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Thursday, 29 November 2012
Page: 10343

Senator THISTLETHWAITE (New South Wales) (18:05): It is appropriate that one of the final bills that this Senate debates in the course of this year is a further addition to the government's reforms to superannuation. This bill, the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012, is the third tranche in a series of reforms aimed at strengthening our superannuation system, providing greater transparency, accountability, efficiency and ultimately productivity for members and funds throughout the country. Before this, the Senate approved the Superannuation Legislation Amendment (MySuper Core Provisions) Bill and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill. Each of these two bills includes elements to implement the Stronger Super arrangements, to implement a low-cost and simple superannuation product that will replace the existing default superannuation funds.

This bill introduces a number of very important reforms to superannuation, particularly in relation to the abolition of fees relating to commission payments and the establishment of the rules for intrafund advice and for collection of disclosure of information by APRA and greater information for members.

In respect of fees relating to commission payments, an applicant for a registered superannuation entity applying to offer a MySuper product must elect that they will not charge any member a fee regarding the MySuper product, that relates directly or indirectly to conflicted remuneration to a financial service licensee. Importantly, there is a second part of that election, and that requires the applicant to prohibit a registered superannuation entity licensee from paying premiums on insurance policies that have embedded commissions.

In respect of performance based fees this law sets five criteria that must be contained in the terms of an arrangement the fund has with an investment manager. Those criteria include that fees are appropriate to the investment to which they relate, measured by performance of a similar investment product; are determined on an after-cost or after-tax basis; and include disincentives for poor performance.

In respect of intrafund advice—this is advice which is dispensed to members for which the cost can be covered across the full membership of the fund—restrictions on the types of personal advice that superannuation trustees can charge across the membership are introduced. A trustee is not able to charge across membership for personal advice if the person has not acquired a beneficial interest in the fund or the advice relates to a product other than a pension fund or a cash management facility, or the advice relates to consolidation, or if the advice relates to ongoing personal advice.

Collective charging for advice is allowed if it is related to a pension fund, a related insurance product or a cash management facility. Built into these laws are regulations for further circumstances to be added with respect to intrafund advice. So, again, we are tightening up the criteria for the charging of intrafund advice so that members of superannuation funds are not burdened with unnecessary costs.

General fees can only be charged in respect of an advice fee, an activity fee and an insurance fee. But all must be charged on a cost-recovery basis. Entry fees, under this legislation, will be banned and certain buy-sell spreads, switching fees and exit fees can only be charged on a cost-recovery basis. The bill also, importantly, deals with insurance in relation to MySuper products, and it stipulates that the trustee must provide MySuper members with death and permanent incapacity insurance to a minimum level unless the member opts out or the fund permits a lower level of life insurance.

One of the highlights and strengths of this bill is greater disclosure and collection powers for APRA with respect to information that relates to super fund members. Superannuation is a compulsory system of retirement savings, so it is entirely appropriate that superannuation licensees do everything that they reasonably can to ensure that there is complete transparency for financial product members in respect of the fund that they have an equitable interest in. To achieve this, APRA will be given additional powers to collect additional data from superannuation licensees. And APRA will be required to publish this data on a quarterly basis on their website and ensure that information relating to returns, fees and costs of all MySuper products is available to the public.

The bill also introduces the notion of a product dashboard—an easy, simple to understand, publicly available portal that superannuation funds must provide to their members and members of the public. The information that will be required to be provided on the product dashboard will include the investment return target, the number of times the current target has been met in the last 10 years for the particular fund, the level of investment risk, the statement of liquidity of the fund and the average amount of fees and other costs. Funds will also have to disclose the remuneration of directions and executive officers of the fund.

So, once again, we are improving the amount of information and the transparency associated with the management of the fund for members. The bill deals with the listing of particular MySuper funds in modern awards. Senator Cormann has made some comments about this and the fact that the opposition still cannot get over the fact that industry super funds offer better value for money, lower fees, better net investment returns and lower commissions for members.

This has been proven over many years, and when the coalition sought to introduce choice of superannuation fund legislation they believed that there would be an exodus from superannuation funds that were managed by industry bodies and those that involved joint management, but again they were wrong. In fact, people tended to move to industry funds because of their superior performance.

What the government has done with respect to modern awards in this bill is adopt the recommendations of the Productivity Commission. In conjunction with the reforms that have been passed by the Senate relating to the Fair Work Act, that will provide for default funds to be listed in awards that must be authorised to provide a MySuper product.

The point that Senator Cormann fails to recognise and disclose to the Senate is the fact that every employee has the choice of which fund they pay their superannuation into. When anyone begins a job these days they get two forms—an employment declaration form relating to a tax file number and a choice of superannuation fund. Even when we begin as senators here we get a choice as to which superannuation fund we contribute. It is a choice all Australian employees have. Employees have the choice as to which fund they pay into; it just happens to be the fact that most employees choose to pay into industry based funds because of their superior performance.

The bill also deals with defined benefit funds, and exempts certain employers from making contributions into MySuper funds if their employees are being looked after in terms of their contributions being made into a defined benefit fund. Importantly, the bill also deals with the process of transition from current default funds into the MySuper regime. These transitional provisions ensure that by 1 July 2017 all employees in default superannuation funds have made the transition into a lower cost, more competitive and efficient MySuper product. The amounts that are transferred are referred to as 'accrued default amounts'. The amounts that will be transferred as accrued default amounts will be amounts where a member has not exercised investment choice or amounts held in a default investment option for the fund.

As Senator Cormann has mentioned, the government has agreed in the House of Representatives to amendments to the original legislation that would exclude funds held in cash, in particular funds where the member has directed the fund to hold those funds in cash for whatever period. Of course a member can opt out of the transfer process in writing at any time. The provisions also deal with eligible rollover funds and their basis as a temporary repository for the interests of members who have lost connection with their superannuation accounts. Schedule 7 of the bill amends the SI(S) Act to require trustees to obtain authorisation from APRA to operate an eligible rollover fund.

That is a summary of the provisions of the bill. Again, they deliver on this government's commitment to make superannuation in this country simpler, more affordable, more efficient and easy to understand. It is part of the government's commitment to providing a stronger superannuation system; to ensuring that as our population ages, as it places more and more pressure on our social security system, we are growing the nest egg of retirement savings, but we are also doing that in a manner that is fair for employees and provides greater efficiency for members of superannuation funds and, indeed, the business community as a pool of investment funds. I commend this very important bill to the Senate, and I congratulate Minister Bill Shorten for his excellent stewardship of the government's MySuper reforms over the course of this year.