Second Reading SpeechMs O'DWYER (Higgins-Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service)
That this bill be now read a second time.
Like so many millions of Australians, throughout my life I too have had multiple superannuation accounts.
I had three accounts by the time I started my first full-time job, and afterwards had four.
And like so many Australians, by the time I really focused on it, I found I had five accounts, three of which had been eroded to virtually nothing through fees, charges and insurance premiums.
The money that had come out of my wages had simply been consumed by the now $2.6 trillion superannuation sector. There was no benefit to me back then, and certainly none for my retirement.
As Minister for Revenue and Financial Services, I am well aware of the widespread nature of this problem.
Almost every week someone writes to me to express their shock and disappointment at realising their hard-earned retirement nest egg has been eaten away.
Or that the growth of their children's, partner's or other family member's balance has been stunted before it had truly had the chance to start.
The fact is, how well or how poorly your fund performs means absolutely nothing if your account balance is eroded to zero, or close to zero.
In a compulsory system, it simply isn't good enough.
And it's why the government, through this bill, is taking action to ensure people's hard-earned savings are protected from inappropriate fees, insurance arrangements and the inefficiencies which result from holding multiple accounts.
This bill does so by amending the Superannuation Industry (Supervision) Act 1993, the Superannuation (Unclaimed Money and Lost Members) Act 1999, the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953to improve the superannuation regulatory system.
Firstly, the bill will address the negative consequences of Labor's 2013 abolition of low-balance protection as part of the MySuper changes.
Low-balance accounts are particularly vulnerable to erosion by fees and charges.
However, because of decisions made by the now Leader of the Opposition, there are no special protections in place to prevent low-balance accounts from being eroded.
Under the current rules for MySuper products, fees are generally required to be charged to all members on the same basis.
Unfortunately, doing so can lead to significant erosion for low-balance accounts, particularly where flat fees are imposed on small accounts receiving little or no contributions.
Schedule 1 to this bill addresses this problem by preventing trustees of superannuation funds from charging administration and investment fees exceeding three per cent per annum on the balance of accounts below $6,000.
Based on the most recent data, it's estimated around seven million Australians will save around $570 million in fees in just the first year, thanks to the government's reforms.
Schedule 1 also prevents trustees from charging exit fees on any superannuation product, no matter the member's balance.
Currently, exit fees act as a disincentive for people to move money between funds when they wish to consolidate accounts.
According to APRA data, approximately one-third of funds charged an exit fee in 2016-17, with all the fees collected across the industry totalling $52 million.
In combination, this schedule will prevent erosion of low-balance accounts by high passively incurred fees, and will remove a disincentive to account consolidation or rollovers by members.
Schedule 2 to this bill will address the provision of insurance through superannuation.
The government recognises that insurance through superannuation is valuable for many Australians. Through the consultation process for this package, I heard of numerous examples of how people have benefitted from having insurance in times of need.
However, what is not always mentioned, and what people continue to write to me about, are those circumstances where a significant proportion of their retirement savings-quite often their entire account balance-is eroded by insurance premiums.
The now Leader of the Opposition's 2013 changes required trustees of default MySuper products to provide automatic life insurance on an opt-out basis.
This has resulted in some members paying for cover they do not know that they have, that goes beyond what they need, or which they cannot even claim on.
Insurance premiums can also reduce low-income earners' retirement balances by 10 per cent or more, compared to having no insurance, with the impact increasing with every additional set of policies held by an individual.
Through this bill, the government will ensure that members who are at particular risk of account balance erosion will not have insurance provided on a default basis unless they have directed otherwise.
We will put members first and give them the choice.
Specifically, schedule 2 of the bill will require that insurance be provided on an opt-in basis only for:
- members with balances below $6,000;
- accounts which have not received a contribution for 13 months or more; and
- new members from 1 July 2019 who are under the age of 25.
These changes will give around five million people the option to save up to an estimated $3 billion in premiums each year.
The government of course recognises that many individuals already assess their insurance needs and make informed decisions to hold accounts with a certain level of insurance.
To ensure this measure does not disadvantage those engaged members, the legislation allows for a member to elect to obtain or maintain existing insurance cover, and where they do so, they will not be affected by the changes in this bill.
As a result of the deliberate decision to entrench superannuation within the industrial relations system in this country, when someone starts a new job, they are often directed-sometimes forced-to put their money into a different fund.
For many Australians, this results in multiple accounts, multiple sets of fees and multiple insurance premiums.
I recently met with someone who had seven accounts. After he heard the news about how much it could cost him in retirement savings, he consolidated them. But he had already been charged seven sets of fees and insurance premiums for far too long, costing him goodness knows how much.
This is by no means an isolated example. The Australian Taxation Office estimates that as at 30 June 2017, of the 14.8 million people who had a superannuation account, 40 per cent had more than one account. Amazingly, around 1.2 per cent or about 176,000 individuals held six or more accounts.
The Productivity Commission, in its groundbreaking draft report on the efficiency and competitiveness of the superannuation system, estimated that one in every three accounts were unintended duplicates.
The government knows that multiple accounts mean multiple fees and multiple sets of insurance premiums, ultimately leading to tens, sometimes hundreds, of thousands of dollars less at retirement.
That is why, through schedule 3 to this bill, the Australian Taxation Office will, for the first time, be given the ability to proactively return the balances of inactive accounts, along with existing unclaimed superannuation moneys, to their rightful owner.
The ATO estimates that it will be able to reunify amounts within a month of receiving the funds.
Under this schedule, from 1 July 2019, funds will also be required to transfer all inactive accounts without insurance cover and with a balance below $6,000 to the ATO.
Upon doing so, these accounts will be protected from fees and charges and the ATO can use data-matching techniques to reunify the amounts with an active superannuation account.
As a result of these changes, in just the first year around three million members will be automatically reunited with around $6 billion of their own money.
Importantly, the changes in the bill will not replace existing account consolidation processes, which will remain available to members. The changes will simply supplement the current arrangements and streamline consolidation for disengaged members, ensuring that Australians' superannuation savings are better protected.
Consistent with the government's continued focus, the measures in this bill are deliberately targeted at improving outcomes for members.
Following their announcement, the Financial Services Council said it 'welcomes the government's package of reforms to reduce the erosion of Australian's superannuation balances as well as promoting consolidation of super accounts as a positive policy step that will lead to better retirement outcomes'.
The Australian Institute of Superannuation Trustees labelled the new ATO reunification powers 'welcome measures for the efficiency of the super system'.
While consumer advocates CHOICE have suggested the reforms 'will make a huge difference to the retirement savings of millions of Australians'.
I would like to take the opportunity to thank all the stakeholders who engaged with the consultation process.
I appreciate from the industry's perspective this will involve some substantial changes.
However, I firmly believe that this bill, which will benefit young members, members with low balances such as low-income earners and members with multiple accounts, is in the best interest of all Australians.
After all, we must never forget the most important foundation stone in superannuation-your superannuation is your money.
It is not the government's, not the industries', not the bank executives', not the shareholders', not the employers', and not the trade unions'.
Full details of the measure are contained in the explanatory memorandum, and I commend the bill to the House.