Second Reading SpeechMr Shorten (Assistant Treasurer and Minister for Financial Services and Superannuation)
That this bill be now read a second time.
The Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 delivers on the government's 2010 election commitment to introduce a new simple, low-cost default superannuation product called MySuper.
We are living longer than ever before in this nation, and Australians are reorganising their lives to adapt to the rhythm of longer life. So in this place and this parliament I believe we need to change and update our laws to reflect these new patterns of life.
Yesterday the government introduced historic legislation that will lift the superannuation savings of eight and a half million Australians.
It is, I submit, in the national interest to encourage Australians to save more for their retirement. But the trade-off is that the superannuation industry should contribute to higher retirement savings through the compulsory contributions by achieving greater efficiency and lower fees.
Access to safe, low-cost and simple superannuation is essential to help Australians' retirement savings go further. By 2050, almost one in four Australians will have reached retirement age, compared to one in seven today. It is important that superannuation-the metaphorical rain in the mountains which flows through the rivers to the sea of retirement-as it flows through, that those who are managing and tending this superannuation do not unduly and unnecessarily impose fees and charges which deduct from what will end up in people's retirement accounts.
Therefore, MySuper is a new default superannuation product that has no unnecessary fees or charges and has simple features that will make it easier to compare fund performance.
MySuper is a key part of the government's broader Stronger Super reform package.
Stronger Super also includes reforms to:
- make the process of everyday transactions in the super system easier, cheaper and faster through the SuperStream package of measures;
- improve the governance and integrity of the superannuation system, including for the rules that apply to superannuation trustees;
- improve integrity and increase community confidence in the self-managed superannuation fund sector.
Therefore, in combination, the government's superannuation reforms are estimated to increase retirement superannuation balances by almost $150,000 for a 30 year old worker earning average full-time wages.
Together, these reforms will provide all Australians with the confidence that the superannuation system is working in the best interests of the members to provide the members an adequate income in retirement. Currently, the superannuation industry in Australia manages in excess of $1.3 trillion in Australian retirement savings.
You do not get a bill in the post, but Australians currently pay around $85 on average a month in superannuation fees, which is in fact more than the average person's monthly mobile phone bill.
However, 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.
For many Australians, their busy lives mean that they simply do not have the time to be deeply involved in their superannuation and perhaps achieve that extra better deal.
For many Australians, perhaps their account balances are so far not sufficiently high as to warrant the priority of daily attention. For some Australians, perhaps they are still of a relatively young age and, whilst are pleased to have their superannuation accounts gradually accumulating money, are more interested in paying the school fees or, indeed, paying the mortgage. For others, they may not feel that they have the financial skills to make active choices so prefer to rely on the default products offered by the superannuation funds.
Our independent Cooper review found that fees in superannuation are too high-I repeat: the independent Cooper review found that fees in superannuation at this point in time are simply too high-and that members may currently be paying fees for services that they neither want nor have requested.
Every dollar diverted in fees or other unnecessary overheads is a dollar less, plus the lost benefit of compound interest and dividend imputation, going towards a larger and more secure retirement.
Over a person's working life, higher than necessary fees can total tens of thousands of dollars of lost retirement income.
This is why introducing MySuper is so fundamentally important. It is important that members who work hard for the compulsory savings going to their funds are not unfairly or unjustly taxed by the people tasked with managing their funds.
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.
MySuper will provide a simple, cost-effective default product that all Australians can rely upon.
MySuper will be limited to a common set of features to make it easier for members, employers and other stakeholders to compare performance across MySuper products. That in itself will place downward pressure on fees.
So today I am proud to introduce the first tranche of legislation to implement MySuper.
This bill amends the Superannuation Guarantee Administration Act 1992 and the Superannuation Industry (Supervision) Act 1993 to establish the core framework for MySuper products.
MySuper products will replace existing default investment options in default funds from 1 July 2013.
MySuper products will have a simple set of product features, irrespective of who provides them.
Therefore, the bill requires APRA, the Australian Prudential Regulation Authority, to be satisfied that a MySuper product has some core characteristics.
These characteristics are that:
- there is a single, diversified investment strategy, which can be a life-cycle investment approach;
- there is equal access to services for all members;
- the same process is used in allocating investment returns to members;
- no limits are placed on the contributions that a trustee of a MySuper product will accept except for certain contributions to be prescribed by regulations; and
- a member cannot be transferred out of a MySuper product unless to another MySuper product, to an eligible rollover fund or if the member actively consents.
A trustee will also have to demonstrate that they are able to meet new obligations to act in the best financial interests of members of the MySuper product. These obligations will be contained in subsequent tranches of legislation.
The bill also establishes the authorisation regime for MySuper.
Trustees will be required to be authorised by APRA for each MySuper product they wish to offer. APRA will be able to accept applications for MySuper products from 1 January 2013.
Any trustee will be able to offer a MySuper product except trustees of eligible rollover funds, self-managed superannuation funds and APRA regulated funds with fewer than five members.
APRA will generally only authorise a trustee to offer a single MySuper product in a superannuation fund. However, there will be two exceptions to the rule.
Firstly, trustees will be able offer employers that contribute to the fund for more than 500 employees a separate MySuper product tailored to the needs of that particular workplace.
These products will be able to differ from the fund's main MySuper product in terms of investment strategy, member services and fees. These MySuper products must be separately authorised by APRA.
Secondly, funds will be able to offer additional MySuper products in certain limited circumstances in order to preserve a corporate brand.
From 1 October 2013, it will be mandatory for employers to make contributions to a fund that offers a MySuper product for any employee that has not chosen a fund. This will provide employers three months to ensure that they are able to select a default fund that offers a MySuper product to comply with the superannuation guarantee obligations.
MySuper products will be restricted to charging fees that are described in the same way so that they can be directly compared. APRA will collect and publish data on MySuper products to ensure that this information is freely available.
Members of a MySuper product will also be generally charged a single fee structure. This will enable members, employers and market analysts to make comparisons based on the actual fees paid by members in each MySuper product-the ability, in fact, to form a league table comparing all funds' fee costs. In addition, by requiring the same fees to be charged to all members, this will place a competitive pressure on trustees to offer the best possible fees to all of their members.
However, a trustee will be able to charge a lower administration fee to employees of certain employers reflecting administration efficiencies for the fund in dealing with that employer. Provisions contained in the bill will generally allow for the transfer of a member interest from a MySuper product to another product under certain circumstances. Of particular concern is where members are transferred between funds when they change jobs. Additional safeguards, including enhanced member disclosure or approval, will be included in subsequent legislation.
Finally, the bill makes it an offence of strict liability for any person to represent that they offer a MySuper product where they do not have authorisation from APRA.
Additional funding of $29.9 million over four years will be provided to APRA and ASIC that will be recovered through increases to the annual levy on APRA-regulated superannuation funds.
Subsequent tranches of legislation will introduce the remaining measures relating to MySuper.
I would like to acknowledge the work of both my ministerial predecessors, Senator Sherry and the member for McMahon, Minister Bowen. They were early and persuasive advocates of the principle for the need for a better deal for super fund members. I would also like to acknowledge the work of Jeremy Cooper and Paul Costello. Both have since moved into significant roles in private industry where they continue to make valuable contributions to the development of the financial services industry.
In summary, this legislation will exert downward pressure on the fees and charges paid by ordinary members in the superannuation accounts. This will have the effect of ensuring that, when people reach retirement, there will be more money in their accounts than there otherwise would have been if this bill had not been presented to the House.
Full details of the amendments are contained in the explanatory memorandum. I commend the bill to the House.