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Economics References Committee
Superannuation guarantee non-payment

BOWTELL, Ms Catharine (Cath), Chief Executive, Industry Fund Services Limited

LINDEN, Mr Matthew, Director of Public Affairs, Industry Super Australia

MASSON, Mr Rod, General Manager, Corporate Affairs, Cbus Super

WELLS-JANSZ, Mr Keith, Executive Manager, Finance and Corporate Services, Cbus Super

WILES, Ms Vivienne Lee, National Industrial Officer, Textile, Clothing and Footwear Union of Australia


CHAIR: Welcome. Thank you for appearing before the committee today. I invite you make to make a brief opening statement, should you wish to do so, and then we will open it up for questions.

Mr Wells-Jansz : Thank you for the opportunity to appear today. Cbus commend the committee for examining the impact of non-payment of the super guarantee. This inquiry is an important part of raising awareness about unpaid super and an important opportunity to address this problem. Cbus are an all-profit-to-members fund. Our sole purpose is to focus on meeting members' needs and doing all we can to provide a positive member experience. As senators are aware, the construction industry is consistently identified as one of the worst offenders for unpaid super. The cash economy is widespread, employer insolvency is prevalent and phoenixes regularly rise from the ashes; consequently, Cbus devote considerable resources to ensure our members are paid their entitlements. This includes monitoring when companies fail or fall into arrears, encouraging compliance when this happens and pursuing debts when they occur. We believe that the quarterly payment cycle of SG contributions can create a risk of noncompliance, inadvertent or otherwise, and can significantly delay detection where noncompliance occurs. Consequently, we believe that a key policy measure is for superannuation to be treated the same as wages, and we recommend that it be paid congruently with wages across all industries.

Unfortunately, many people are still disengaged when it comes to super, which is why we also recommend a national education campaign to inform employees of their rights and employers of their responsibilities regarding SG compliance. We believe an education campaign would provide an opportunity to promote superannuation compliance and highlight the various tools available to help employers meet their obligations. Single Touch Payroll is one example, and another is the Cbus Employer Mobile App that was launched recently. This app allows businesses to make super contributions, add new employees, generate receipts and manage account administration all from the convenience of their mobile phone. We appreciate that superannuation can be complex for employers and for employees; however, given the tools available we do not believe there is any compelling reason that super cannot be paid at the same time as wages. We all lose from unpaid super. Individuals lose retirement savings, employers lose from cost arbitrage where good employers lose competitive advantage to employers who are noncompliant, the government loses revenue and the age pension is put under greater strain. Australia should be proud of our super system. It is world class but can be improved. If we make sure that super guarantee contributions are in fact guaranteed then we will all benefit.

Mr Linden : Thank you again to the committee for an opportunity to provide some further testimony. Committee members may be aware that ISA has made a supplementary submission providing updated research on unpaid super and crystallising recommendations to reduce the incidence of unpaid super. If I could take each of these briefly in turn, Phil Gallagher PSM has undertaken some further research using the ATO sample file, and in the updated submission has produced detailed distributions of unpaid super, including those who did not receive any contributions and had characteristics suggesting they should. Accordingly, we have identified an additional 610,000 people who are unpaid an average of $2,776 each in the 2013-14 year. Our original conservative methodology did not include this group.

Using the available data, we have also estimated that forgone contribution tax revenue is of the order of $838 million in a single year. We have estimated forgone earnings tax revenue of $117 million in a single year. We have also estimated that unpaid super has reduced superannuation income streams by $300 million in a single year, or $1,200 per year less per person affected. We estimate the lower superannuation savings result in higher age pension outlays of around $97 million per annum.

In respect of the key recommendations in our supplementary submission, we have made a number of specific ones, and I just want to outline the key ones to the committee. We are calling for the superannuation guarantee administration act to be amended to require at least monthly SG payments but preferably an alignment with payment of wage and salary income. Related to this, we believe the single-touch payroll should be extended to ensure real-time reporting of payments covers all employees, whether in large or small businesses, and contractors. The Superannuation Guarantee (Administration) Act should be amended to remove salary sacrifice loopholes; we have provided some specific recommendations on drafting to remove those issues. Another issue that needs to be addressed is to provide clear standing to employees of funds or funds acting on their behalf to recoup unpaid super. The committee should also consider removing the $450-per-month rule. Finally, existing exemptions within the Superannuation Guarantee (Administration) Act should be preserved to enable a single default fund to be nominated for employers or industry sectors where there is a higher risk of SG nonpayment.

On a final note, it is a little disappointing that the ATO or Treasury has not provided to the committee, almost three months since initiation of this inquiry, detailed analysis using their more granular matched unit record files to develop more accurate estimates of unpaid super. Such estimates are critical for measuring progress and better targeting employees at risk. Thank you.

Ms Bowtell : I will be brief. IFS welcomes the opportunity to appear today. Our submission, I think, was brought forward to give you practical insights into our business, which has more than 20 years experience in working on a daily basis with unpaid super, and there are probably three things that I would like you to take away from the submission. The first is the disconnect between the obligation to pay and the enforcement mechanisms that are available in the system. I know other submitters have talked about the workplace rights and the gaps in the coverage of workplace rights but, when you think about the trustee and their right to collect, in fact that is a very limited right and only exists in certain circumstances. Trustees at the moment have more visibility around the suspected nonpayment of super than any other agents in the system, and certainly more timely visibility than even the ATO at the moment, and they are motivated to do the collections work, so greater clarity around their standing to do that would certainly improve our ability to assist them in that. Given some other submitters have also raised the question as to not just their standing but whether they have an obligation to do that, some clarity around the obligations of trustees would also be helpful in the system.

The second theme, I think, that comes through across a number of the submissions, but certainly ours, is that the preponderance of nonpayment is in the micro business area, so single-touch payroll, while potentially a great benefit to the timely collection of superannuation, will not be effective, really, unless it extends throughout the economy. Stopping at employers of more than 20 is unlikely to see any relief at our end in terms of the work that we have to do.

Finally, on the point around the availability of information to trustees, it is an odd system, really, where the trustee actually does not know with any certainty from whom it is going to receive money, on behalf of whom it is going to receive money, and how much it is expecting to receive. So our work is based largely around the past practices of employers to estimate the debt, and then, where it is contested, of course there is a discussion about the size of that debt. A system where the employer was obliged to let someone know that they had chosen them as their default fund, whether it is the ATO or the fund, would certainly go some way towards closing that gap.

The last thing that I would like to do is to acknowledge that IFS is very proud of the work that we do here, and we have been doing it for more than 20 years. I have had the pleasure of awarding 20-year-service awards to some of our staff. They are very well motivated, they are very diligent and some of them are here today. So we do take the opportunity to publicly acknowledge the work that they do. They are passionate about making sure that ordinary working Australians have their super paid into their super accounts.

CHAIR: Thank you. Ms Wiles, do you have an opening statement?

Ms Wiles : I do. We welcome the opportunity to provide further evidence to the committee today. We think that it is important that you hear from unions that you do have a critical role to play in identifying, monitoring and enforcing compliance with the superannuation guarantee and award super obligations. It is easy to forget that at the heart of this issue we are talking about the entitlements and financial security of thousands of workers, many of whom are award dependent and low paid. We urge you to put their interests at the core of your deliberations.

In the textile, clothing and footwear industry, the nonpayment of award and superannuation guarantee superannuation is a significant issue of fairness and equity impacting on often-vulnerable workers, many of whom are women and from culturally diverse backgrounds. The phenomenon of nonpayment of superannuation works to entrench income, gender and class disadvantage and poverty. In our written submission we outline in some detail the characteristics of the TCF industry and the things that define nonpayment of superannuation in the industry, so we I will not repeat those.

In our view, the design of the current system of enforcement for nonpayment of super is inherently flawed both conceptually and in its administration. The framework of compliance and enforcement is reactive rather than proactive. It is primarily driven by individual employee complaints, yet noncompliance is systemic across workplaces, sectors and industries which are known to be high risk. In our view, that is a fundamental inconsistency.

As other parties have noted, the enforcement and recovery system is also fragmented between the ATO, the Fair Work Ombudsman and superannuation funds themselves. The legitimate role of unions in representing workers with respect to superannuation noncompliance is significant but is barely acknowledged within the compliance and enforcement system.

The ATO is the primary regulator in this area, yet there are many and diverse structural problems which limit the effectiveness of the ATO in recovering superannuation. These include the timeliness of information provided to the ATO, the fact that their enforcement system is too slow and cumbersome, the fact that there is no obligation for employers to report to the ATO of payments to employee superannuation funds, the fact that it is a complaint driven system, the fact that unions are unable to make formal complaints to the ATO on behalf of their members or other groups of workers and can only provide third-party information, the fact that payment plans can be entered into by the ATO with non-compliant employers without the consent or knowledge of affected employees or their union representatives, the fact that the ATO would appear from its own submission to take the default position in nearly all cases that payment plans are appropriate for most employers, the unacceptably slow transfer of superannuation amounts received by the ATO to members' super funds, the fact that workers only receive nominal interest rather than general interest on amounts owing to them, the low rate of direct penalty notices issued by the ATO and the capacity of liquidation or administration to extinguish a directed penalty notice in certain circumstances.

In terms of recommendations for change, we submit that the underlying principle of an effective and fair enforcement system for superannuation is to place the affected employee back in the position they would have been in if the superannuation had in fact been paid by the employer at the time required. Such a framework would need to address noncompliance in a structured, integrated, coordinated and systemic way which is proactive rather than reactive. It needs to remove the onus from employees and put it squarely back on employers, including directors in a personal capacity.

We support and recommend that employers have an obligation to report in real time to the ATO of superannuation payable and actually paid on behalf of their employees, that all employers be required to include on pay-as-you-go payment summaries additional information regarding superannuation liability payments made and for which periods, that unions have standing to submit complaints of underpayment on behalf of employees to the ATO and to receive subsequent updates of the ATO's progress, that the ATO not be able to enter into a payment plan with an employer for unpaid superannuation without the knowledge and consent of affected employees, that the ATO upon receipt of payments by an employer for arrears transfers those amounts to the employee's super fund in a timely manner rather than the current practice of six or 12 months, that employees also be entitled to the payment of general interest in relation to arrears and that the ATO make greater use of direct penalty notices against noncompliant directors of companies and particularly in relation to those employers who are serial offenders.

We support the single-touch payroll initiative, but we also say that it should not just apply to employers with 20 or more employees. In the TCF industry, that would essentially discount most of the employers in our industry. We also raise the issue of the role of the Fair Work Ombudsman, given that they are the national regulator of workplace relations, but it would appear that, in relation to superannuation, they have effectively vacated the field. We are not sure that is necessarily an effective way to deal with the issue.

A number of parties have raised the issue of the nonpayment of superannuation and the relationship to insolvency and phoenix activity. We outlined in our written submission a number of examples of that issue, and we do recommend that corporations law be strengthened to deter and punish phoenix activity by companies and their directors. We also recommend that the fair entitlements guarantee legislation be amended to expressly ensure that employees are eligible to seek payment for unpaid employee superannuation and also unremitted voluntary contributions.

The last point I am going to make is that, although it is not part of your terms of reference, I think the issue of unremitted voluntary superannuation is a serious issue. In our view, that should also be seriously looked at by government. Thank you.

CHAIR: Perhaps I will start with you, Ms Wiles. In your submission you talk about the period of time when there is a delay in wages and superannuation being paid. That can be a substantial period of time. I think on page 5 you talk about some site in Melbourne where underpayments persisted over a period of 20 years. What kind of impact does that have on the employees affected?

Ms Wiles : I still get shocked when I find workplaces where no superannuation has ever been paid. What is interesting about that is that often the employees, if they are aware that they are entitled to superannuation, have tried to raise that issue with the employer but essentially been fobbed off or threatened that the business will close if they have to pay the superannuation. These are usually in small workplaces with employees often from non-English-speaking backgrounds who are often very vulnerable and often low paid—if they are being paid the award minimum wage—or underpaid. So they are in very difficult situations. They are living week to week with very little disposable income other than their wages. For them, the impact on them is long term on their financial security and also on their retirement capacity. There is also another issue. If superannuation contributions are not in their super fund to a certain level, they may also lose other benefits generally available such as income protection insurance and disability insurance.

CHAIR: That is picked up on page 17 of your submission. There is a Queensland company that you raise there.

You say in that case study that the employer had made a payment to the ATO after having been in arrears on paying superannuation but that the ATO held onto that money and it was not forwarded on to the superannuation fund and that then had consequences. So what is your view on how the ATO is going about its role in SG compliance at the moment?

Ms Wiles : As I think I said, it is too slow. It is too slow in a number of respects. It is too slow to transfer the money to the super fund when it is received. Its communication with employees is also very poor. It is really common for employees to not even know that the ATO have even recovered any money. The reporting from the ATO back to the employee often takes many, many months and sometimes years. We had one case where a number of employees, members of ours, made complaints to the ATO and they literally heard nothing for three years and then they received a letter telling them that the company was insolvent and had gone into liquidation and the ATO could do nothing further for them. It was a really significant period. As I said before, employees are also quite surprised when they hear that the ATO have entered into a payment plan with their employer, because they are not told of that either. They are really left in the dark, which is ironic because it is their money ultimately.

CHAIR: You mentioned that there needs to be a shift in enforcement from reactive to proactive. Who do you think is best placed to perform that proactive enforcement role?

Ms Wiles : To reverse your question, I think relying on employees to be the primary source of a complaint is a flawed system because employees often do not know themselves. It assumes that employees can adequately monitor their own super funds. A lot of workers cannot. It assumes that they have the wherewithal to make a complaint or that they are not fearful in making the complaint. In our industry, there is a lot of fear of making any sort of complaint about workplace conditions, particularly about super, because there is always this overarching fear that the employer is going to close the business and they will not have a job. So I think we have to take that pressure away from the employees as the sole source of information and enhance other agencies. That may be unions, because unions do a huge amount of compliance activity in this space. We are quite happy to formally make complaints on behalf of members of workplaces. I think the role of the super funds needs to be enhanced. They do need to have standing to be able to recover money. I think the Fair Work Ombudsman probably also has a role as the national workplace regulator. We have a system that has built up over time and that is fragmented. I think the problems reflect that to some extent.

CHAIR: Thank you. Now I have questions more broadly to other members of the panel. Firstly, how do you monitor payment of superannuation to evaluate whether an employer has failed to make a payment? Is anyone monitoring individual employees to ensure that they are getting paid?

Mr Wells-Jansz : We contract with our fund administrator who has the capacity to run detailed reports in relation to the duration from which a contribution was last paid by a particular employer. We have those reports from 28 days after a month concludes, and then we have another report run 38 days after the month concludes and then another at 45 days. One of the requirements of our trustee is that employers who sign the contract and arrangement with us pay monthly. The expectation of our trustee is that that contribution is paid on the first day following the conclusion of a particular month. In our agreement with our administrator we run this reporting to effectively tell us which employers have not made those contributions at those particular points in time—28 days, 38 days and 45 days. We then write to those employers who are at 28 days and 38 days. If we receive no response by 45 days, we hand the case over to IFCC who we contract with on our collection requirements. Then IFCC run the process from there. There is another process which kicks in.

CHAIR: Being in the building industry, one would imagine that you would be fairly focused on this particular issue. Is your monitoring as to whether or not a payment has been received, full stop, or do you actually monitor the individual contributions received for employees to see whether there are any exceptions or anomalies?

Mr Wells-Jansz : It is very difficult for us to get the detail to do it on a member by member basis. It is incredibly difficult as we have 700-odd thousand members, so our major port of call is at the employer level. We have found that that approach has returned a significant dividend to us. When I say significant, I can give you an example: from 1 July through to the end of February the process has clawed back approximately $36 million in contributions that had not been paid at day 45. Ideally, you would have a system that would give you the granularity in which you could go down to each specific employee, but it is exceptionally difficult and exceptionally costly.

Ms Bowtell : Cbus is one of our clients and they have disclosed that in their submission. All of our clients have a similar process where it is the employer record rather than the member record that triggers a referral to us for arrears collection. Different funds will choose a different time period and different priorities, but it is always the employer record that is the trigger. It is the non-receipt of an expected payment: the quantum, the number of employees, the particular employees—you are really looking in the past to estimate the incidence of underpayment or non-payment, rather than to know with any exact particularity in relation to any particular member.

Mr Linden : To expand on that a little, from the fund's perspective at the individual employee level it is difficult to ascertain the circumstances if a contribution is not received. It may well be that they have left that employer. They might have taken a period of leave in which the superannuation guarantee is not payable. So, at the individual level, it is quite difficult and almost impossible to ascertain whether or not there has been non-payment. However, one of the advantages of default fund settings is that when you have an employer contributing to a single fund it is very clear to see the patterns of contribution in respect of the employees in the workplace who are using that particular default fund.

CHAIR: Can you elaborate as to how default fund status provides that extra degree of capacity to monitor?

Mr Linden : Most employers will have in place a default fund in the workplace. When a new employee commences they will receive a choice of fund form. They might elect to use a different fund. However, if they do not, there is a default fund that will apply. The advantage of that, in the context of the superannuation guarantee, is that, if an employer is making contributions on behalf of most of their employees to a single fund, when there is a pattern of payment it is somewhat easier to see instances where they have missed a payment or stopped paying altogether. As I might have explained in the earlier hearings in January, many of the funds have in place participation agreements, which Cbus alluded to, which put in place a framework in relation to what the expectations are with respect to payment of the superannuation guarantee.

CHAIR: The IFS submission states that you cannot monitor underpayment. Have you considered what information you would need to do this?

Ms Bowtell : It is not something we have spent time working on, but if you think about some of the answers that have already been given, we are basically working on an expected payment by an employer in respect of a number of workers, which will always change with people coming and going, changing funds, having leave and what have you. That underpayment will require a whole other layer of information in relation to the earnings base upon which superannuation is calculated. A fund, a trustee, has no information about the wages and salaries of the members for whom it is receiving contributions, so the estimate is generally a guesstimate of wages—it is actually just 9.5 per cent of something and you get the something. So the trustee has no line of sight at all to the wages and salaries of the employees, let alone the superannuable wages and salaries, but nor does the ATO. In fact, the only body with line of sight to the superannuable wages is the employer. The ATO knows your gross wages and your net wages, but it does not know the composition of the wages in terms of whether it is superannuable or not. So nobody has visibility of that except the employer.

CHAIR: The employer has that information. How practical or otherwise is it for that information to be provided to the superannuation fund?

Ms Bowtell : I will probably ask Mr Linden or someone else who is more closely involved with the single touch payroll initiative in relation to that. But I do understand that that issue is one that is a live discussion in those single touch payroll discussions. Technology being what it is, 20 years ago these things would have been an onerous burden on business, but presumably now if you have calculated it once in a spreadsheet, you can shoot the file around the system to whoever needs to get it.

Mr Linden : You may have heard at the last round of hearings the payroll providers provided quite detailed information in terms of the capability of their existing payroll systems and the capability that is required of single touch payroll as well. In order for those payroll systems to calculate a superannuation entitlement, it requires an ordinary-time earnings base to be established and that information is inputted and recorded by those payroll systems. So in terms of how technology is progressed, over the course of 25 years since the introduction of the superannuation guarantee, we now have much more available and affordable payroll software for employers which enables them to easily put in the basic information about their employee and their relevant fund and to calculate their superannuation and then, with the single touch payroll, for that information to flow through the SuperStream system for information on ordinary-time earnings base to be sent potentially at the same times with the same message. That information could be visible to the fund as well as to the ATO.

CHAIR: There is a concern raised by people objecting to superannuation funds getting involved in the recovery of superannuation. There is a provision in the SI(S) Act, section 62, which talks about the core and ancillary purposes of maintaining a fund. Are there any difficulties in funds using member contributions to recover unpaid separation guarantee? Does it violate that sole purpose test of section 62?

Mr Linden : I could perhaps quickly jump in. There is a range of obligations on trustees and the sole purpose test is one. In essence, the sole purpose test requires trustees to maintain the fund for retirement benefits for members. As a matter of logic, the contributions received by members go towards what retirement benefit they will be paid. So I think it is a fairly straight interpretation in relation to the sole purpose test and its application here. Cbus and others would be able to expand upon this. Obviously, members pay administration fees to a fund and one of the things that they would expect a fund should be able to do is to provide advice and assistance with their concern that they are not receiving superannuation contributions and potentially take action.

I would also point out there is another provision in the SI(S) Act, section 52(2), which are the covenants which require trustees to act in the best financial interests of beneficiaries. So there are a number of different fronts. There are also common-law and trust law provisions for the equitable duties of trustees to try and ensure that they have in their control assets for the trust which are for the benefit of beneficiaries. There are a number of potential legal obligations on trustees. I think where there is concern is that although there are these legal obligations for trustees, there is an absence of clear rights, potentially, for them to recoup unpaid super.

Senator HUME: Surely, if employees are paying additional administrative costs for their super fund to partake in these enforcement activities, essentially, employees of complying employers are subsidising non-complying employers.

Mr Linden : Subsection (2) of the sole purpose test makes it very clear that trustees are not expected, necessarily, to provide equal benefits for each and every member of the fund. However, across a whole range of administrative services that a fund operates, including call centres, there are only a small number of members who might phone up call centres seeking advice or obtaining intrafund advice or other information about how to best make contributions. There is some degree of cross-subsidisation, in relation to these basic administrative services. I do not think anyone is suggesting that members are charged a fee for service for a phone call they make to the fund about how their super works or how they can best utilise it.

Senator HUME: Do you think members are aware though that, potentially, the fees they are paying their superannuation fund are being used for that purpose? As a member of a superannuation fund, I pretty much know I am subsidising a call centre but I do not know whether I am subsidising forensic activities or enforcement activities that would recover superannuation for other employees of non-conforming or non-compliant employers.

Mr Linden : I might allow Cbus to talk a little bit about their membership. I would make the point that industry funds, generally, have very low administrative costs relative to their retail peers.

Mr Masson : We do test some of the value proposition that our members see in being with Cbus. One of the things that does arise in focus groups or other forms of testing is that they are very satisfied that the fund is looking after their best interests, including the fact that we do pursue the non-payment of superannuation. They can actually speak about those issues. A lot of them have experienced it and a lot of them know others who may have experienced it too. They do see it as a value proposition and they do believe that as a super fund we should be undertaking those activities.

CHAIR: Have any of the members ever challenged the role of the fund in pursuing the recovery of superannuation?

Mr Masson : None that I am aware of.

Mr Wells-Jansz : No, I am not aware of anything.

Senator HUME: But they are aware that that is what you are spending their administrative fees on?

Mr Masson : We put up the matters on the website, in terms of information, about the fact that we do chase arrears and the amount that we have recovered on behalf of members.

Mr Wells-Jansz : And whilst we do spend funds on this particular activity, the offset to that is that, in the absence of that, there are, potentially, tens and hundreds of millions of dollars that would not come into the fund as capital, and the lost earnings, and that fundamentally dilutes the scale we could get and therefore impairs the ability for us to broaden the cost base for all members. So there is a cost in running the function but, without those dollars coming in, the dilution of fees is not as effective across the entire membership—because you have a smaller capital base to build it upon.

Senator HUME: The $36 million you recovered, did you have an estimate of how much it cost to recover that $36 million, how much it cost Cbus and how much it cost Cbus's existing members?

Mr Wells-Jansz : To run the arrears function it costs us approximately $2½ million a year. That used to be a little higher, but we have restructured how we do it. We are always looking for ways to do it more efficiently and we have been able to do it more efficiently and, at the same time, push up our recoveries. This is an area that is very closely looked at. We look across our entire business for efficiencies but this is one of the areas we look at particularly closely, and we work very closely with our administrator and IFCC to make sure that the end-to-end cost of this function is kept to a minimum and that all efficiencies are exploited whilst not diluting our impact in clawing back contributions.

Senator HUME: Is it disclosed, explicitly, in your statements or annual reports or whatever it might be to members?

Mr Wells-Jansz : No. If you were to look at our financial statements you probably would not find that amount. The financial statements are based on a $36 billion entity, in essence, so it is probably not in our financial statements. In the context of the entire cost basis of the fund, with all due respect, that is quite small, so I think I would have difficulty showing you any specific public evidence of where that cost is spoken about.

CHAIR: The impression I get is that Cbus is the gold standard in recovering unpaid superannuation, which is the reason that you are appearing here. Do you get a sense that other industry super funds are following suit in this regard, or are you going it alone?

Mr Wells-Jansz : Ms Bowtell may be able to assist with this response, but certainly my read of how this transpires across the industry is that Cbus is certainly leading the pack in how it pursues and recovers contributions. That is not purely coincidental, because in the industry we operate in, as you would know, the instance of noncompliance is extremely high. So it may not be surprising that we are leading the pack, but that is certainly my view.

Senator HUME: Do you think that it is limited to the larger industry super funds, as opposed to the smaller ones? One of my concerns is that the smaller industry superannuation funds simply do not have the capacity to do what it is that you do. Can you comment on that.

Mr Wells-Jansz : All the industry super funds have an opportunity to engage with IFCC for assistance with this particular matter.

Senator HUME: Is that all industry super funds or all industry super funds that are associated with the ISA, or is that completely irrelevant?

Mr Wells-Jansz : ISA—

Ms Bowtell : ISA is completely irrelevant. We would work with any fund that wanted to engage with us. I think I mentioned in our submission that we have nine client funds, five of whom use us for their full, end-to-end process and others of whom use us only for the enforcement and insolvency. They include some of the very large funds and some medium and smaller funds. I think a greater predictor is not the size of the fund but the industry within which it operates. Those that operate in industries that are more likely to have smaller sized businesses, higher business churn and higher levels of insolvency are more likely to be IFS clients in relation to the unpaid super.

Senator HUME: What about the retail funds that you are aware of? What is their approach to the non-payment of superannuation guarantee?

Mr Wells-Jansz : My understanding is that the retail space does not invest and pursue as strongly as the industry fund sector does. That is just coming through my readings and my discussions with people in the industry. I used to work in a retail space, and certainly when I used to work there the focus on recalcitrant employers and recovery of unpaid superannuation was not anywhere near as strong as it has been since I have been with Cbus.

Senator HUME: Do you use debt collectors to go to employers?

Ms Bowtell : All of our work is undertaken from level 31 at Casselden, so it is phone based with some SMS messaging. We do not go and knock on people's doors. The call anatomy, as I think they call it, is a pretty soft call to start with, which it is partly because of the information issue. In the first instance we are verifying that the workers still work with the employer.

Senator HUME: So you verify with the members first?

Ms Bowtell : No, no: straight to the employer. We say: 'We were expecting a payment from you. It has not been received. We estimate it at about this much. Are you still in business? Do you still employ this number of people?'—and so on and so forth. That is a confirmatory call. If their payment is not received then we move further down towards more of a demand type call, but the first call is really a service-level call to establish that the employer is aware that they have not met the payment and to discuss why they might not have.

As Mr Linden alluded to, there will often be a legitimate reason why a payment has not been made: the worker is on leave, the worker has left or they have changed funds. Quite often there is a misallocation at the administrator, where people have different trading names, a different employer and so forth. So a lot of the early work is in identifying potential underpayment which is not underpayment, but it is also in confirming with the employer whether there is an unpaid contribution and the extent of that. Quite often that call is sufficient to trigger the payment, and the employer drops out of our system at that time. It is not a heavy-handed call at any stage in the process, but certainly the first call is as much an information gathering call and a reminder call, from our end.

Senator HUME: At what point does it become heavy-handed?

Ms Bowtell : It does not become heavy-handed.

Senator HUME: At all?

Ms Bowtell : When you issue proceedings in court some people may consider that heavy-handed, or they might consider it the operation of the law, but it is—

Senator HUME: The reason I am asking is that we had one witness who spoke of an incident where he had a debt collector banging at the door, and it was quite a confronting experience.

Ms Bowtell : That would not be one of our client funds.

Senator HUME: Well, I assume not. It was an industry super fund, though, according to him, and he said that it was an error on the superannuation fund's behalf; he had in fact paid whatever was required and yet he still had a great big burly man at the front door issuing demands. I think that that is working well beyond the remit of an industry superannuation fund, or any superannuation fund.

Obviously the objective of this inquiry is to make all the work that you are doing entirely relevant. We want to make sure that superannuation is paid in the first place. Ms Wiles, I know that you were saying that there are some significant inadequacies with the way the ATO is pursuing this at the moment, but I suppose that is because it is not given a complete mandate to do what it is that they should be able to do. I wonder, though, if there was a change so that the COSBOA solution that we have spoken about a few times in these proceedings—where all superannuation payments were paid directly to the ATO, and the ATO were the ones that associated with the superannuation funds rather than the employers—would simplify your lives quite dramatically.

Mr Linden : Maybe as I explained at the last hearing, I think technology has leapfrogged many of the issues that COSBOA has raised in relation to the difficulties that employers face with remitting superannuation guarantee. The software is readily available and affordable. The changes that were brought about with the Cooper review now mean that contributions are made on an electronic basis. Those systems in effect mean that it is employers who are obligated to pay superannuation guarantee, and the direct line of sight is to go to the superannuation fund, just as employers pay their wage and salary income direct to employees' bank accounts. I think going via an indirect route whereby they remit the money to the ATO, and the ATO then remit it to the fund, would give rise to administrative costs in the ATO that need not be borne. It is an employment condition, and the technology is, in our view, advanced to a point whereby it can happen very efficiently.

Senator HUME: And yet the industry super funds are still spending money on recovery. If technology has advanced to such an extent, surely the work that the industry super funds are doing would not be necessary? I am trying to think of an alternative solution other than increasing the requirement for the industry super funds or the retail super funds, or any superannuation funds, to beef up their enforcement provisions.

Mr Linden : The point I was making is we can see that single touch payroll, subject to government policy ensuring that it has broad coverage, has the potential to help solve this problem. However, there are fundamental issues with the Superannuation Guarantee (Administration) Act. As you are aware and as the committee has heard from many people making submissions, there are still three to four-month lags between when people see a superannuation guarantee amount on their pay slip and when it might be remitted to the fund, if indeed it is. That time lag is far too long, so the law needs to be amended to bring that back, and to have greater alignment between wage and salary payments and payments in respect of superannuation guarantee.

Senator HUME: I think we all agree on that. It is the ATO that has at least a better visual on what superannuation guarantee should be paid upon. As you said, Ms Bowtell, it is not perfect, but it is certainly better than what the funds have. The funds seem to be piecing it together from employers as opposed to actually having a good idea of on what basis superannuation guarantee should be charged. I am trying to find a way to simplify your life as opposed to complicate it, but there seems to be a natural resistance to this idea—particularly from industry super—and I am trying to work out exactly what that resistance is.

Mr Linden : I think that at the moment the ATO is not well positioned. That is the reason, as I might have observed, that the IFCC, I think with 55 full-time staff, is collecting two-thirds the unpaid superannuation guarantee that the ATO is with probably 10 times as many staff. It is very efficient.

The ATO does not have visibility at the moment of when payments are made by employers to funds; the funds do. With single-touch payroll there is the opportunity for that information to be made in a more timely way, both to funds and to the ATO—and to the ATO in respect of its compliance activities as well.

Senator HUME: Do you agree that single-touch payroll should be extended beyond the 20-employees limit?

Mr Linden : Yes, it should. It provides an opportunity and a means by which to ensure that there is the information to verify payment. And coupled with changes to the superannuation guarantee act to ensure that payment is made in a more timely way it means that money can hit members' accounts quicker than is currently the case, and there would be more visibility both for funds and for the ATO as well.

Ms Bowtell : I think there is also a question of motivation. I know that sort of goes to the 'vibe' of the thing or something! But if you look at what happens in the insolvency area, for example, quite often our team will contact the affected employees, chase pay slips, verify the dates they started and finished a job et cetera, whereas the ATO will rely on their records, or the insolvency practitioner will rely on the employer's books. Often neither set of records are particularly reliable, so the extra effort that is put in by a motivated agent—a private sector agent—can reap the benefits to the system.

So, while single-touch payroll, if it is extended, absolutely will be revolutionary in terms of timely visibility of payment and capacity to match the payment from the employer to a receipt at the fund by whatever route it gets there, there will always be a gap between the information that is provided and what was expected or which should have been paid. That is presumably where you will still need some enforcement agency.

I think part of the discussion today is that even if we all acknowledge that gap will be narrower, or in a different place, who is best positioned to then undertake that enforcement work? The factors that you would consider in relation to that are going to be things about ease of enforcement, transparency, accountability et cetera. We would say that funds with an obligation and responsibility can play a really important role in that, but so should other agents and actors as outlined by the TCFUA.

Senator HUME: You pre-empted my next question, which is: when you have a situation of non-payment due to insolvency, do you work with administrators? How does the fund recoup non-payment in the situation where a company is in trouble?

Ms Bowtell : We do primary research, really, to identify the scale of the debt and to verify that debt. We then lodge a proof of debt with the insolvency practitioner, as would any agency. We act as the agent of the fund in doing that.

Senator HUME: Right—that was my next question. You are pre-empting me! If you do take legal proceedings, in whose name do you do that?

Ms Bowtell : I believe we take it in the name of the fund, but I would have to check that for you.

Senator HUME: With the fund, not with the—

Ms Bowtell : But we have contracts with all of our funds, where we are their agent. Sorry, in the insolvency we stand in the name of the—I may be talking through my hat; I had better take the question on notice and let you know. That is probably best.

Senator HUME: All right. I think I have about three dozen different questions that I wanted to ask you but I think you have answered most of them. I will put the rest on notice. Thank you.

CHAIR: Thank you to the members of the panel. Ms Bowtell, I just want to join with you in acknowledging your IFS staff in the audience today and congratulate them on their very important work on behalf of superannuation members.

Ms Bowtell : Thank you very much.

CHAIR: Thank you.