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Tuesday, 26 June 2012
Page: 7967


Mr FLETCHER (Bradfield) (13:16): I am very pleased to rise to speak on the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011. This is a bill which follows the Cooper review into Australia's superannuation system. In essence, what it purports to do is create a new and supposedly cost-effective superannuation product to replace existing default products. Specifically, the bill defines what a MySuper product is, sets out rules as to the payment of contributions and account transfers for MySuper products, and sets out the fees that can be charged and the basis on which those fees can be charged to members of a MySuper product.

Importantly—and this is really the core of what the bill does—it provides that from October 2013 employers must make the default superannuation contribution for an employee, with the exception of employees who have specifically made a fund choice which is a minority of them. All other employees must have the benefit of a payment by their employer into a fund that offers a MySuper product. This is of great importance because the vast majority of employees have not exercised a conscious choice as to which fund they want their superannuation contribution to go into. As a consequence, this legislation will have the effect that, in respect of all of those employees, employers will be under an obligation to make the payment into a MySuper product.

The coalition supports reforms which make Australia's superannuation system more efficient, more transparent and competitive and which deliver improved value for superannuation fund members. This then comes to the question: do the reforms contained in this bill achieve that objective—the objective of making the system more efficient, transparent and competitive and of delivering improved value for members of superannuation funds? The answer is that in some respects this bill does advance the position towards achieving that objective but in other material respects it does not.

Let me expand upon that by making comments in three areas in the brief time that is available to me today. Firstly, I want to highlight that there are significant implementation issues when it comes to this piece of legislation. Secondly, I want to point to an important defect in the legislation, which is that it fails to open up default superannuation funds to competition. On the contrary, what it does is entrench the anti-competitive framework of the modern award system. Thirdly, I want to highlight the failure of the bill to achieve the desired state of competitive neutrality when it comes to the treatment of so-called intrafund advice.

Let me turn to the first point, which is the question of implementation. I take no pleasure in saying to the House that every bill that the minister chooses to deal with seems to be characterised by similar patterns. Every bill that this minister brings to the House seems to be rushed, seems to be disorganised, seems to be poorly thought through in important respects and seems to be motivated more by the desire to get a headline than to deliver substantive reform.

I will concede that the original version of this bill was even worse than the one which the House is now considering. In the original version of the reforms proposed there was going to be a mandate that only one particular fee level could be charged. Well-known superannuation consultants Chant West found that this model would have resulted in 750,000 Australians being forced to pay higher fees than they are currently paying given the fact that there is already a wide availability of low-fee, no-frills products across the superannuation sector. The coalition is certainly pleased that the government has decided to back down on the one-fee approach and will allow MySuper funds to offer differentiated fee structures.

That being said, there remain significant implementation concerns about this bill and particularly the fact that the process has been extremely rushed. According to the Financial Services Council, there is a risk of employer and member disruption with the proposed three-month period from 1 July 2013 to 1 October 2013 when superannuation guarantee contributions may continue to be paid into existing default funds prior to compulsory MySuper contributions commencing. The Financial Services Council therefore calls for extending the compliance transition period for employers through until 1 July 2014 and also a limited extension beyond 1 October 2013 for funds which have lodged an application prior to 1 July 2013.

Let us also look at what respected superannuation industry participants Mercer have said. Mercer support a deferral of the implementation of MySuper from 1 October 2013 on a number of grounds, including the implications of the package and its implementation for trustees, employers and employees, and superannuation fund members, and they have this to say:

It is becoming increasingly clear the date of 1 October 2013 specified in the Bill as the date by which all default contributions must be made to a MySuper product is unlikely to be achievable. The October 2013 date leaves insufficient time for trustees to:

analyse as yet unavailable legislative requirements

design and implement the necessary modifications to fund designs

amend trust deeds and other governing rules

appropriately modify administration systems

renegotiate insurance, administration, investment contracts etc

lodge an application with APRA and receive the relevant approval to offer a MySuper

product

develop internal controls and processes and train staff, representatives and financial

advisers to accurately represent the product features and benefits to consumers

•prepare and issue relevant communication material to members.

It is interesting that the Association of Superannuation Funds of Australia supports a delay in employer compliance from 1 October 2013 to 1 July 2014 in order to mitigate the risks involved in making the changes proposed by the Stronger Super package.

I need hardly remind the House that an additional factor which makes the implementation of this detailed and complex package even more complex is the fact that it is going through at the same time as the minister has introduced and is requiring the implementation of the Further Future of Financial Advice Measures. Many financial institutions will be affected by the need to make major changes for these two separate packages, and the implementation complexities are very substantial and certainly not assisted by the rushed and chaotic nature of the process by which we have got to this point.

Let me turn to the next point I would like to highlight, which is the fact that the regime to be introduced in this bill exacerbates the already seriously anticompetitive nature of the current modern awards system as it applies to competition in the superannuation sector. I mentioned that a core requirement of this bill is that, for the vast majority of employees who have not made a conscious choice of fund, the only option available to their employer is to pay their contribution into a MySuper product. Yet, curiously, the government has failed to take this opportunity to expand the range of choices which employers have as to which default superannuation fund they can make the contribution into.

You would be aware, Mr Deputy Speaker Scott, that under Labor's so-called 'Fair Work' Act, so-called 'modern awards' are required to contain a clause specifying the superannuation fund into which the employer must pay the employee's super contributions if the employee has not specifically nominated a fund and, as is well known, the vast majority of employees have not chosen to exercise a conscious choice. The process by which Fair Work Australia determines which funds are nominated in modern awards is a secretive, non-transparent and non-competitive process. Yet, to be nominated as a default fund in a modern award is a valuable privilege for those funds which are so nominated because they receive a steady stream of contributions.

It is no coincidence that these arrangements work very much to the advantage of industry funds and public sector funds, and it is those funds which are closely aligned with the union movement. It is those funds in which often up to half of their directors—and in the case of some public sector funds, potentially even more—are union officials.

An analysis conducted by the Institute of Public Affairs recently found that, across 166 modern awards approved by Fair Work Australia, there were a total of 566 funds specified as default funds under those awards and, of those, 513—the vast majority—were industry or public sector funds. To mention just one fund, Australian Super is the largest fund and the one which the minister for superannuation was in a previous life a director of. Australian Super is specified as a default fund in over 70 modern awards. This is an issue which industry participants in the superannuation sector have constantly highlighted as constraining competitive neutrality and, therefore, not being in the best interest of fund members. It is not in the best interest of those Australians—that is to say, all of us—who are using the superannuation system to save for our retirement.

The introduction of the MySuper arrangements is a missed opportunity to correct this gravely anticompetitive set of arrangements. It would be an obvious and natural thing to do if you are specifying that there is a particular kind of product, a MySuper product, which must be offered by all funds and into which contributions must be paid unless the employee has deliberately exercised a specific choice to the contrary. It would be an obvious and natural thing to do and to say, and therefore what follows from that is that any MySuper product of any superannuation fund is suitable as a product into which an employee's contributions can be paid by their employer. However, the government for its own reasons has chosen not to take that obvious and natural step, a step which would have significantly increased competition and which would have reversed the unsatisfactory nature of the inherent advantages which this government has chosen to use in the superannuation system to provide to certain classes of superannuation funds.

The minister is a former director of a predecessor organisation of the largest industry superannuation fund, Australian Super. Interestingly, other former directors of that fund now in the parliamentary Labor Party include the Minister for Climate Change and Energy Efficiency, Mr Combet, and Senator Doug Cameron, as well as the failed Labor candidate for the seat of Melbourne in the 2010 election, Cath Bowtell. In other words, there are very close and cosy links between the parliamentary Labor Party and industry superannuation funds. It is hard to avoid the suspicion that the failure to make this natural and obvious change to permit any MySuper product of any fund to be the recipient of the contributions of employees is motivated by the same desire to advantage certain sectors of the superannuation industry over others, as has motivated many other policy measures introduced by this minister and this government.

The last issue to briefly highlight is a failure of competitive neutrality in the way that intrafunded advice is treated. In essence, the arrangements in this bill suit the business model of one class of fund—that is, industry superannuation funds. They do not sit well with the business model of other classes of funds and they do not appear to be consistent with the principle which underpins the future of financial advice reforms. Aspects of this package contained desirable reform; other aspects of this passage raise serious concerns, as is so often the case with measures introduced by this government.