise the standard of SMSF auditor competency and ensure there is a minimum standard that applies across the entire sector. SMSF auditor registration will ensure that auditors of self-managed superannuation funds have a minimum standard of competency and knowledge of relevant laws and are able to detect and report contraventions by SMSF trustees. ASIC will be the registration body for SMSF auditors and will set competency standards that apply penalties to non-compliant auditors. The ATO will also have powers to monitor auditor compliance and be able to refer non-compliant auditors to ASIC for enforcement action. Reforms to our system of financial regulation are a series of small steps, like this one.

These reforms to the auditing arrangements are very important. A 2009 compliance audit by the Australian Taxation Office discovered that 29 per cent of the auditors of self-managed superannuation funds were the SMSF's accountant and that, in relation to 28 per cent of auditors, there appeared to have been some evidence of a relationship or a conflict of interest that might impact the auditor's ability to be independent, as would be required of an auditor of any corporation or any other fund in this country. For this reason alone and based on the experience that I have had in dealing with the victims of the Trio fraud, I commend this schedule of the bill to the House.

Amendments in schedule 3 of the bill will allow the ATO to display more comprehensive superannuation information to individuals and will facilitate the consolidation of inactive accounts with a low balance. They will also support the increased concessional contributions caps for members over 50 whose interests or accounts are valued at less than $500,000 from 1 July 2014.

I turn to schedule 4. As part of the government's Strong Super package of reforms, a number of measures were announced to improve the efficiency of the superannuation system. These measures included the introduction of mandatory superannuation data and payment regulations and standards for eligible superannuation entities, RSA providers and employers, which were legislated in June 2012. It has been estimated that the Australian superannuation industry processes more than 100 million transactions annually. The potential gains to the system from improved efficiency in contribution management are significant.

This is one of those classic areas where more regulation leads to greater corporate efficiency—because when you are dealing with 100 million transactions annually, if you do not have standard protocols for the transmission, storage and reporting of that critical data, then a hell of a lot of extra work, duplication and inefficiency creeps into the system. In this particular area inefficiency means a cost to an employee or a member of a superannuation fund. So these measures are critically important. They will help to reduce the administration costs for the funds themselves but also, critically, they will help to ensure that we have a more efficient, effective and transparent system of superannuation administration in this country.

With around $1.4 trillion now invested in superannuation there is a strong public policy interest in having a safe, efficient and competitive superannuation sector to maximise the retirement incomes of all Australians. This Labor government, I am very proud to say, has focused on delivering superannuation and pension reforms for the long term. Australia's economy is growing and we have strong fundamentals such as low unemployment, contained inflation, low net debt and a record investment pipeline. It is critical that the superannuation system is designed to work for all members. It must work for those who take an active interest in their superannuation as well as for the majority of superannuation funds members who do not take a day-to-day interest.

As the collapse of Trio Capital amply demonstrates, we as parliamentarians have a duty to ensure that the laws that set out our system of financial regulation are robust, continually refined and keep pace with the increasingly sophisticated means of perpetuating fraud.

I commend this package of important bills to the House.