Mr KELVIN THOMSON (10:38 AM) —I want to speak on one specific aspect of the Taxation Laws Amendment Bill (No. 7) 1997 : that is, schedule 5 of the bill, which deals with choice of superannuation fund. I want to cover the problems that Labor believes are inherent in the government's choice of fund model. I want to outline Labor's proposed alternative choice of fund model, which we believe will offer genuine employee choice while avoiding the risks of the government's deeply flawed model.

With the prior agreement of the member for Holt (Mr Gareth Evans), I want to move an amendment to the member for Holt's second reading amendment asking the government to reconsider its choice of superannuation fund model and adopt the model that we propose. This model is receiving a growing level of support from the superannuation industry. Just a couple of days ago I addressed the conference of major superannuation funds in Brisbane and outlined Labor's model to them. At the close of that conference, one of the members said, `I want all those in this audience who think that Labor has got it right and the government has got it wrong to stand up.' Over 80 per cent of a 500-strong audience stood up and said that the government has got it wrong in relation to choice of fund and, in particular, has got it wrong with its indecent haste to try to introduce this model by 1 July this year.

It is with some pride that I say that Australia's retirement income system, particularly our superannuation system, is highly regarded throughout the world. Many other countries, including the United States and the United Kingdom, consider Australia's three-pillar superannuation model to be world's best practice. Our superannuation system was praised in a 1994 World Bank report and, more recently, there was praise for Australia's retirement income system in a Wall Street Journal article by Daniel Mitchell and Robert O'Quinn, who are members of the United States think tank, the Heritage Foundation, which is not particularly well known for harbouring left-wing opinions. In their article, Mr Mitchell and Mr O'Quinn advised United States government policy makers to look closely at Australia's retirement income system as an example of how to get it right.

Regrettably, since Labor lost office in March 1996, many changes have occurred to retirement incomes and to superannuation which have had a detrimental effect on superannuation. They include the decision to abandon Labor's three plus three per cent co-contribution and pay part of it in the form of a savings rebate which will do nothing to increase savings at either a public or private level. The other part of Labor's co-contribution is of course contained in the government's federation slush fund, which we are sure to hear more about in the coming months as the election draws nearer.

We have seen the introduction of retirement savings accounts—low return products which will result in lower retirement incomes for those who use them. We have seen the introduction of the superannuation surcharge tax, which has been about as successful as the prime ministerial guidelines on ministerial code of conduct. We have seen the inclusion of superannuation assets in the means test for over-55s, which will see many low and middle income earning older Australians having to line up for the age pension after having run down their hard-earned retirement nest eggs.

Yesterday, we commenced debate on removal of superannuation from awards, in direct contradiction of the promise given by the Prime Minister (Mr Howard) that no workers will be worse off under his government. Murray Wyatt of the Australian Society of CPAs was reported as saying in the Sydney Morning Herald recently that these changes, particularly the surcharge tax, have had the effect of undermining public confidence in superannuation. This bill makes the latest change: the requirement for employers to force employees to make a choice of superannuation fund.

I should add that the government has circulated—and I have just received them in the last few minutes—83 amendments that it wants to move on this bill. This is unreasonably short notice to be moving 83 complex amendments without giving the opportunity to the parliament to appropriately consider these things. The Labor opposition will not be able to consider these things at the caucus. The Senate Select Committee on Superannuation, which has looked at the choice of fund model, will not have the opportunity to consider these amendments. The government is proposing to introduce choice of fund on 1 July this year, and yet the superannuation funds and the employers and the employees, who will have to respond to these changes, have not even seen these changes up until now. This is reason enough that this matter should go back to the government. It should revisit the issue from scratch, listening to the people who it ought to be listening to: the superannuation funds, the employers, the employees with superannuation accounts, who, all the evidence suggests, do not require choice of fund.

The requirement for choice of superannuation fund is without doubt one of the most significant changes to superannuation since the introduction of the superannuation guarantee. The House ought to be aware that in other countries which have endeavoured to introduce this kind of model, particularly in the United Kingdom and Chile, there have been unsatisfactory experiences. Those experiences, of workers being beguiled into taking out second-rate or third-rate products and therefore losing their retirement incomes, suggest that any choice of fund proposal needs to be carefully scrutinised before it is introduced.

Labor is supportive of the principle of employee choice of fund provided that any choice model meets certain principles, which are that employees should benefit from choice; that employers should not be disadvantaged by choice; that choice should be consistent with broader retirement incomes policy; and that individuals must be able to make an informed choice, one where a worker thoroughly understands all of the factors and the impact that his or her choice of superannuation fund will have on their retirement income.

Choice of fund ought to be based on true employee choice and not driven by ideology or vested interests. It should not be forced on employers or employees. It should be simple to understand and administer and not place onerous compliance burdens on either employers or employees. Finally, an independent arbitrator should be able to resolve choice of fund disputes between employers and employees.

If the government's model had observed these principles, then choice could be a success in the Australian superannuation system; we could avoid the disasters which have befallen other countries. But the government's choice of fund model does not meet those principles. The government claims that its choice model will benefit consumers through increased competition in the superannuation industry, leading to lower fees and charges, and resulting in better retirement incomes. But the evidence suggests otherwise.

A recent survey of 354 superannuation funds by Sedgwick Noble Lowndes reported that the government's choice of fund model will lead to increased costs for fund members. That survey stated that 87 per cent of funds believe that choice of fund will increase fund administration costs, with the cost increasing by some 10 per cent. Alarmingly, around 10 per cent of the funds surveyed believed that costs could increase by up to 50 per cent. That view was confirmed by witnesses to the recent Senate Select Committee on Superannuation inquiry into choice of superannuation from Towers Perrin, from the Australian Institute of Superannuation Trustees and from the C+Bus industry fund, who all argued that superannuation fund costs would increase dramatically after the introduction of choice, particularly in areas such as marketing, administration and legal costs.

In addition, the government's choice of fund proposal is certain to disadvantage employers through increased administrative costs, which even the government acknowledges in the explanatory memorandum to the bill that introduces its choice model. This comes from the government which has promised small business a 50 per cent reduction in red tape.

There is also a strong likelihood that employers may be legally liable under the government's choice model in a number of ways, despite attempts to legislate away employers' potential liability through clause 32U of this bill. The Senate committee received evidence suggesting that it is impossible to legislate away the common law duty of care which employers owe to their workers. Nor is the government's choice of fund model consistent with broader retirement income policy, and the Senate committee was told by Jock Rankin from the Institute of Actuaries:

. . . if choice is not properly exercised, there will be no net benefit to the individuals trying to accumulate savings for their retirement, and no net benefit to the nation.

Labor is also concerned about the government's intention to implement choice of fund by 1 July 1998 for new employees in the face of overwhelming industry calls to delay that start-up date. Uninformed consumers who are rushed into choosing a fund which is unsuitable for their investment risk/return profile could end up with significantly lower retirement incomes. The government's choice of fund model is supposed to be based on deregulation and open competition, yet it does not offer true employee choice. It forces choice on both employers and employees.

So from 1 July employers will be required to offer new employees choice of fund, regardless of whether the employees want it or not and the employees will be forced to make that choice. That same compulsory choice, with a gun at your head, model will apply to existing employees from 1 July 2000. Mr Peter Kell from the Australian Consumers Association told the Senate committee that, under the government's choice model:

It is effectively the employer's decision over the type of choice offered or whether there will be any choice at all . . . The balance between employer cost and employee choice has shifted too far away from fund members. It is not employee choice of fund.

Mr Kell is absolutely right. It is abundantly clear that the government's choice model is not driven by employee demand, which the evidence suggests is not particularly high. Rather, it is clear that the government is driving choice of fund for ideological reasons, not from any genuine desire to provide employees with a real choice about where their contributions should go.

The government's distaste for industry based superannuation funds is well known and was recently acknowledged in an editorial in the Australian newspaper which discussed the government's desire to press ahead with the 1 July start-up date in the face of industry and indeed employer opposition. On 2 March, the Australian stated:

If the Government remains set on its course, it would provide ammunition for critics who believe the member choice initiatives are motivated more by a desire to water down union-affiliated industry fund involvement in superannuation than by a genuine wish to empower individual savers.

If the government were serious about employee choice of superannuation fund it could have chosen from a range of other choice models, some of which already operate in state jurisdictions, which would have delivered true employee choice. The government's model is complicated. It places onerous compliance burdens on both employees and employers and fails the test of being simple to understand or administer.

It will create enormous confusion for employers who have workers employed under both state and federal industrial arrangements and where employees move from one industrial jurisdiction to another. There is abundant evidence to suggest that many employers, particularly those in small businesses, are blissfully ignorant, unaware, of their choice obligations. If they were aware of their obligations they would probably be in revolt about why this government, which has promised to cut red tape for small business by 50 per cent, is implementing a superannuation policy which mummifies them in packing tape instead.

The government's choice of fund model when combined with the bill we debated yesterday, which will remove superannuation from industrial awards, is going to remove the capacity of an independent arbitrator to resolve industrial disputes between employers and workers about where superannuation fund contributions should go. That will remove an essential and well-established protection for both employers and employees. As I said yesterday, it will take us back to the kinds of disputes we saw in the eighties between, for example, the Storemen and Packers Union and Woolworths over where superannuation money should go without any effective way of resolving those disputes.

What model does Labor believe will meet choice of fund principles? I believe we need a phased two-stage model. The features of such a model would be: stage 1, all superannuation funds with more than 50 fund members be required to offer investment choice options to all fund members; and, stage 2, after an extensive education and consumer protection campaign, implement a genuine employee choice superannuation model where employees can nominate and, if employers agree, have superannuation contributions paid into a fund other than that set out in an industrial agreement.

The key features of stage 1, choice within superannuation funds, would be that funds would be required to offer all fund members a minimum of three choice of investment options but it would not be compulsory for members in a fund to exercise an investment choice if they choose not to do so.

We recommend this as a first step forward for several reasons. First, the option for funds to offer choice of investment already exists. It is set out in subsection 52(4) of the Superannuation Industry (Supervision) Act. Secondly, investment choice within funds is a good way to begin to educate fund members about their retirement income options and control of their superannuation savings. We had evidence to the Senate committee suggesting that members of existing funds do actively exercise a choice if it is accompanied by an adequate education campaign.

Thirdly, investment choice provides real options for choice as opposed to the government's model which could see consumers faced with identical investment options. Steve Gibbs from the Australian Institute of Superannuation Trustees supported this view in evidence. He said:

. . . if choice is going to be introduced, real options ought to be available to people so that they can choose a low risk fund or a high risk fund and there might be one or two in the middle so that at least they can make up their own mind about what it is, rather than having all the choices look alike.

I suggest that there is a real risk under the government's model that that is exactly what is going to happen and we will not see employees being offered fair dinkum choices.

Finally, an added feature of investment choice could be a default investment option based on age/risk profiles. This would ensure that fund members do not find themselves in inappropriate investment profiles which are not suitable to maximising fund members' final retirement income.

The key features of stage 2, genuine employee choice of superannuation fund, would be that, if an industrial award requires an employer to pay superannuation contributions to a specified superannuation fund on behalf of an employee, the employee may nominate to have superannuation contributions paid to a complying superannuation fund. The nomination would be made in writing, signed by the employee. Employers must give the employee a copy of the nomination and written notice of their approval. Employers and employees who negotiate a certified agreement or an Australian workplace agreement would be taken to have exercised choice.

Regulations would be drafted governing standard disclosure provisions applying to key feature statements offered by funds directly to employees, particularly to enable simple comparison of fees, charges and fund earnings—a most important issue. In the event of a dispute, the Industrial Relations Commission would act as the independent arbitrator. Where a workplace is not covered by an industrial award or agreement, the default fund would be that to which the majority of employees at that workplace belong. So, in the event of a new business which is not covered by an industrial award or agreement, the fund specified in the designated award would apply.

This offers genuine choice of fund to employees. It would more accurately reflect the demand for choice of superannuation fund from workers, rather than choice driven by government or by vested interests. It would be simple to administer and avoid the complications of the government's model. It is broadly consistent with the choice of fund models which presently operate in the New South Wales and Queensland state jurisdictions, therefore leading to less confusion and creating greater national consistency between state and federal choice of fund models.

Employers and employees would have the protection of the Australian Industrial Relations Commission in settling disputes. It would limit employer liability compared with what the government is putting forward, it would avoid the default fund problems that the government's model has, and it would also avoid some of the transitional problems with the two models that the government's bill contains.

In addition to our second reading amendment, we want to amend the government's bill at the consideration in detail stage in a number of ways. We want to delay the start date for choice until 1 July 2000 to bring it into line for both new and existing employees. We want to take action in relation to the definition of industry funds, and I will raise a number of other matters when we get to the consideration in detail stage.

In conclusion, I believe that our model will provide genuine employee choice, not the present flawed, forced employer choice model. With the consent and support of the Deputy Leader of the Opposition, I seek leave to move the amendment circulated in my name.

Leave granted.

Mr KELVIN THOMSON —I move:

That the following words be added to the words proposed to be substituted:

(3) put forward proposals for the choice of superannuation funds which are both impractical and inequitable and should be replaced by a model which

(a) allows for the provisions of industrial awards and agreements to be recognised;

(b) provides for more practical choices for employees and employers;

(c) provides greater protection for employees and employers;

(d) allows the Industrial Relations Commission to act as an independent arbitrator; and

(e) is accompanied by a Government-funded education program.

(Time expired)