Senator ALLISON (7:30 PM) —I wish to speak on just one aspect of the Taxation Laws Amendment Bill (No. 3) 1998 tonight and that is the schedule dealing with superannuation choice. This aspect of the bill has been the subject of a comprehensive Senate inquiry and in the course of that inquiry I think there were some very substantial holes identified in the government's choice policy provisions.

The government has claimed that its choice policy will increase competitiveness and efficiency in the superannuation industry and lead to improved returns on superannuation savings. However, the evidence to the committee put this claim into some considerable doubt. The simple problem is that it is unlikely that the vast majority of workers are in a position to make an educated or informed choice on superannuation or, I suggest, are actually interested in doing so. Evidence from the United States suggests that workers are very risk averse in respect of superannuation and often opt for low risk profiles, with the result that their final returns are reduced considerably.

The choice proposal also opens up the compulsory award based super system to competition from the commercial funds like the AMP, National Mutual, MLC and such like. These funds carry considerably higher administration costs than the award based industry funds because of the need to advertise and to build up market share. The superannuation committee heard evidence that industry fund admin costs were up to 80 per cent lower than that of commercial funds, particularly when commissions, marketing and exit fees were taken into account.

The choice regime will also add quite considerably to competition costs of the superannuation system because of the need for funds to handle what could be frequent transfers between funds. Certainly this has been the experience in Britain and Chile where choice regimes have been introduced. In short, I think that the government has failed to make out a compelling case that their choice arrangements will reduce costs or add to industry efficiency. I think in fact the exact opposite will occur.

So that leaves the argument that competition will increase returns to members. That assumes that members want to choose higher risk funds to get higher returns. The risk averse nature of workers with low levels of knowledge of superannuation is in fact likely to see returns reduced over time compared with leaving the decision on risk return balances to trustees.

But the government also downplays the level of competition already existing in the superannuation industry. We know that trustees are forcing fund managers to compete intensely in their investment returns. Investment managers that fail to shape up are very likely to be replaced quite quickly and fund administrators who fail to deliver low costs are also likely to be moved on.

The trustees in pursuit of their onerous trustee obligations are expected to keep these issues under constant review, and experience suggests that they certainly do that. The evidence tends to suggest that, as a result of the intense competition at the finance management level, industry funds are delivering average rates of return at least comparable with the commercial funds. And when you take into account the low fee structure, the overall result is one where the industry funds on average are delivering better retirement income outcomes over time than most commercial funds.

The real attraction of having competition at the fund management level rather than the fund level is that the trustees are in a position to make a fully informed decision on investment returns and risk profiles. Few fund members would be in command of as much independent advice, knowledge and experience as their fund trustees. The trustees are acting in the interests of the members. So again I doubt that the benefits of competition on returns will on average deliver a better result for the vast majority of workers than existing arrangements. An article by Beth Quinlivian in Personal Investment magazine recently concluded that the low fee nature of industry super funds would result in a final super payout $100,000 higher than the average master trust fund. That is the sort of outcome which is at risk from the government's choice model proposal.

There is a further flaw in the government's plan, which rests on the removal of award clauses on superannuation as a condition for their scheme to operate. With the demise of the Superannuation Complaints Tribunal, the removal of superannuation as an allowable award matter would also prevent the Australian Industrial Relations Commission from determining disputes about superannuation. So there would be nowhere other than the courts to which workers could take a dispute about superannuation and, given that superannuation became universal only as a result of industrial disputes and given the enormous power over the nature of choice offered that this bill gives to employers, I do not believe that it is good policy not to provide for an effective dispute resolution mechanism.

Superannuation is part of remuneration. Remuneration is at the heart of industrial relations, a decision which was confirmed by several High Court cases. To deny workers access to dispute resolution on a key aspect of remuneration is quite clearly contrary to the intention of industrial laws in this country. Yet without deleting award clauses, the government's choice regime cannot operate. I think that is a most unsatisfactory policy outcome.

So, in short, after careful analysis the Democrats have concluded that the government's choice model will not deliver the objectives that the government has set for it. It could add quite considerably to disputation about superannuation and it provides no avenue for effective resolution of such disputes. I do not believe that the vast majority of workers will benefit from the government's choice model. Some will, but most probably will not. The real beneficiaries will be the big financial institutions which will be able to get around award clauses and access occupational superannuation. That is what this bill was always about: delivering superannuation to the government's financial backers in the banking, insurance and finance sectors.

So what do we do about choice? I think that a better approach is to look at the occupational superannuation industry that we already have and work out how it can be improved. The better industry funds are moving from strength to strength, reducing administrative costs as economies of scale improve, becoming more aggressive about investment strategies and choices and providing better information back to their members. But of course there are duds. Workers do need to be able to exit industry funds that are not performing.

Further, industry funds are not sufficiently portable. There remains the problem that moving from one industry to another too often results in moving from one industry fund to another. We are a country of eight million and workers and 18 million superannuation accounts, and that is not an efficient outcome. I believe that there is a case for modifying current award clauses to provide some flexibility to improve the operation of industry funds. These amendments should allow employees to leave a fund which is not performing, allow workers to take a fund which is performing with them to another employer and provide them with more choice within the fund on how their money is invested.

Last week the Democrats announced our own managed choice proposal to improve the operation of the award based industry superannuation system. Our proposals sought to retain the key benefits of the existing industry based award super schemes while giving employed within that system more options if they choose to exercise them. Our first proposal is to require the AIRC to amend award clauses to provide for choice of at least two industry funds. It should be noted of course that many and probably most award clauses already provide choice of at least two industry funds. We propose that, by 1 July 2000, the AIRC extend this to all award clauses.

These funds would be required to provide employers with information for distribution to their employees so that employees can make a choice between the two funds based on their performance and change that choice if necessary if they fail to perform. On top of that, an employee should be able to take their industry fund with them. Provided the employer agrees, this should be an automatic exception to the award clauses, and our choice model would allow for that. But choice should be more restricted when an employee wants to move outside the award system. Here, the employee needs to be clear about what they want and why. The decision to move outside the industry fund must be employee driven. it must not be driven by employers, banks or finance companies, but by employees.

Our model provides for this but, as it would be an exception to the relevant award clauses, the employee would need to apply for such an exception to be granted. We have proposed that this be done through the Office of the Employment Advocate. The advocate would simply check that the decision was that of the employee, not the employer, that the employee knows what they are doing, and then tick it off, as it were. This safety valve would prevent employers delivering their work forces en bloc to some inappropriate financial institution. It would also be a safety valve to prevent less informed workers being sold inappropriate and ultimately costly superannuation products. It would also be flexible enough to allow workers who know what they are doing to actually go ahead and run their superannuation as they see fit.

The final change that we are proposing is to give employees investment choice within their fund. This is, I believe, the most essential issue in building up employee ownership of their superannuation. Investment choice should cover not just risk profiles but also investment vehicles. I believe that many workers would, for example, want to have a say in how much of their superannuation is invested overseas, creating work opportunities in other countries. They might also like to have a say in how much is invested in venture capital, R&D infrastructure, housing and so forth in this country. At present, the onerous duties on trustees prevent them making these sorts of policy decisions because of the need to pursue the highest return wherever it is available. Giving employees more choice about where and how their money is invested could, over time, help bring some of the $60 billion in superannuation invested offshore back into Australia, creating new Australian job opportunities.

In conclusion, I believe that the choice model of the Democrats avoids the problems inherent in the government's proposals whilst addressing some of the problems with the current system. It retains the benefits offered in the existing system whilst also fixing some of its shortcomings. As such, I think it represents a fair and reasonable evolutionary improvement to current superannuation arrangements. It is my hope that the Senate supports our amendments when I move them during the committee stage.