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Wednesday, 15 May 2013
Page: 3219

Mr McCORMACK (Riverina) (11:33): Since coming into government in 2007—and aren't many Australians ruing that day?—Labor has done nothing but constantly tinker with the superannuation scheme, despite the member for Griffith and the then opposition leader, Kevin Rudd, saying prior to the 2007 election that Labor would not change the system.

This Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012 is the fourth tranche of legislation implementing the MySuper proposals which followed the super system review, also known as the Cooper review, and the government's response to that review, Stronger Super. The measures contained in the bill are broadly supported across the superannuation industry, and the coalition does not oppose them. However, once again, this Labor government has been forced to bring in a raft of changes to its own legislation after it has been introduced—and haven't we seen that time and again in this parliament and the one before it?

The changes put forward by the government follow an inquiry by the Joint Committee on Corporations and Financial Services, which found a number of issues with this bill. It is good to see that the government has recognised its mistakes, at least in this legislation, and has adopted measures put forward by the coalition such as the cap on fees. We will not oppose these changes, and we will withdraw our amendments in relation to the fee caps. However, we still will need to move amendments to require superannuation boards to contain at least one-third independent directors or trustees. This was a recommendation of the Cooper review and will improve the governance on superannuation boards. This is most important: people need to know that their superannuation—their hard-earned savings; that nest egg that they and their businesses and, in some cases, the government have put away for their retirement needs—will be there when they need it most and not have been raided by a selfish debt-ridden government.

MySuper is a new, supposedly low-cost superannuation product which replaces existing default superannuation fund products. The bill changes governance arrangements and obligations in a number of areas. It will override superannuation fund's governing rules which mandate the use of specific service providers. The Australian Prudential Regulation Authority, APRA, will gain the power to issue infringement notices in certain circumstances, and super trustees will be required to give reasons for decisions in relation to complaints.

Additionally, the bill removes a regulatory exemption where a registrable superannuation entity also manages a non-super-managed investment scheme. Persons who have suffered damage due to a contravention of director's duties will be required to seek leave from the court before bringing action, and it provides a defence for trustees for a breach of a MySuper obligation. It will also make certain consequential amendments to the Superannuation Industry (Supervision) Act 1993—the SI(S) act.

Recommendation 2.14 of the Cooper review was that the SI(S) Act be amended so as to override any provision in the governing rules of an APRA-regulated fund which requires the trustee to use a specified service provider in relation to any services in respect of the fund. The amendments in this bill will bring this recommendation into effect. The reasoning from the Cooper review was that a mandate in governing rules requiring the use of certain service providers must limit trustee ability to determine if such an arrangement were in the best interests of fund members. The review also noted that trustees should be able to appoint a named service provider if it is in the best interests of members but should not be bound to do so.

The Financial Services Council raised questions on the drafting of these amendments in their submission, stating:

While we support the policy intent of the proposal, we are concerned that the scope of the changes under section 58A appear to be much wider than that, as any provision which specifies a person from whom the trustee “may or must” acquire a service or an entity or financial product in which the trustee “may or must” invest, will be void. Thus, the new provision seems to apply regardless of whether the clause is permissive or mandatory. We understand the intent to be that the prohibition should apply only where the requirement is mandated.

The Industry Super Network and the Australian Institute of Superannuation Trustees both put in their submissions the view that existing contracts which are not in the best interests of members should be terminated.

Currently APRA has the power to issue infringement notices but only for the late lodgement of data returns. This legislation will amend the SI(S) Act to provide APRA with the power to issue infringement notices for certain breaches of the act as well. The Cooper review recommended that APRA be given the power to issue infringement notices and fines as an alternative to criminal prosecution for certain offences. The new power will apply to a range of existing breaches, including: not putting required contributions into a MySuper account, not notifying each beneficiary about an acting trustee's appointment as soon as is practicable, not having rules in place for the appointment of member or independent representatives where required to do so, not meeting APRA's deadline for the receipt of a report relating to an investigation, and funds accepting contributions by an employer sponsor contrary to the regulator's written notice to the fund's trustee. The purpose of these changes is to attempt to deter non-compliant behaviour without needing to move to criminal proceedings.

The requirement for super trustees to give reasons for decisions in relation to complaints came from recommendation 5.7 of the Cooper review. The complainant will be required to make a request in writing, which must be provided within 28 days to the Australian Securities and Investments Commission and may permit longer periods for reasons to be given in the case of death benefits complaints. Some registrable superannuation entity licensees, in addition to managing RSEs, are also the responsible entities of one or more non-superannuation registered managed investment schemes. Generally, the responsible entity controlling a managed investment scheme must comply with a range of general obligations in section 912A of the Corporations Act 2001.

Currently, bodies regulated by APRA, including RSE licensees, are exempt from the requirements set out under sections 912A(1)(d) and (h) of the act. RSE licensees are required to satisfy risk management requirements and requirements for adequate resources—human, technological and financial—imposed under the SI(S) Act and SI(S) Regulations. However, these requirements are not designed to ensure that adequate resources or risk management systems are maintained in respect of the non-superannuation business of RSE licensees which also manage registered managed investment schemes.

We have seen in the Riverina managed investment schemes and the threat that they can place on agriculture and other industries. That is something that really needs to be looked at into the future, because MISs are quite a threat to many people who want to conduct good businesses in opposition to these particular things, including in forestry and other sectors.

The Cooper review recommended dual regulated entities meet the Corporations Act financial resource requirements, and this amendment removes the regulatory exemption currently in place. Whilst there is general support for this change, some stakeholders expressed a desire to ensure this does not increase capital backing requirements through the duplication of responsibilities.

Where a director is accused of having breached their duties under the SI(S) Act the amendments will require the complainant to seek leave from the court to bring such an action. In order to grant leave, the court must take into account whether the applicant is acting in good faith and there is a serious question to be heard. These amendments are designed to prevent frivolous and vexatious legal action being brought against directors. Directors will also be able to use a defence of having acted with 'reasonable precautions' or if a 'reasonable mistake' was made in relation to MySuper obligations. These defences are already available if directors act in contravention of a covenant.

In the amendments proposed by the Labor government, the final composition of the products dashboard is to be set by regulations. This acknowledges the government could not get consensus on what information would be given to consumers as a quick way of comparing funds. One of the measures removed by the amendments is a measure of liquidity. Industry super funds were opposed to this type of measure being included. If this does not appear in the regulations, the government will have some serious questions to answer, as the product selection cannot be about promoting the interests of one part of the industry in isolation.

The government has also adopted the coalition's stance to have a cap on percentage based administration fees. The first MySuper bill established core provisions for MySuper, including rules around the charging of fees in relation to member accounts. This included, in effect, a ban on caps for administration fees. The explanatory memorandum of the tranche 1 bill said:

For any fee that applies to all members of the MySuper product, such as an administration fee or an investment fee, each member is to be charged the fee under the same charging rule. For example, if one member is charged a percentage of their account balance in relation to the MySuper product as an administration fee, then each member of the MySuper product should be charged the same percentage of their account balance in relation to the MySuper product at the same point in time …

Understandably, this caused an adverse reaction amongst industry stakeholders and they, along with the coalition, were anticipating the government's current and final MySuper bill would include amendments to remove this unnecessary and counterproductive requirement. This amendment was not forthcoming until the last minute. This government has finally realised that anything which prevents the lowering of fees is not in the best interests of superannuants. The coalition members of the Joint Committee on Corporations and Financial Services made a number of recommendations in the report on the bill.

The Cooper review also recommended an end to the equal representation model on superannuation boards. The government has failed to act on this. We believe superannuation boards should contain one-third in number of independent directors or trustees. Only the most efficient and competitive superannuation system with higher standards of corporate governance will deliver the best possible value to superannuation fund members. This is so important, given the fact that we have an ageing population and more people are going to be calling upon their super in the years ahead. Continuing to improve corporate governance in the superannuation industry will help to increase Australians' level of confidence in the system and willingness to make additional voluntary superannuation contributions. The time has come to bring a greater degree of independence to the boards of the union-dominated industry super funds.

As I have mentioned before, the bill before the House represents the government's fourth tranche of legislation implementing the MySuper proposals, which followed the Cooper review into superannuation handed down some 2½ years ago. The coalition has along the way sought to improve the government's legislation as it, quite frankly, was all over the place in implementing the findings of the review. The coalition has moved a number of amendments seeking to close anomalies and amending legislation to avoid unintended consequences because this government has rushed through these changes, as it did with e-health and so many of the other things that this government has introduced into this House in this 43rd Parliament. More recently, we scored a significant policy win by ensuring that Australians' choices were preserved and that their superannuation balances were not automatically transferred, without their prior approval, to a government-legislated MySuper account. On the issue of superannuation, the coalition has a good way forward for Australia. We have begun consulting with a broad cross-section of senior superannuation industry stakeholders and experts, and certainly in the Riverina I am constantly in consultation with financial planners and superannuation experts in Wagga Wagga, Griffith and other parts of my electorate.

The coalition is acutely aware of the threat that this government—because it is broke and has a $270 billion-plus debt—is planning to pose to the nation's retirement savings in the form of more new taxes on superannuation savings in order to help it plug its deteriorating budget. This Labor government has hit Australian savings with more than $8 billion in increased taxes and charges on superannuation over the past five years. Of this, $3.3 billion has come from the government's hit on low-income earners through its various reductions to the government super co-contributions established under the previous coalition government. The government reduced the contribution from $1,500 to just $500. The government is also lowering the thresholds at which the contributions are phased out.

A coalition government will look to provide certainty and stability in superannuation by not making unexpected, detrimental changes to the superannuation system—hopefully after 14 September. This will allow people to save for their retirement and to plan with confidence—and that is a word that this government does not seem to understand. There is a crisis in confidence in this country at the moment, but an incoming coalition government—and that may happen after 14 September—will provide certainty and confidence within business, within families and certainly within communities and among people who are planning on retiring. A coalition government plans to increase the compulsory superannuation contribution from nine to 12 per cent; improve corporate governance arrangements for superannuation; properly address the issue of excess contributions to make sure Australians saving for their retirement are not unfairly penalised for genuine, unintended mistakes; pursue opportunities to cut unnecessary red tape in superannuation; remove regulatory barriers currently restricting product innovation and improved options to manage financial risks in their retirement phase; and revisit concessional contribution caps and super co-contributions for lower income earners once the budget is strong enough to be back in surplus—a word that I think is not fully understood on that side of the House. Finally, a coalition government will conduct a financial systems inquiry which will include the superannuation industry. A coalition government will continue to consult with a broad cross-section of stakeholders in the superannuation industry in the lead-up to this year's election.