Superannuation Legislation Amendment (Service Providers and Other Governance Measures)

Mr FLETCHER (Bradfield) (11:18): I am pleased to rise to speak on the Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012. This is the fourth tranche of legislation implementing the MySuper proposals, which followed the Cooper review into Australia's superannuation system. In the brief time I have available today I want to make three points about this legislation.

The first is that to require four separate tranches of legislation really raises a question about the efficiency of this process. It has indeed been a chaotic process. The second point is that, while many of the measures themselves are not ones that are contested on this side of the House, there are some drafting issues which are worth raising. The third point is that this bill follows consultation processes in relation to earlier tranches of the legislation and in relation to the recommendations of the Cooper review. One area the Cooper review addressed—the need for reform of governance of superannuation funds—has been a glaring, continuing and serious omission in the four pieces of legislation that the minister has brought forward, and it is an omission that I wish to comment on today.

I turn firstly to the point that the legislation before us today, which, as we have heard, is the fourth tranche of the complex, meandering and often chaotic implementation process adopted by this government, raises serious questions of efficiency and process. Let me quote what one witness from the Law Council of Australia said when appearing before the Parliamentary Joint Committee on Corporations and Financial Services when it was considering an earlier tranche of this legislation. She had this to say about the committee that she serves on, which seeks to provide the input of the legal profession on complex legislative changes:

I will spend one minute on process. We, the committee, spend a lot of time trying to prepare careful responses to legislation and often the time period—and I know it is not just for us; it is for everybody—is just too short. It is not possible to prepare a well-reasoned and thought-through submission in a week. For the trustee obligations bill the submission timetable was shorter than the period within which the committee was meant to release its report. I suppose people have a lack of confidence in the system given this timing.

That is typical of the response of stakeholders to the inefficient and often chaotic process by which successive tranches of legislation in this area have been brought forward and the way that specific aspects of the provisions have been dealt with. Typically, we see last-minute amendments. And we frequently see in legislation regarding superannuation from this minister ill-judged measures introduced in one act that are subsequently reversed in later acts. In the case of the bill before the House today, we are seeing an example of such a reversal. The merits of the reversal we do not question—indeed, we welcome it—but we do highlight the fact that this is revealing of a very poor process. It would have been much better if the minister had not made the original policy error. I refer, of course, to the issue of caps on the fees being charged to members of superannuation funds.

In an earlier tranche of the MySuper legislation, there were absurd provisions included that would have forced superannuation funds to charge the same percentage administration fee on any account, regardless of how high the balance in that account was and even though the economic reality, as is widely acknowledged in the industry, is that costs are generally fixed rather than rising with the account balance. The standard response from fund managers to this problem, so as to avoid overcharging those with larger balances, is to set a cap on the fee that they charge as a percentage of the account balance. Extraordinarily, provisions in an earlier act as part of the MySuper legislation would have prevented funds from doing that; it would have mandated funds charging the same percentage amount regardless of the account balance. This would have meant that somebody with a balance of $500,000 would have paid an administration fee 100 times greater than somebody with a balance of $5,000. The coalition pointed out how absurd these provisions were and we circulated amendments that, I am pleased to note, the government has now effectively adopted. So the trustees will now have greater flexibility in the charging of their fees so that they may remain commensurate with actual costs. So, while we welcome the fact that this particular change suggested by the opposition has been accepted, it is a good example of just how chaotic and disorderly large parts of this MySuper process have been.

I also make the point that the multiple tranches of legislation dealing with MySuper are being introduced over the same period in which the superannuation sector is dealing with the SuperStream measures, which make it easier to move account balances between funds and in themselves are certainly sensible, and the Future of Financial Advice legislation, which imposes onerous new reporting requirements. The burden of these successive multiple changes in many aspects of the business which superannuation funds carry out in redesigning products, in retraining staff and in major changes to IT systems is very onerous. Last year, for example, AMP, one of the major players in the sector, informed the market that it expected the one-off cost of implementing the Future of Financial Advice, Stronger Super and other regulatory changes over the next 12 to 18 months to be in the range of $60 million to $75 million after tax—and no doubt its major competitors are exposed to similar expenses.

Let me turn, secondly, to the question of some specific measures in this bill, and I want to focus particularly on the provision which purports to respond to recommendation 2.14 of the Cooper review. The recommendation was:

The SIS Act—

the Superannuation Industry (Supervision) Act—

should be amended so as to override any provision in the governing rules of an APRA‐regulated fund that requires the trustee to use a specified service provider in relation to any services in respect of the fund.

The question I want to raise relates to the drafting of proposed section 58A, which gives effect to this recommendation because, as drafted, it would void any provision which says that a fund 'may or must' acquire services from a certain person. It is clear that a rule which says a fund must acquire services from a certain person is a rule that needs to be voided if the recommendation of the Cooper review is to be given effect to. But the question I want to raise is: why does the drafting extend to a rule which says a fund may acquire such services?

I want to turn, thirdly, to one area which is a glaring but, I am sorry to say, not unsurprising omission in the bill the minister has brought forward—that is, the complete silence regarding the reforms recommended in the Cooper review into the governance of superannuation funds. Today, under the so-called equal representation model, an industry fund or a public sector fund typically has up to half of its directors appointed by one or more unions. The equal representation arrangements were specifically designed into the industry superannuation fund system when it was set up by the Hawke-Keating Labor government. This had the effect of entrenching its friends in the union movement at the centre of the governance system of industry and public sector funds. This is a matter that was dealt with by the Cooper review, which had some very clear findings and recommendations. The Cooper review concluded that the equal representation system 'no longer seems to achieve its original stated objective'. The Cooper review noted that directors of superannuation funds are:

… not, in fact, elected by employers or members, but rather are nominated by third party organisations, such as employer associations and trade unions—

and in practice these organisations 'do not necessarily represent' the interests of all employers or employees. The system, according to the Cooper review, leaves significant groups 'unrepresented', including most obviously those who are retired and receiving benefit payments from the fund. And the Cooper review concluded that the equal representation model should no longer be mandated, and where it does apply at least one-third of representatives of both members and employers should be non-associated. This was recommendation 2.7.

Unfortunately, Minister Shorten has failed to act on these recommendations from the Cooper review. Of course the minister is a former secretary of the Australian Workers Union and a former director of the largest industry superannuation fund, AustralianSuper. He has enthusiastically used superannuation policy to bolster and benefit the union movement. Industry superannuation funds held assets of $250 billion in mid-2011, and by now they would hold more. In the 2009-10 financial year they received more than 31 per cent of the $78 billion contributed in that year to the superannuation sector, excluding self-managed funds.

This system serves the interests of the union movement very nicely. It means a large number of well-paid directorships to be allocated amongst union mates. I recently looked at the arrangements across 64 public sector and industry funds, with a total of more than $300 billion under management. I counted over 150 directors appointed by the unions, with a significant number of funds where the union appoints at least half the directors. These arrangements will give the unions a degree of control of superannuation that goes much further than the shrinking share of the workforce who are union members.

It is no coincidence that there is a close connection between a number of present and aspirant Labor parliamentarians and the industry super funds. I could note, for example, that in addition to the minister at the table, Minister Shorten, other Labor or aspirant Labor parliamentarians who are former directors of AustralianSuper include Labor senator Doug Cameron, the Labor member for Charlton and the Labor candidate for the seat of Melbourne in the 2010 election, Ms Cath Bowtell, who I understand has been preselected to contest that seat again.

It is perhaps not surprising that the unions hate the idea of not getting their automatic seats on the boards of industry superannuation funds. It is, therefore, accordingly also not surprising that this minister has chosen to ignore that particular recommendation from the Cooper review. The issue should not be what is in the interests of unions; the issue should be what is in the interests of Australians who are saving for their retirement through the superannuation system.

The coalition is determined to see modern governance standards brought to superannuation funds, not the current, cosy arrangements which the unions are so fond of. The coalition will, therefore, move amendments to require that superannuation boards contain one-third in number of independent directors. This, of course, would give effect to the recommendation in the Cooper review; the recommendation which the minister appears not to have noticed as he was flicking through that particular report.

It is time to bring a greater degree of independence to the boards of superannuation funds. Higher standards of corporate governance will help to deliver a more efficient and competitive superannuation system and the best possible value to superannuation fund members. Continuing to improve corporate governance in the superannuation industry will help to increase the level of confidence in the system and the willingness of Australians to make additional voluntary superannuation contributions.

The purpose of the superannuation system is to provide for the retirement savings of Australians, to assist them to provide for themselves in retirement by drawing on the balances they have accumulated in their superannuation accounts. The purpose of the system is not to provide cosy directorships for a range of union officials, and the coalition is determined to look after the interests of Australians who are saving for their retirement.