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Tuesday, 14 August 2012
Page: 5042


Senator THISTLETHWAITE (New South Wales) (13:08): I speak in support of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill. Superannuation is the backbone of the strength of the Australian economy. Australia, a relatively small nation in terms of our population, with around 22 million people, has the fourth largest pool of savings funds of any nation throughout world. In March 2011 APRA estimated the value of the pool of superannuation funds in Australia to be $1.3 trillion. What does that money go towards? What happens with the money that is sitting in that pool of superannuation funds?

In a market economy such as Australia, savings equals investment. In other words, all of that money that is sitting in the superannuation funds and bank accounts of Australians is invested in our economy. It is invested in businesses, it is invested in projects and it is invested in infrastructure. That is what has been occurring in the Australian economy. That is the reason our economy performed so well during the global financial crisis.

Anyone who has been to Sydney recently would have seen a new building that has popped up: No. 1 Bligh Street. It is an enormous building, about 40 storeys high. It is the most environmentally friendly building in Australia, having a six-star rating. It is being occupied as a commercial premises being leased by companies. What many people would not know is that that building was built by superannuation fund members. They invested in the building and construction of that project, creating thousands of jobs for Australians and creating a hallmark for environmental standards in our country. That building was built by Cbus, the construction and building unions superannuation fund, the people that Senator Cormann says are a union dominated superannuation fund. It was a wise investment by a smart set of trustees on a superannuation board. That pool of investment funds creates jobs in our economy, jobs for Australians.

I mentioned earlier that it is one of the reasons why Australia performed so well during the global financial crisis. Last year the Association of Superannuation Funds of Australia engaged Allen Consulting Group to prepare a report. The report, entitled Enhancing financial stability and economicgrowth: the contribution of superannuation, found: 'Superannuation funds were one of the main sources of equity financing for companies through private placements when debt financing became unavailable or unaffordable for Australian companies during the global financial crisis. The superannuation industry played a disproportionately large role in assisting corporate Australia to lower corporate risk during the global financial crisis.' During the global financial crisis we had instability in financial markets, with speculative investors withdrawing their funds—that money that ordinarily goes to funding projects, businesses and jobs in our economy. Because of the large pool of savings in superannuation, Australian superannuation funds entered the breach and invested and ensured that our economy remained strong. The crux of the report prepared by Allen Consulting is that superannuation in Australia is a winner—a winner for our economy, a winner for businesses, a winner for investment and a winner for members of those superannuation funds and their retirement savings.

As the pool of superannuation funds in our economy grows, so does the risk. There is an increasing risk of fraud, and we saw that occur with Trio Capital. Senator Cormann and I sat on the Senate inquiry into the collapse of Trio Capital. In the case of Trio, predominantly self-managed superannuation funds but also industry funds were subject to fraud, and many innocent Australians lost money because of the dishonesty of a few unreliable business people in this country. We also saw bad investment decisions and of course a general downturn in the economy. Many Australians and many people throughout the world lost money in terms of their superannuation balances during the global financial crisis because of the general downturn in the stock market.

Any good government makes sure that, periodically, a policy or particular law continues to meet its objectives. Just like getting your car serviced, it is important that, as a government, we continue to check that particular laws and policies meet their initial objectives and are delivering for the Australian people. That is what this government did in 2009 with superannuation. We commissioned Jeremy Cooper to undertake a comprehensive review of Australia's superannuation system—to check under the hood, if you like—to see if it was meeting its objectives of delivering adequate retirement savings for Australians but also doing so in an efficient, effective, fair and moral way. Jeremy Cooper published his report in 2010 after a year of consultation with people throughout the industry. He made 10 packages of recommendations. They included things like increasing the superannuation guarantee from nine to 12 per cent and introducing MySuper as a default, simple product that people could access that had low fees, simple investment decisions and the like. He also, importantly, made recommendations relating to trustee governance and investment governance.

This bill before the Senate today delivers those recommendations. It ensures that we are providing better outcomes for superannuation members in this country. It ensures that they can have greater trust in the way that their funds are being managed by trustees of superannuation funds. The way that we do this is through three elements. Those three elements are: to apply new trustee duties to superannuation entities that offer the default MySuper products, to expand the general duties of superannuation entities that hold licences and to introduce a power for APRA to make prudential standards.

The enhanced trustee duties will apply to any MySuper product or an entity that offers a MySuper product. They will include ensuring that the financial interests of MySuper members are placed above any other potential interests or conflicts that may come. They will also include an annual determination of scale. This means that the trustees have an obligation on an annual basis to check that the financial interests of their members are not disadvantaged in relation to those in other comparable funds due to insufficient assets and to ensure that members get adequate returns for their investment. The opposition are opposed to this, but it came about as a result of a recommendation from the Cooper review. It ensures that those who may be involved in smaller funds with smaller asset bases are not being disadvantaged compared to those in bigger or middle-tier schemes and ensures adequate investment returns for members. The trustees will look at targeting investment returns and the level of risk. The target will be an expected return over an average rolling period of 10 years. The trustees will look at the investment risk and the expected return over a 10-year period and report that to members of the fund so the members can make adequate decisions about where to invest in coming years.

There are also a set of new covenants or duties for superannuation funds in Australia and they go to the standard of care, skill and diligence that must be offered to members. A prudent superannuation trustee will be the new test which needs to be applied to the care, skill and diligence in operating a fund. Previously, the test was to apply to a prudent person, but the new test will be a prudent trustee. In relation to conflicts of interest, there is a new obligation on trustees to give priority to duties and interests of beneficiaries above all other persons and corporations. This ensures that the benefits and interests of a member are put ahead of any other potential decisions or conflicts that may arise that trustees have to consider.

There is a duty to act fairly in dealing with all classes of beneficiaries. In superannuation funds there are different classes of beneficiaries who invest in different schemes, depending on what stage of life they are at. This obligation ensures that the trustees of those superannuation funds consider all classes of beneficiaries, not particular classes of beneficiaries, in the operation of a fund. In terms of investment strategies, trustees are now obliged not just to look at the whole of the superannuation fund and its performance and decisions related to investment strategy but to go a level below and look at different classes of investors within particular funds. That will include looking at matters such as the amount of information that is given to particular classes of investors, the tax that they may pay and any ongoing liabilities that they may have in respect of their particular investment.

Another obligation will relate to insurance. On an annual basis, the trustees of the fund will be required to assess the insurance strategy that they are taking out on behalf of members. The RSE will be required to formulate, review and regularly look at the insurance strategy for the benefit of beneficiaries. That will include looking at the kinds of insurance that are offered to members of the fund, the level of insurance that may be appropriate to each fund member and, of course, the cost of that insurance.

A new obligation will be to assess, on an annual basis, operational risk. That does not mean investment risk; it means the operation of the fund and any risks associated with that. It relates to potentially failed internal processes and systems that may disadvantage fund members financially. Now, because of these reforms, trustees will be obliged to assess that risk on an annual basis. They will also be obliged to assess and develop a risk management strategy.

There are new covenants for individual directors. Where the rules do not include duties, they are taken to be included because of this law. Those duties are to act honestly, to act in the best interests of members of the superannuation fund and not to enter into a covenant that would be in conflict with the interests of superannuation fund members.

The aim of all of these reforms and of the new interests and duties that are introduced by this legislation is to ensure better service, better results and better efficiency for members of superannuation funds by applying higher standards. Again, these came about as a result of the extensive consultation undertaken by the Cooper review.

The third element of the reforms is to ensure that prudential standards are improved. The law gives APRA the power to make general standards with respect to superannuation funds relating to prudential conditions. This is consistent with the recommendations of the Cooper review. The prudential standards will be available to be made on any matters including: protecting the interests of members; ensuring that the conduct of a superannuation entity or licensee connected to that meets the reasonable expectation of members; keeping an RSE licence or connected entity in a sound financial position; ensuring the conduct of an RSE licensee does not cause or promote instability; the appointment of auditors and actuaries; and the conduct of audits and actuarial investigations. Again, this is ensuring that the standards that relate to superannuation are improved and increased in our economy and that superannuation fund members can have greater confidence that the checks and balances related to their investment are increasing, and that ultimately, hopefully, their fund performance will improve.

Senator Cormann made much of the issue associated with the elements of the bill that those opposite are opposed to. He mentioned the timeline of 1 July 2013 and said that there was adequate time to reform this bill and to go through another process of investigation. That is not the case at all. Although MySuper does begin on 1 July 2013, it will take APRA at least 12 months to write the prudential standards associated with the commencement of this bill. That is why it is important that the Senate pass this legislation today. I reiterate the point that Jeremy Cooper undertook a comprehensive, close to nine-month consultation with those who work in the industry, representing all different facets and organisations in the industry. He called for submissions and there was the opportunity for super fund members right up to the associations to have their point of view put. So there has been adequate consultation in respect of these reforms.

The aim of this bill is to improve the governance of superannuation funds in Australia, to improve the efficiency and the quality of the superannuation system in Australia, and to ensure that beneficiaries are maximising the returns and getting better information for their investment and their retirement savings in our economy. It also ensures that our economy maximises the investment that can be undertaken through superannuation and the benefits for our economy that flow from job creation and growth.

I do want to make a point about the comments of Senator Cormann and his 'union-dominated superannuation funds'. The fact is that those opposite have never been supporters of the introduction of superannuation. When it was introduced by the Keating government in 1992, those opposite opposed it. They could not bring themselves to agree to a scheme that allowed workers in this country some say over their retirement incomes. That view has never changed, and here we still hear the rhetoric from those opposite about union-dominated superannuation funds.

Let us look at the performance of these superannuation funds: $1.3 trillion in investment income for our country, which helped us to survive through the global financial crisis, and investment in projects in infrastructure, creating jobs for Australians. Some of those so-called union-dominated superannuation funds are the best-performing investment vehicles in our economy. It comes back to the fact that those opposite cannot, and have never been able to, bring themselves to agree that workers should have a say in the allocation of investment portfolios and money related to their retirement savings. That is what this is all about. They have never got over the fact, and they never will, that workers and their representatives have the right to sit on superannuation fund boards and make decisions about the allocation of investment funds in our economy. Every chance they have had they have tried to whittle down and water down that system. They introduced choice legislation during the years of the Howard government because they believed that by introducing choice workers would flee industry funds and go and set up their own superannuation funds or go out and join corporate funds and the like. And what happened? The position of industry funds was actually strengthened, because the best-performing funds—

Senator Conroy: And they were cheaper.

Senator THISTLETHWAITE: As Senator Conroy points out, the cheapest funds were the industry superannuation funds. They were the best performing and the cheapest, so naturally workers and investors flocked to the industry funds. It backfired on the opposition and it will again, because this government is committed to increasing the pool of superannuation funds from nine to 12 per cent, to simplifying the system by introducing MySuper, to ensuring that Australians can have greater confidence that their pool of superannuation funds are being invested wisely and that the trustees' obligations are being increased. That is why this bill is necessary, and I commend the bill to the Senate.