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Monday, 26 November 2012
Page: 13124

Ms ROWLAND (Greenway) (13:11): I am very pleased to rise in support of the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012. This bill represents the third tranche of legislation which implements the government's Stronger Super reform initiatives. Of course, the Stronger Super reform initiatives are part of a broader reform agenda for superannuation which has been initiated by the government. The government's Stronger Super response, following the Cooper review, is one of three limbs to the overall superannuation reform agenda. The other two limbs are the Future of Financial Advice reforms, otherwise known as the FoFA reforms, which were passed by the parliament earlier this year, and the government's Stronger and Fairer Superannuation reforms, including an increase in the superannuation guarantee charge from nine per cent to 12 per cent by 1 July 2019, which have also been passed by the parliament.

The bill before the House contains eight schedules and establishes various rules relating to the operation of MySuper products. Before turning to some of the specifics of the bill, I believe it is opportune to reflect on the state of play regarding superannuation and the financial services sector in Australia. Last week APRA released its 2012 super statistics, which revealed that the value of Australia's superannuation savings is now $1.46 trillion and grew 13 per cent over the year to September 2012. In an ongoing uncertain global economic climate, these figures are indeed phenomenal—double-digit growth rates for the retirement nest eggs of Australians.

The positive industry response to the government's superannuation reform agenda is also evident in the enhanced products and services now being offered to consumers. One example is the launch by the ANZ last week of its new Smart Choice superannuation product, which has been designed with the government's MySuper reforms in mind. Together with the ING Living Super launch in September, it is a clear signal that the industry is embracing the MySuper reforms and launching new simple and affordable products accordingly. This reinforces the fact that MySuper products will be low-cost, low-risk superannuation products which provide those members with greater security. These changes will benefit those 80 per cent of members who are in the default strategy in their respective super funds but will not disadvantage those members who wish to take a more active role in managing their superannuation.

In his second reading speech for the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011, the minister stated:

… around 60 per cent of Australians do not make active choices in relation to their superannuation.

And this government believes that Australians should not be charged for valet parking when they are catching the train.

…   …   …

Having created an industry which flourishes on the back of compulsory savings mandated by legislation, it is fair that this industry, which benefits so much from the compulsory saving system in Australia, contributes to higher retirement savings through greater efficiency and lower fees.

These comments go to the heart of the recommendations of the Cooper review. Specifically, in the case of MySuper the final report included a covering letter statement, which read in part:

We have developed ten recommendation packages aimed at benefiting members.

MySuper sits at the heart of our recommendations. It is designed to focus funds on the core purpose for which they exist: optimising retirement incomes for members.

Key recommendation 1.2 in the review highlights of the report states:

MySuper is a simple, well-designed product suitable for the majority of members. The MySuper concept is aimed at lowering overall costs while maintaining a competitive market-based, private sector infrastructure for super. The concept draws on and enhances an existing and well-known product (the default investment option). MySuper takes this product, simplifies it, adds scale, transparency and comparability, all aimed at achieving better member outcomes.

In its recommendations, the Cooper review used the terminology of the superannuation system architecture recognising four types of members. The first two are particularly relevant to the rationale for the MySuper model, namely members who simply want someone else to take care of all their superannuation services needs for them—MySuper is particularly designed to cater to these members—and members who want to exercise choice over the investment strategies applied to their superannuation balances but want to have their accounts administered for them. These members can elect to be in the choice segment—although they might decide that a MySuper product meets their needs and elect to have their money invested there—or in a combination of MySuper and choice products.

Recognition of this rationale is not isolated. In a September 2010 speech to the Australian Conference of Economists, Dr David Gruen of Treasury argued that, against the backdrop of increasing evidence from behavioural economics, we can no longer run with the conventional economic wisdom that suggests consumers of financial products are the best judges of their own interests. Market failure does occur and when it does it is appropriate for government to step in. He quoted from the Wallis inquiry final report in 1997, which stated:

For many financial products, consumers lack (and cannot efficiently obtain) the knowledge, experience or judgment required to make informed decisions. This is … a situation where further disclosure, no matter how high quality or comprehensive, cannot overcome market failure.

In these cases, it may be desirable to substitute the opinion of a third party for that of consumers themselves.

Dr Gruen also explained in convincing terms the policy rationale for MySuper and the initiatives contained in this bill. He said:

… a key driving principle behind MySuper is that, for those people who do not actively choose an option for their superannuation savings, we want public policy to mandate a default option with carefully designed features that we judge will promote the wellbeing of those who use this option.

Crucially, this mandated default option is not imposed on anyone. Freedom of choice is a central feature of the choice architecture model that underpins the MySuper proposal. Actively engaged people can choose a MySuper default option, or they can choose from a potentially wide array of alternative 'choice' options.

The evidence is that around 80 per cent of members of superannuation funds in Australia are invested in the default option in a super fund chosen by their employer or an award. Of that 80 per cent, anecdotal evidence suggests around 20 per cent explicitly choose the default option, with the rest making no active choice.

Turning to some of the specifics of the bill, I would like to highlight a selection in the time available to me. Schedule 3 addresses the collection and disclosure of information. It implements new data collection and publication powers for APRA in relation to superannuation and imposes new disclosure obligations on trustees, including publishing their full portfolio holdings and a product dashboard on their website. This provision improves transparency by expanding the coverage of APRA data collection, ensuring the publication of data on MySuper products and improving disclosure for superannuation. This is a direct result of the Cooper review's final report, which stated:

Transparency and comparability are critical to the efficiency and operation of a market‐based savings system, even where participation is compulsory. The Panel believes that there is presently a lack of transparency, comparability and, ultimately, accountability in the Australian superannuation system that can only be effectively improved through targeted and proportionate regulation.

The provisions in this bill will rectify this issue of a lack of transparency in the Australian superannuation system by expanding APRA's role in the collection and publication of data in superannuation entities. As outlined by the Parliamentary Joint Committee on Corporations and Financial Services in its inquiry into the bill, this data will allow members, employers, the industry and other stakeholders with information to compare the performance of superannuation products, enhancing the accountability of trustees to their members.

There is a requirement for funds to disclose their full portfolio holdings. The rationale for this provision, similar to what I have discussed, is that superannuation fund trustees should be aware of what they invest members' savings in, and, given that superannuation is a compulsory system, members should have access to this information. However, the government has indicated that it will consider whether to extend portfolio holdings disclosure requirements to managed investment schemes, again as recommended by a PJC inquiry, this time into the collapse of Trio.

On accrued default amounts, the government has determined to define accrued default amounts broadly. The rationale here is that this will allow funds to convert their default investment option to a MySuper product rather than having to determine the status of every member. Importantly, this is consistent with the recommendations of the Cooper review. Members will be notified before a transfer occurs and will have the right to opt out. Therefore, no member is forced to transfer if they do not want to. Trustees will have up to four years to communicate with members about their options. Therefore, this approach ensures that all members that need to be protected are transferred to a MySuper product and any members who wish to make their own choice are free to do so.

There is the issue—and it is often said—that, if MySuper is about the disengaged, why should members who have chosen a fund be moved to MySuper? The important point to note here, as I have set out in the evidence and opinions from the Cooper review, Treasury and the industry itself, is that MySuper is not just about disengaged members. The Cooper review recommended that default investment options should be subject to heightened duties and specific rules. The review did not differentiate between how members were placed in a default investment option; rather, it recommended that all members in the default investment option should be within MySuper. The review noted that members would be placed in MySuper by default and that members would also be free to choose MySuper if they wanted a simple and low-cost product. Members who have made an investment choice in the past should not be excluded from being in a MySuper product in the future.

Why should members who have selected the default investment option be moved to a MySuper product? Again, the Cooper review recommended that members currently in default investment options should be placed in MySuper products. Some members who choose the default investment option simply want the trustee to make investment decisions for them. As the trustee will be responsible for the investment decisions in MySuper, these members should be moved to a MySuper product. Members who want to remain in the default investment option will be able to opt out.

Some of those opposite have argued that there has not been enough consultation on MySuper. Whilst these views are clearly misguided, we should not have high expectations in this regard following some of the mistruths and inaccuracy being peddled by some of those opposite. There has been extensive consultation with industry in relation to the MySuper reform initiatives. The Australian Institute of Superannuation Trustees, a peak industry body in the superannuation sector, told a recent PJC inquiry into the bill that there had been a 'significant and extensive' consultation process over a period of 'about 20 months' dating back to the start of 2011.

The MySuper reforms are complemented by the SuperStream initiatives, which are designed to clean up the back office administrative elements of the superannuation industry. Treasury's regulatory impact statement on Stronger Super implementation in September 2011 described the SuperStream initiatives as designed to 'improve the productivity of the superannuation system and make the system easier to use'.

The benefits which will result from the implementation of the SuperStream and MySuper reforms are many and will touch members and industry participants alike. Fund trustees will be relieved of administrative inefficiencies which distract them from their duties to members, and members will benefit from greater confidence in the superannuation industry. Treasury estimates that the annual savings resulting from SuperStream and MySuper will amount to $1.55 billion in the short term and $2.7 billion in the long term and that the average member will see an increase to their final superannuation balance of $40,000. These are impressive developments that the government can indeed be proud of on behalf of all members of the Australian public, and I am delighted to be able to extend my support to such great initiatives.

There are several benefits associated with this bill. In the time available to me, I have sought to highlight some of them. With the passage of this bill, it is evident that many working Australians will receive a very tangible benefit from the measures implemented by this bill. These actions are also a genuine reminder of this government's continued commitment to policy delivery and achieving its vision for the future of Australia. This bill is a genuine illustration of this government's commitment to increase the efficiency and effectiveness of the Australian superannuation system. I urge all members to support this bill.