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Thursday, 28 October 1993
Page: 2705

Senator WATSON (11.08 a.m.) —I present the ninth report of the Senate Select Committee on Superannuation, entitled Super—supervision bills, together with the transcript of evidence and submissions received by the committee.

  Ordered that the report be printed.

Senator WATSON —by leave—I move:

  That the Senate take note of the report.

I seek leave to incorporate my tabling speech in Hansard.

  Leave granted.

  The speech read as follows


Following the Treasurer's statement entitled Strengthening Super Security—New Prudential Arrangements for Superannuation, seven Bills were introduced into Parliament on 27 May 1993. These were designed to strengthen substantially the framework of prudential supervision for the superannuation industry.

One of the terms of reference for the Senate Select Committee on Superannuation was to report on this legislation and related matters.

The fundamental objective of these Bills is to introduce a comprehensive regulatory regime for the superannuation industry. Such a regime is required for three main reasons:

  . to ensure that the tax concessions provided for superannuation are used for the purpose they were granted, that is, genuine retirement incomes purposes;

  . to ensure the stability of the financial system in so far as it relates to superannuation savings; and

  . to increase public confidence and security in the superannuation industry and, therefore, promote increased superannuation savings.

The Superannuation Industry Supervision, (SIS) Bills as they are known, represent the most detailed and far reaching attempt in the history of superannuation in Australia to impose a common regulatory framework on the superannuation industry.

The importance of such an undertaking is highlighted by the sheer size and complexity of the superannuation industry. Currently, superannuation savings in Australia amount to $169 billion, which is equivalent to about one third of Australia's gross domestic product (GDP), and are growing at a rate which exceeds even rapid economic growth.

The need for a comprehensive regulatory framework is further evidenced by the failure of a number of collective investment schemes, including a small number with a superannuation focus, in the past five years and problems in superannuation regulation in overseas countries which also have trustee administration of pension funds. These themes have been addressed repeatedly by the Select Committee on Superannuation during its two year inquiry.

The SIS Bills are designed to provide the Government with a more proactive and flexible role in the prudential supervision and control of superannuation.


Of the seven Bills introduced on 27 May 1993, the Committee has recommended that four be passed without amendment, namely:

  . the Occupational Superannuation Standards Bill 1993 (OSSA);

  . the Superannuation (Financial Assistance Funding) Levy Bill 1993;

  . the Superannuation Supervisory Levy Amendment Bill 1993; and

  . the Superannuation (Rolled-Over Benefits) Levy Bill 1993.

The Committee has recommended that amendments be made to the following Bills:

  . the Superannuation Industry (Supervision) (SIS) Bill 1993;

  . the Superannuation Industry (Resolution of Complaints) Bill 1993; and

  . the Superannuation Industry (Supervision) Consequential Amendments Bill 1993.

Superannuation Industry (Supervision) (SIS) Bill 1993

The SIS Bill is the central plank of the new policy platform. It contains provisions which will radically alter the way that superannuation funds operate. Given the magnitude of the proposed change it was not surprising that the Committee received a large number of submissions, 97 in all, and agreed to take evidence from more than 60 witnesses representing the interests of superannuation providers, regulators and consumers.

Under the SIS regime all superannuation savings will come under the control and supervision of the prime regulator, the ISC. All superannuation funds will be managed by a single entity, the trustee body. The trustee body is required to make an irrevocable election to be regulated under the aegis of either the corporations or the pensions powers of the Constitution. All public offer superannuation funds, formerly regulated by the ASC, will also move to single entity status. Previously they were managed under a dual entity arrangement whereby control was shared by the trustee and the funds manager.

In taking note of the enormity of change in the public offer funds area, the Committee has expressed a concern that transitional arrangements may result in some uncertainty which has the potential to affect the fortunes of more than 200 000 unit holders of ADFs valued at least $14 billion. Accordingly, in the interests of promoting certainty and stability within the superannuation industry, the Committee has recommended that funds managers and trustees be accorded at least equal status during the transition process. This will be achieved by providing both trustees and fund managers with equal rights to request the other's termination of appointment.

The most emotive and controversial aspect of the SIS legislation concerns clause 64, formerly clause 62, which prohibits superannuation funds from acquiring assets from members or members' relatives. In the course of its hearings, the Committee heard detailed accounts of abuse of the tax benefits afforded to superannuation funds. The Committee has noted arguments both for and against clause 64 and has recommended that clause 64 contain certain limited exemptions which will be accompanied by an increase in the powers of the sole purpose test. This will provide the Government with certain checks and balances to protect against the abuse of the concessional tax treatment afforded to superannuation funds.

A further deterrent for potential clause 64 offenders is the custodial penalty that is attached to the offence. Although the Committee agrees that in some circumstances a gaol sentence will be appropriate, it is concerned that in other circumstances this could be too harsh. For this reason the Committee has recommended that the penalty for an offence under section 64(3) be amended to be a maximum of twelve months imprisonment and/or a pecuniary penalty.

The Committee has examined in detail the provisions concerning the role of auditors and actuaries. Taking into account the critical role auditors will play in determining whether there have been breaches of the SIS legislation, the Committee has recommended that the Government countenance having set terms of appointment for auditors of superannuation funds and that consideration be given to the development of a register of auditors. The Committee has stressed that superannuation fund audits should be conducted in accordance with the Australian Auditing Standards.

Another major issue arising from the SIS Bills concerned their application to State and Territory superannuation schemes. The States and Territories raised concerns regarding the imposition by the Commonwealth on their own superannuation schemes which are already the subject of legislation and are required to undergo audits by state Auditors-General. In light of these views the Prime Minister has written to the States and Territories recommending that State and Territory superannuation schemes be exempted from the SIS legislation. The Committee understands that the states will work towards harmonising their prudential arrangements so that they are consistent with the SIS provisions.

The Committee has also recommended that certain amendments of a technical nature be made in the following areas:

  . the definition of investment manager and custodian be clarified together with the restrictions on borrowing and the capital adequacy requirements for custodians;

  . the provisions concerning the use of Tax File Numbers (TFNs) be expanded in relation to their date of collection and use;

  . the provisions concerning public sector schemes, State rights, funds with Substituted Accounting Periods and regulated superannuation funds be clarified;

  . the powers of the ISC with respect to exemptions and modifications be extended whilst the ISC and Australian Securities Corporation continue to liaise with a view to harmonising Commonwealth powers; and

  . minor technical amendments be made to improve the clarity of the legislation in certain areas.

Superannuation Industry (Resolution of Complaints) Bill 1993

In the course of its on-going inquiry into superannuation the Committee identified a number of issues of particular interest to consumers where reform is required. These issues are of interest not only to consumers but also to those in the industry who seek to provide a high standard of service to their clients. Of paramount importance in this area, is the establishment, and effective operation, of the proposed Superannuation Complaints Tribunal.

The Committee noted in its first report that the predominant view was that there was a need for the establishment of an independent dispute resolution body—something that would provide an alternative to the court system. The Committee is pleased to be able to support this legislation that establishes such a body.

This body, the Superannuation Complaints Tribunal, will review decisions of trustees that have been the subject of a complaint, and have not been resolved by the trustees' internal dispute resolution mechanism.

The Treasurer has indicated that the review of some decisions will be excluded from the Tribunal's jurisdiction. These `excluded complaints' will include cases involving disability issues. The Committee has recommended that cases involving disability issues should not be automatically excluded. Rather, so-called disability cases, where the complaint essentially involves a procedural matter and cases that involve questions of legal interpretation should fall within the Tribunal's jurisdiction. It is envisaged that in procedural matters the Tribunal will use its power to remit matters with directions to the trustees.

In order to achieve a structure that provides a true alternative to the court system, the legislation, as a rule, does not permit legal representation before the Tribunal, although there is a discretion to do so.

The Committee received submissions concerned about this provision and gave the issue considerable examination. The Committee was concerned to ensure that there was an appropriate balance between the objective of a fair, economical, informal and quick dispute resolution mechanism, and the necessity that consumers have access to appropriate assistance and advice in the preparation of their matters before the Tribunal.

For this reason the Committee was particularly attracted to the concept submitted by the Consumer Credit Legal Service of Victoria and the Consumer Credit Legal Centre of New South Wales. They suggested that an independent consumer advisory service, whether legal or multi-disciplinary, be established.

The roles of such a superannuation advisory service would include helping consumers to understand how to go about making their complaints; helping them to determine whether or not they have a legitimate complaint; and helping them to prepare the documents, the arguments and the proofs relevant to their case. The service would also play a role in the `macro' picture. By obtaining statistics and complaint data and by negotiating complaints, the service would be in a position to negotiate with industry and government in relation to changes in practice and policy.

Although the ISC secretariat is required by the legislation to provide assistance to complainants the Committee believes that it is important that there be an advisory service that is independent of the ISC. The Committee foresees a community advisory service playing a vital role in providing complainants with assistance in preparing their matters for review.

The Committee agreed that initially this service should be funded by way of grants by the Commonwealth. In the longer term the Committee believes that consideration should be given to having the superannuation industry assist with the funding of the service.


The Committee convened public hearings on these bills in Sydney, Melbourne and Canberra. In addition, thanks to the cooperation of the Government, informal meetings were arranged between the committee members and officers of the Insurance and Superannuation Commission at which amendments to improve the legislation were discussed. Most of the amendments in the report have the in principle agreement of the ISC.

By virtue of its length and attention to detail this report will assist Senators in understanding the parameters of the new superannuation regulatory regime. I believe that, between the efforts of the Government in developing this package and the work of the Committee in acting as a sounding board for the superannuation industry, which includes consumers and providers, to ensure that the proposed law is good law, we now have the right policy mix.

I commend the report to the Senate and in so doing I thank Committee members, Senators Sue West, Bruce Childs, Christopher Evans, Alan Ferguson, Cheryl Kernot, and the secretariat staff, Richard Gilbert, Krista Gerrard, Glenn Hunter and Cath Drinkwater, for their work in developing a comprehensive report on such complex and far reaching legislation.

Senator WATSON —I seek leave to continue my remarks later.

  Leave granted; debate adjourned.