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Thursday, 17 March 2016
Page: 3446


Ms O'DWYER (HigginsMinister for Small Business and Assistant Treasurer) (09:20): I move:

That this bill be now read a second time.

This bill amends the Corporations Act 2001 to facilitate an increased level of transparency in the superannuation sector.

These changes fulfil the government's election commitment to enhance the quality of information available to superannuation fund members and employers so that they can make informed decisions in relation to superannuation savings, when comparing the relative performance of funds.

A more informed market will drive greater competition and, in doing so, deliver increased value to consumers.

The 2010 Cooper review found that the Australian superannuation system is characterised by a lack of transparency, comparability and accountability. Transparency is critical to the efficiency and operation of the superannuation system because it improves engagement. For these reasons, the Cooper review recommended the introduction of product dashboards and portfolio holdings disclosure requirements on superannuation funds.

This bill makes refinements to the choice product dashboard and portfolio holdings disclosure measures so that the benefits of increased transparency provided under the current law can be realised.

The current choice product dashboard and portfolio holdings disclosure regimes were introduced by the former Labor government in response to the Cooper review into superannuation system. Although the legislation containing these two measures received royal assent in 2012, due to the complexity of the legislation and the significant compliance burden it placed on industry, supporting regulations were never made.

As a result, the choice product dashboard and portfolio holdings disclosure measures have never commenced, denying superannuation fund members access to quality information to make informed decisions about where their hard-earned money goes in the superannuation system.

The introduction of this bill will rectify this situation.

The refinements in this bill require superannuation funds to develop choice product dashboards for their top 10 largest choice investment options, by value. Funds are also required to disclose investments made both directly and through associated entities, but not through non-associated entities.

These changes are aiming to strike the right balance between enhancing the transparency, comparability and quality of information for consumers, and minimising the compliance costs to superannuation funds.

The government recognises that the substance of the regulations which support this bill are crucial to ensure the policy intent of both choice product dashboards and the disclosure of the portfolio holdings of superannuation funds disclosure is achieved. That is why we will continue to work with industry on the development of revised draft regulations, so that they can be settled prior to the debate on this bill.

Our key objective is to have a superannuation system that delivers outcomes for those we are forcing to contribute, not just for the industry. We want a system that encourages people to participate actively and make informed decisions, and that gives people the confidence to invest. I am confident these reforms will do just that.

Superannuation is becoming increasingly significant for Australian households, with superannuation now the largest financial asset for many Australians after the family home. This is a system that people are forced to contribute their money to, with compulsory contributions currently set at 9.5 per cent of an employee's ordinary earnings. This means we need to make sure we have got the basics right. We cannot just keep on throwing more and more money at an opaque system.

That is why these changes are essential. Transparency through improved disclosure is critical to the efficient operation of Australia's market based superannuation system. It improves understanding, awareness and engagement across the community.

In particular, increased engagement enables members to be better placed to make effective decisions in relation to their superannuation retirement savings to help ensure they have sufficient income in their retirement.

Requiring superannuation funds to disclose the assets into which the contributions of their members have been invested is also consistent with international best practice. Australia is currently the only market, of 25 markets looked at by international market financial analysts Morning Star, with no implemented, regulated form of portfolio holdings disclosure. This bill seeks to ensure that Australia is no longer lagging behind internationally.

The refinements to portfolio holdings disclosure will mean superannuation funds disclosure requirements will be limited to assets held directly and through associated entities including initial investments made into non-associated entities. Limiting portfolio holdings disclosure in this way will significantly reduce the complexity of the current law. It will also reduce associated compliance costs on industry without significantly hindering a member's ability to see where their money is being invested in the system.

Superannuation funds will be required to provide information on their websites that will enable the identification of the relevant assets and the value of those assets.

However, the government carefully listened to the concerns of industry that the disclosure of some asset classes, such as private equity, which due to commercial sensitivities would be unable to be invested in if their particular investment strategies were required to be disclosed to the market. That is why the bill provides an exemption to enable funds not to disclose five per cent of their assets that are commercially sensitive and would be detrimental to member outcomes if disclosed.

In recognition of the diverse and complex nature of the asset classes required to be disclosed under the portfolio holdings disclosure measure, the bill also includes a regulation making power to enable particular issues relating to individual asset classes to be addressed in the regulations.

Turning to the choice product dashboards and their rules, these are designed to provide a simple tool to make it easier for consumers to compare the performance of choice investment options with other choice investment options and with default MySuper products—which already have dashboards. Important metrics will be included on choice product dashboards, such as risk and return, fees and costs, allowing consumers to make informed decisions about which product best suits their needs.

All superannuation funds regulated by the Australian Prudential Regulation Authority (APRA)—including retail, industry and corporate funds—will be required to provide choice product dashboards.

As mentioned earlier, the refinements in this bill will limit the requirement for superannuation funds to develop choice product dashboards for their top 10 (by value) superannuation choice investment options. Treasury estimate that this captures approximately 73 per cent of all choice investment options.

Superannuation funds will also continue to be required to provide product dashboards for all of their MySuper products.

This will mean that product dashboards will be provided for all of the major investment options offered across the entire superannuation sector.

When looking at their top 10 investment options, superannuation funds will need to look at all of their investment options including those investment options offered through platform styled products.

Although investment options offered through platforms will be captured under the refinements, platforms themselves will not be captured.

The rationale for not capturing platforms is simple; it would be misleading to consumers to do so. If a product dashboard were to be developed for a platform, the superannuation fund would be required to use aggregated figures for fees, risk and returns across all of the platforms' investment options. Yet these figures can be significantly skewed by the wide variety of products and outcomes across the platform spectrum; they can range from conservative diversified investment options, which have low fees, low risk and lower returns, to venture capital investment options, which have high fees, high risk but provide potentially higher returns.

Given members who invest through platforms generally only invest in a small proportion of the investment options offered, if a member was to use the product dashboard for a platform to make a comparison with other investment options, they could be easily misled into believing that the dashboard reflects their particular investments.

The extent to which members could be misled is particularly evident when you consider that platform styled products can contain in excess of 400 individual options, and yet members tend to choose only between five and 10 individual investments.

Measures to enhance transparency of information to superannuation fund members and employers have been subject to consultation since the Cooper review released its second issues paper on 16 October 2009, over six years ago.

In November 2013, the government released its discussion paper Better regulation and governance, enhanced transparency and improved competition in superannuation. It sought feedback on how best to structure a choice product dashboard to address an existing gap in the disclosure framework for superannuation products. It also sought comments on which model of portfolio holdings disclosure would best achieve an appropriate balance between improved transparency and compliance costs.

In consulting on these issues, the government has been mindful that the policy changes must maximise benefits to members, whilst minimising the compliance burden on the superannuation sector.

I would like to take this opportunity to thank those people who have been involved in the various and extensive consultation processes, and for the valuable contributions that they have made to ensure that we are giving effect to the transparency measures—that is, of increasing transparency, creating a more informed market, and consequently increasing competition to deliver increased value to consumers.

I would also like to acknowledge those superannuation funds from the various sectors that have already moved to increase the availability and quality of information available to consumers.

It is critical that the superannuation system is transparent, competitive and efficient. Australians need to have confidence in this system and be empowered to plan for their retirement.

We know that the performance of the superannuation system has a direct bearing on the retirement incomes of each and every Australian. That is why it is important that members can see where their funds are being invested, and can compare the relative performance of their fund to other funds.

And that is why the government is committed to ensuring the passage of this bill, which I commend to the House.

Debate adjourned.