Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Wednesday, 22 June 1994
Page: 1838


Senator WOODLEY (11.30 a.m.) —The Superannuation Laws Amendment Bill 1994 continues the important process of improving the prudential supervision and consumer protection within the superannuation industry and follows on from the Superannuation Industry Supervision Act, which takes effect from next week.

  This bill follows on from the federal government's commitment that all Commonwealth superannuation schemes will comply with the main operative provisions of the SIS Act, particularly on vesting, preservation and disclosure of information to fund members. Because most Commonwealth schemes are not fully funded, most public sector schemes will be exempted from the investment aspects of the SIS bill.

  This particular bill amends the parliamentary superannuation scheme to comply with SIS requirements. The government is in the process of amending its employee schemes to comply with SIS. We strongly support this development and we certainly commend the government on its action in this case. The Australian Democrats believe that workers, whether they be in the public or private sector, should be entitled to protection of their superannuation entitlements.

  Superannuation is not some gracious concession to be turned on or off like a tap at the whim of an employer. It is a contractual right, part of the contract of employment. Just as there are laws governing the wages to be paid to employees and restricting the right of employers unilaterally to alter wages, so too the new SIS legislation and the former OSSA legislation help to ensure that employers cannot unilaterally alter superannuation entitlements.

  However—and this is the rub—a large group of employees has been exempted from the operation of the SIS, and these are the employees of state governments. State governments were exempted from the SIS Act until at least 1 July 1995, on the recommendation of the Select Committee on Superannuation. In its ninth report last month, the committee recommended this exemption following strong joint submissions from the governments of New South Wales, Queensland, Western Australia, Tasmania and the Northern Territory. The key finding at page 58 of the report was:

The Committee understands that the states are prepared to adopt parallel prudential controls and supervision which are consistent with the SIS standards.

These are very good sentiments. The committee also had before it a letter from the Prime Minister (Mr Keating) to the premiers, dated 30 September 1993, in which he proposed that the states should be required to automatically comply with the SIS Act unless an exemption was granted. Exemptions would only be granted if the state government undertook to do two things: firstly, guarantee the liabilities of the scheme by ranking the accrued liabilities of the scheme equally with state bonds; and, secondly, ensure compliance with the main operative provisions of the SIS legislation—vesting, preservation, disclosure and, where applicable, prudent investment.

  While it is not clear whether this undertaking has been given in full, the joint submission of the four states and the Northern Territory to the Senate committee suggests that most states did agree to comply. The year's grace granted to 1 July 1995 would allow the arrangements to be worked through, and we would support that.

  It is noteworthy, however, that the Victorian government did not make a submission to the Senate inquiry. In April last year, the Victorian government announced a restructure of its public sector scheme which reduced benefits and entitlements of members. Such action would clearly breach the SIS Act and would also breach the OSSA.

  The Victorian government claimed that the reduction in benefits was necessary to reduce its unfunded liabilities and the overall level of state debt. As Professor Bob Walker has shown in his analysis of the unfunded superannuation liabilities of the New South Wales government, this argument is spurious. The Senate select committee in its third report recommended a national study of the unfunded liability issues. Unfortunately, the Commonwealth government rejected this recommendation.

  Based on this untested argument, the Victorian government has engaged in the most blatant breach of Commonwealth superannuation legislation in recent memory. The federal government refused to intervene, resulting in trade unions in the state being forced to negotiate against a loaded gun and accept the Kennett plan. Under the agreement reached in October 1993, the Victorian government allowed the unions the right to test whether the package, in fact, breached the OSSA legislation.

  The unions then turned to the Insurance and Superannuation Commissioner, George Pooley, for a ruling in January. It took Mr Pooley many months to make up his mind. On 2 May, he wrote:

  The delay in responding is deeply regretted. However, the matters you have raised are so important that I felt it necessary to consult the Treasurer. Unfortunately, the Treasurer is currently very busy with the Budget, which has been brought forward this year by three months. As soon as I have heard from the Treasurer, I will ensure you receive a reply on this matter.

Why Mr Pooley, a statutory office holder, should feel the need to consult the Treasurer (Mr Willis) in how to exercise his statutory responsibilities is a serious matter. Here we have a case of a statutory office holder refusing to implement his statute without political direction. Frankly, I believe this is appalling, although, I suppose, after the evidence to the print media inquiry on Mr Pooley's performance in his previous job at the FIRB, we should not have expected anything better.

  Three weeks later, Mr Pooley received his instructions from Mr Willis. He found that the Victorian government had breached federal legislation on three counts: firstly, by a change in the indexation of pensions from six-monthly to an annual basis; secondly, by the change of the salary base for the calculation of pensions from actual annual final salary to average salary during the last two years of employment; and, thirdly, by reducing the notional retirement age for calculation of death and disability benefits from 65 to 60.

  Each of these three measures clearly breached OSSA regulation 17 because they reduced benefits. However, incredibly, Mr Pooley then used his discretion under the act to forgive the second and third debt discretions, arguing that they are `reasonable in the circumstances.' This, in my view, is a gross abuse of his powers under the act. Having found that the fourth largest superannuation scheme in the country has breached the act which he has sworn to uphold, he then forgives it.

  The decision of Mr Pooley runs counter to the advice of the ISC itself on the interpretation of regulation 17, contained in Circular 8. The circular states:

The intention of regulation 17 is to ensure the maintenance of members' accrued benefits other than in exceptional circumstances. Accordingly, it removes from the trustees the discretion to reduce members' accrued benefits except with the approval of the members themselves or the Commissioner.

The circular goes on to suggest that the commissioner should exercise his discretion only where vexatious objections from some members obstruct the reasonable view of the majority. In this case, the members were never consulted. Also, the commissioner has failed to outline the exceptional circumstances.

  The entire transaction sounds like a deal to me, a deal by the Treasurer to reduce the superannuation entitlements of Victorian public sector workers. Why has he done that? Is it to make Victoria's debt look a bit better and reduce the pressure for a federal government bail out? That is the question. In my view, it is not a sufficient reason to allow a fundamental breach of federal legislation to occur. It is clear that at least one state, Victoria, has not complied with the Prime Minister's letter of September 1993.

  This brings into question whether the states should be allowed an exemption from the SIS. It brings into question the way Mr Pooley is exercising his powers as ISC Commissioner. It brings into question whether the Senate superannuation committee was misled when it was advised that the states intended emulating SIS standards. With Liberal governments in South Australia, Western Australia and Tasmania watching closely—


Senator Watson —That is what got the bill up in the first place.


Senator WOODLEY —I understand that. They were watching closely to see what the Victorian government got away with and that brings into question how serious the government is about protecting superannuation fund member benefits. I foreshadow that I will be seeking an additional reference for the Senate committee to inquire into the Victorian situation.


Senator Watson —The Victorian scheme only went through with union agreement.

  The ACTING DEPUTY PRESIDENT (Senator West)—Order! Would you like to speak to the chair?


Senator WOODLEY —I am sorry, Madam Chair. Senator Watson and I no doubt will continue the conversation at another time. To reiterate; I foreshadow that I will be seeking an additional reference for the Senate committee to inquire into the Victorian situation and Mr Pooley's decision. It is well and good for the Commonwealth to legislate to ensure that the schemes comply with federal legislation. We welcome that but serious questions have to be asked about why it is allowing the states to get away with what could colloquially be called blue murder. I need to add that, although the legislation went through, with trade union agreement, it was only because the unions were coerced to do so; and it is the trade union movement which is now giving this information to me and asking the Democrats to raise the problem it has with it.