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Thursday, 9 December 2004
Page: 34

Senator MURRAY (11:33 AM) —In this debate on the disallowance of the Superannuation Industry (Supervision) Amendment Regulations 2004 (No. 2) I am standing in for the Democrats' portfolio holder, Senator John Cherry. Although I suppose I have an intelligent interest in this matter, I certainly cannot reach the levels of expertise in superannuation which he carries and which have contributed to great jousting with Senator Sherry before.

Senator Sherry —Don't be modest.

Senator MURRAY —I should for the record acknowledge that in my opinion Senator Sherry, as well as Senator Cherry, is one of those in the parliament who have a very deep understanding of these matters. It is incumbent on me to disclose that I do have an interest in a self-managed superannuation fund. That is on the record, but I will put it on the record again. I compliment the Labor Party on bringing on this disallowance motion. Although they could have held it over for a further 13 days, I think it is far better to get the certainty of this matter established and resolved. So that is a good thing, despite it being a somewhat pressured day, as it is the last sitting day of the calendar year.

The Australian Democrats are concerned that the integrity of the superannuation system is being and has been abused by the promoters of aggressive tax planning involving the use of small self-managed superannuation funds. The Senate Economics Legislation Committee's inquiry did not quantify the extent of the abuse—I doubt that it could—but did confirm to the Senate that this abuse is occurring. The Democrats are generally supportive of any measures to close tax abuse loopholes and we support regulations 5.04(2), 5.08 and divisions 7.1 and 7.2 which apply specifically to forfeiture arrangements and allocation of contributions to reserves within accumulation funds. The application of divisions 9.2A and 9.2B in the regulations, which apply to the provision of defined benefit pensions, has been more controversial.

The Democrats acknowledge that it is more appropriate for lifetime pensions to be paid from large superannuation funds that are better equipped to deal with the inherent mortality, investment and liquidity risks. Having said that, we do not believe that lifetime pensions should be necessarily purchased from just the large life offices. We obviously support a competitive market. In our opinion, the integrity of the taxation system has to be addressed. Strategies such as RBL compression, even if they are not widely being used at present, should be nipped in the bud—to use the Treasury's expression. We expect the announced Treasury review of the defined benefit pensions, due to be finalised by April 2005, will include a broader review of the taxation treatment of superannuation pensions and might well occasion an adjustment of these regulations. I presume the Treasury will be informed by some of the views expressed today by all parties in the Senate.

We believe that allocated pensions and market linked pensions are more appropriate for a small self-managed fund, partly because they do not involve the annual actuarial compliance costs associated with lifetime pensions. The changes that have applied since 20 September 2004 do increase the options available to members of self-managed superannuation funds. We are also concerned by the heavy selling of self-managed superannuation by certain elements of the financial sector, often to people whose balances are so low that the high management fees are not justified. There is a clear need to educate investors with smaller superannuation balances about the high costs and risks associated with self-managed funds.

In our opinion, the government's budget night announcement of its intention to improve the integrity of the superannuation system by addressing a range of tax avoidance strategies was admirable. However, we are concerned that simply removing the ability of small self-managed funds to pay lifetime pensions unfairly reduces the options available to legitimate members of self-managed funds. Our preference would be to correct the perceived tax avoidance opportunities that have driven the marketing of lifetime pensions from self-managed superannuation funds. Disallowance of the regulations would allow this tax avoidance and abuse to continue for another year, which is concerning. A preferable approach might be to seek to amend the regulations to address the concerns outlined by the opposition and by us.

We have come to the conclusion that, if the regulations are disallowed, wealthier Australians will continue to abuse the tax system through self-managed superannuation funds. Overall, we believe that the greater mischief that the regulations address is more important than the lesser mischief that the regulations are seen to cause. Accordingly, we will not be supporting the motion to disallow.