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Tuesday, 26 June 2012
Page: 7973


Mr VAN MANEN (Forde) (13:47): For a minute there I thought we were talking about Labor's attempt at economic brilliance, but we are actually talking about superannuation. We have listened to 10 minutes of an attempt to sell Labor's economic message but there is not much there to sell. You talked about the three per cent increase in super—

Mr Lyons interjecting

Mr VAN MANEN: You are not paying for it; the employers are paying for it. With the effect of your economic policies on business and the economy in general, I wonder whether the supposed $108,000 increase in retirement benefits in 30 years time will actually eventuate, because there is certainly no guarantee with this government in power.

To return to the substance of the bill we are talking about today, the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011, the superannuation fund industry has grown rapidly over the past few years and will continue to grow into the future by virtue of the sheer volume of funds being paid into it, even at the present levels of nine per cent. Superannuation was once thought of as a perk for the white-collar workers in large firms or in the Public Service. However, these days its benefits cover around 90 per cent of our working population. According to APRA's Annual Superannuation Bulletin issued in February this year, total superannuation assets increased by about 11.5 per cent during the year to 30 June 2011 to $1.3 trillion. Of this total, $810 billion are held in APRA regulated super entities and another $407 billion are held by self-managed super funds which are regulated by the ATO. The remaining $117 billion comprises exempt public sector super schemes and the balance of life office statutory funds.

Public sector fund assets increased by some 22 per cent during the year to June 2011 and the small funds, which include SMSFs, single-member approved deposit funds and small APRA funds increased by 11.5 per cent, industry funds by 11 per cent, retail funds by nine per cent and corporate funds by nearly four per cent. So we can see there are a wide range of providers of superannuation products in the marketplace that have a variety of members and are growing at different rates. The one thing that is common is that they are all growing in terms of funds under administration. So it is certainly moving from strength to strength.

Members of small funds held the largest average account balance of some $485,000 at June 2011, whilst corporate fund members held average account balances of somewhere around $98,000 and public sector funds, some $62,000. Industry fund members had an average of only $24,500. So there is quite a significant disparity in the average fund balances between various sectors in the superannuation industry. There are 27 million accounts for 10 million super fund members—that is, an average of two to three accounts per member. In my professional life before entering this place, I worked on one occasion to assist a client who had eight superannuation funds, but having clients with three to four funds was not uncommon.

This bill will introduce the new low-cost superannuation product known as MySuper, which will replace existing default superannuation fund products as outlined in the Super System Review 2011. The coalition has been consistent in supporting changes to superannuation in an effort to make the superannuation system more efficient, more transparent and competitive, with the ultimate objective being to improve the value for super fund members. With this primary objective in mind, we were concerned about the initial MySuper proposal that included an imposition of uniform pricing through legislation, as this would have created unnecessary inefficiencies and left many consumers worse off. At the end of the day, we need to ensure that the many changes made to existing laws benefit consumers—super funds members, in this case. The best way to maximise value for all members across all parts of the superannuation value proposition—that is, fees, fund performance and service—is to maximise the competitive tensions in an appropriately transparent system. Research by Chant West found that under a one-fee government mandated model some 750,000 Australians would have been forced to pay higher fees than they are currently paying. Chant West also points out that, with a small reduction in fund performance on the back of lower performance or lower risk, MySuper funds would very quickly wipe out any gain from lower fees.

Over the past 12 months there has been quite a debate going on in relation to these issues, and the government has thankfully now backed down from its original proposal to impose a uniform fee structure as part of the MySuper proposal. It is therefore now our understanding that the government will allow MySuper funds to offer differentiated fee structures. I would like to point out that low-fee, no-frills super products have been available to consumers for some time now through both retail and industry superannuation funds. Therefore, in some respects, the creation of a MySuper product through legislation is thought of as an unnecessary interference with those existing products. However, what is proposed now is certainly an improvement on where we were a year ago.

There are, however, still some significant issues that the bill in its current form fails to address. These include a lack of transparency and competitiveness with default funds, in particular, industry funds. The definition on intrafund advice has not been adequately detailed or disclosed. The threshold for large employers is complex, unworkable and may have a number of unintended consequences, and the industry has pointed out that the reporting of large employer funds to APRA will be cumbersome, time consuming, unnecessary and costly.

This bill mandates that from 1 October 2013 only MySuper products can be used by employers to make default superannuation contributions for employees who have not chosen a fund. However, the government has failed to disclose who these funds will be. The decision on which funds were selected as default funds remains the prerogative of Fair Work Australia through a secretive, non-transparent and non-competitive process, a process that works against our objective of being able to improve the value for super fund members. The current process, which focuses heavily on the industry super funds, does not provide the transparency and competitiveness needed to achieve improved value for super fund members.

Back in August 2010 the government promised that a re-elected Gillard government would ask the Productivity Commission to design a transparent, evidence based and competitive process for selection of default funds under modern awards. As with many things, this is yet another broken promise from this Labor government. The closest we have come to this promise is another promise that the minister responsible for this bill will act on it in 2012. I have a newsflash for the minister: it is 2012. How much longer will he be trying to protect the current competitive advantage of the union-dominated industry super funds? The underlying intention behind the MySuper reforms are undermined without a competitively neutral marketplace. The selection of default funds should therefore be selected by the employer, and the government should remove the need for Fair Work Australia's capacity to do so.

The explanatory memorandum indicated that superannuation funds would be able to charge for expenses incurred in the provision of intrafund advice. This is a term commonly used to describe financial advice that a superannuation fund provides to its own members. However, neither the bill nor the explanatory memorandum defines what this will mean in the context of the legislation. Instead, the memorandum foreshadows that it will be explained in subsequent legislation. This is not acceptable—we need clarity and certainty—but this seems to be the hallmark of this government. For the purpose of clarity for the industry, this must now be disclosed to give that clarity and certainty to all involved in the super fund industry but in particular the members of super funds.

The advice fee is proposed to be bundled into an administration fee. The consequence, however, would be that this would be charged to all fund members, irrespective of whether they access such advice. I reiterate: is this really achieving the best outcome for members of super funds? This hidden fee or secret commission, if you want to call it that, is completely inconsistent with the changes the government is seeking to impose on small business financial advisers through the Future of Financial Advice reforms. It appears that the minister has bowed to the pressure of the industry super fund network in introducing the provisions for intrafund advice.

The coalition will seek to amend the bill to ensure that no fees or personal financial advice can be bundled into an administrative fee for the purposes of the MySuper product and charged to all fund members irrespective of whether they access the service or not. These amendments do not prohibit MySuper funds from providing advice. They actually assist them in doing so, providing clear boundaries and removing some of the confusion. In the case of personal financial advice, it will be the person who accesses that advice who pays the fee, and not those members who do not use the advice service.

In regard to issues associated with larger employers, the coalition will seek to amend the bill by replacing the complex and unworkable threshold contained within this bill with a simple, easily quantifiable and effective test that defines a large employer as any employer with over 500 or more employees at the relevant time. Moving on to our next concern, as the current drafted bill would require a super fund with a MySuper licence to apply to APRA to provide super services to a large employer, the superannuation industry has argued strongly against this additional authorisation process, given that all funds offering tailored plans already need to provide a MySuper product. This is just more red tape from the government's red-tape factory. As the superannuation industry has pointed out, these additional processes will be cumbersome, time consuming, unnecessary and costly, and they will not add value to current members and consumers alike.

Most importantly, as previously stated, APRA should be able to continue to fulfil its role as the prudential regulator, which should be focused on risk governance without becoming entangled in commercial matters that affect neither factor. Trust is a word of enormous importance. Try running a bank, a business or an economy in the absence of confidence and trust, and you will know it cannot be done. As with all legislation, it is important to remember that good conduct is not dependent on governments, laws, regulatory bodies, civil courts or legal bodies. It is part of one's character and virtue and comes from—

The DEPUTY SPEAKER ( Ms AE Burke ): Order! It being 2 pm, the debate is interrupted in accordance with standing order 97. The debate may be resumed at a later hour.