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Monday, 19 March 2012
Page: 2173

Senator THISTLETHWAITE (New South Wales) (19:39): The Parliamentary Joint Committee on Corporations and Financial Services report into the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 and the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012 gives rise to an important element of the government's Stronger Super reform package and is part of the second tranche of major reforms to this country's financial services guidelines and system.

These reforms come about as a result of a comprehensive review that was undertaken by Jeremy Cooper in 2010 into Australia's superannuation system. That review looked at a number of aspects of the administration, efficiency and investment outlook for superannuation in this country. A number of important conclusions of the Cooper review have been taken up by the government and become part of a process of reform to strengthen our superannuation system moving forward. It is not only an important investment and savings vehicle for this country but also important for the futures of millions of working Australians.

One of the striking conclusions and findings of the Cooper review was the fact that, despite compulsory employee superannuation in this country, in many cases there are very low levels of financial literacy when it comes to individual members' superannuation investments. We all know there is a level of disengagement in the wider community regarding superannuation and in particular the individual aspects of a member's portfolio and the services that are available to members of superannuation funds such as insurance.

The committee also found that, for those who do not avail themselves to the choice of superannuation funds and who are not engaged with their own superannuation and retirement incomes and the associated services, there is an inadequate level of protection. Many members of superannuation funds are paying for services that they do not need or that they do not request. In some cases they were paying for services they did not even receive. Given we have such a large and growing pool of investment funds in superannuation—$1.3 trillion and growing—and having created an industry which flourishes on the back of compulsory savings that are mandated by legislation, this government believes 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, lower fees and better information for members of superannuation funds.

This suite of legislation that is the subject of this report will add to the efficiency of the system and in particular to the provision of relevant information for members into the future. The aim of the MySuper legislation was to provide a basic, low-cost default superannuation scheme for those members identified in the Cooper review as disengaged and not availing themselves of the services that are available in respect of their savings. The characteristics of a MySuper product will be a single diversified investment strategy; equal access to options, benefits and facilities for all members; amounts attributed to members in a way that does not stream gains or losses only to some members of the MySuper product; no differences in the extent of fee subsidisation for employees of certain employers if fee subsidisation is allowed by employers; and no limits on the sources or kinds of contributions made by or on behalf of members.

An important aspect of this tranche of legislation is the changes that intend to be legislated with regards to the obligations of trustees and their fiduciary duties to members. Again, these reforms came as a result of the Cooper review. They found the investments of those members in default superannuation funds who were disengaged were particularly vulnerable moving forward. Coopers recommended a greater level of governance and integrity in terms of trustee obligations for those who are in default fund situations. The additional obligations that will be introduced in respect of trustees that offer MySuper products are reflected in the legislation and in this report are to promote the financial interests of MySuper members, to access on an annual basis whether the fund has sufficient assets and members to enable it to continue to promote the financial interest of MySuper members, and to include in the investment strategy for the MySuper product an update on an annual basis of the target investment return and the level of risk for the product. That involves an assessment of the scale of investment in the fund moving forward.

The committee did in its deliberations highlight some concerns with the bills. They relate to a number of issues. Two particular issues were the tailoring of investment options for people and funds that fit within the MySuper stream. The legislation has a definition of a large employer to which tailoring can apply, which is one with more than 500 members. There was some confusion about how that particular obligation would work, and the committee has recommended that the legislation be clarified so that the large employer requirement of 500 or more members needs to be satisfied upon the authorisation of the MySuper product and at the end of each annual reporting period. Related to that is a further recommendation to allow APRA to grant a grace period of up to six months for large employers whose fund members have fallen below the 500-member threshold as part of annual checks. The committee has certainly heard the concerns of the industry in respect of that.

There are a number of comments in the report on trustee obligations. In respect of the scale test and the concerns that have been put to the committee by witnesses and in the opposition senators' report, I draw the attention of the Senate to the comments of Treasury when they appeared before the committee, where they said in evidence that there are some small funds that are not performing well and, in some of those cases, scale may be one of the reasons they are not performing well. This new obligation on trustees will require them to ask the question of whether the issue resulting in underperformance of the fund is scale. We think that that is a sensible approach for people who, in the words of the Cooper review, have a particular vulnerability with respect to their investment and retirement savings.

The bills have the support of the Australian Chamber of Commerce and Industry, the Financial Services Council, the Industry Super Network, all of the superannuation industry funds and a number of players in the industry. They are part of a suite of reforms that will improve financial accountability, integrity and delivery of financial services, particularly for people who are members of default funds moving forward. In that respect, they are reforms that the government is proud of. They are reforms that this Senate should and will support, and I commend the report to the Senate.