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Tuesday, 14 August 2012
Page: 5197


Senator CORMANN (Western Australia) (18:30): I move coalition amendment (1) in relation to trustee obligations:

Schedule 1, item 9, page 6 (lines 1 to 20), omit paragraphs 29VN(b) and (c).

The coalition's amendment would remove section 29VN(b) and (c) of the bill, which impose the scale test. With MySuper not due to commence until 1 July 2013, the government has ample time to engage in meaningful consultation with industry if it wants to introduce a more practical test that would not have potential negative consequences for members of affected superannuation funds.

The coalition, as I mentioned in my speech in the second reading debate, has serious concerns about the new scale test provided for in this bill which requires trustees of superannuation funds to 'determine on an annual basis that there is sufficient scale in terms of assets and beneficiaries such as to not disadvantage the financial interests of beneficiaries relative to the financial interests of beneficiaries in MySuper products in other registrable superannuation entities'. Industry experts, such as those of the Financial Services Council, have provided evidence that such external comparison would be impossible to conduct in practice as a trustee will not have sufficient knowledge of other registrable superannuation entities in order to realistically make judgments on this and meet this test.

The scale test is based on a presumption that larger funds invariably provide lower fees and higher returns to members. There is no evidence to indicate that this presumption is correct in all cases. In fact, a number of smaller funds very assertively argue the case—and have the evidence to make this case—that they consistently deliver higher net returns than some of the larger funds. The scale test, if implemented in its proposed form, could be another potential source of advantage to the larger industry superannuation funds because they have existing scale. The scale test would create a significant new barrier to entry for new funds by making it difficult for them to achieve the required scale from the outset, which would lead to a reduction in competition in superannuation—which is of course not in the public interest. A cynical mind would come to the conclusion that this may well be the express intention of the government—that is, to provide yet another competitive advantage to their friends in the union dominated industry super funds movement. It may also lead to further consolidation and mergers of super funds that are driven not by any assessment of the overall best interests of the members but by concerns about meeting this technical and very arbitrary test. Industry groups have submitted that a better alternative would be an internal test based on a finite list of factors rather than the open-ended and poorly defined external test that the government has proposed.

It should be noted—and I drew attention to this in my remarks in the second reading debate—that the Cooper review into Australia's superannuation system, which was commissioned by this government, did recommend that MySuper products should have a scale test; but the scale test recommended by the Cooper review was quite different from the scale test in this legislation, which quite inappropriately seeks to provide yet another advantage to larger industry super funds. I draw the attention of the Senate to the recommendation in the Cooper review which says that trustees should 'actively examine and conclude whether, on an annual basis, its MySuper product has sufficient scale on its own, with respect to both assets and number of members, to continue providing optimal benefits to members.' That is recommendation 1.6 on page 25 of the final report of the Cooper review. This recommendation, with the use of the term 'sufficient scale on its own', clearly implies an internal test rather than the open-ended and poorly defined external test that the government is proposing in this legislation.

The government, and all senators across the chamber, should support this amendment so that this particular provision is deleted from the bill. If the Senate were to support this amendment the coalition would be in a position to support the legislation as a whole. This bill, in the way that it is drafted at present, is yet another example of a minister for superannuation who is deeply conflicted in this policy area. He is invariably focused on pursuing the vested interests of one segment of the financial services market at the expense of others instead of pursuing regulatory reforms that are competitively neutral and in the public interest. With those few words, I commend the amendment to the Senate.