Navigation: Previous Page | Contents | Next Page
Chapter 1 - Introduction
Background
1.1
On 30 June 2006 the committee resolved to inquire into the structure and
operation of the Superannuation Industry (Supervision) Act 1993 and the
superannuation industry to ensure that it provides an efficient, effective and
safe regulatory structure for the management of superannuation funds. The
committee agreed that it would examine the following terms of reference:
- Whether uniform capital requirements should apply to trustees.
- Whether all trustees should be required to be public companies.
- The relevance of Australian Prudential Regulation Authority standards.
- The role of advice in superannuation.
- The meaning of member investment choice.
- The responsibility of the trustee in a member investment choice
situation.
- The reasons for the growth in self managed superannuation funds.
- The demise of defined benefit funds and the use of accumulation funds as
the industry standard fund.
- Cost of compliance.
- The appropriateness of the funding arrangements for prudential
regulation.
- Whether promotional advertising should be a cost to a fund and,
therefore, to its members.
- The meaning of the concepts “not for profit” and “all profits go to
members.”
- Benchmarking Australia against international practice and experience.
- Level of compensation in the event of theft, fraud and employer
insolvency.
- Any other relevant matters.
Conduct of the inquiry
1.2
The inquiry was advertised in the Australian newspaper and on the
internet. The committee invited written submissions from a wide range of
industry stakeholders, government regulators, non-government organisations and
academics. Details of the inquiry were placed on the committee's website.
1.3
Early during the inquiry, the committee requested the Parliamentary
Library to prepare a research paper on term of reference 13, benchmarking Australia
against international practice and experience. The paper that was issued in May
2007 provided a detailed comparison of relevant features of the retirement
income systems of Australia, the United Kingdom and the United States. The
committee agreed to make the paper publicly available on the inquiry website.
1.4
The committee held six public hearings: in Sydney on 24 October 2006 and 7 March 2007; in Melbourne on 25 October 2006 and 5 and 6 March 2007; and in Canberra on 20 November 2006. A list of witnesses who appeared at the
hearings is at Appendix 2. Copies of the Hansard transcripts are available
through the internet at http://www.aph.gov.au/hansard.
Committee's approach
1.5
The committee strongly endorses the view that the regulatory structure
for superannuation should promote a viable industry that encourages fair
competition to enable fund members to maximise their retirement savings in as
safe and secure environment as possible. Above all, it should provide for an
efficient and effective environment for investment and management of members'
funds. This is why one of the committee's main objectives was to examine
whether the current legislative and regulatory structures enable fund members to
maximise their superannuation savings. As a leading publishing and research
firm operating in the superannuation industry told the committee:
Superannuation has fundamentally promised that, when I retire,
there is going to be a big fat cheque waiting for me with lots of zeros on the
end, so I have to be able to trust that the guys are going to be there to mail
me that cheque.[1]
1.6
A major issue underpinning the inquiry's terms of reference is whether
the regulatory framework for superannuation is adequate for the current needs
of industry and the demands made by consumers. The committee believes that the
legislation needs to be as clear, concise and effective as possible and fit the
current policy environment for superannuation. Yet during the inquiry concerns
were raised about the complexity of the SIS legislation and its ongoing
relevance to an industry that is experiencing fundamental change. The
introduction of Super Choice and member investment choice has shifted the
responsibility for superannuation from employers to employees and commercial
superannuation providers. The committee notes that there is now a much greater
focus on individuals taking responsibility for their own retirement savings.
1.7
The committee agrees with the Investment and Financial Services
Association (IFSA) that choice of fund legislation and licensing requirements
for superannuation funds have changed how the superannuation system operates,
creating an openly competitive environment for all superannuation providers and
placing more demands on the legislative, regulatory and policy framework. These
factors, together with increased fund disclosure and member responsibility for
fund and investment selection, provide a regulatory picture that is very
different from the one established in the early 1990s:
The SIS Act has not been the subject of any significant review
since its enactment, and the Parliament should ensure that the law and its
administration is not out of step with current day requirements and
developments, including technological and market developments over the last 12
years. While we consider that the current structural requirements for the
regulation of superannuation are solid, the laws have not kept pace with
industry changes and consumer demands. Maintaining the current laws may
challenge the efficiency and effectiveness of the superannuation market.[2]
1.8
It is in the context of individual choice that refinements to financial
services reform (FSR) legislation, that have focused on product disclosure,
transparency and consumer protection, have become increasingly important. Yet
the industry is concerned that FSR has added another layer of compliance
obligations on funds and associated entities without sufficient compensating
market or consumer benefits, giving rise to calls for simplification and
further refinements. The committee heard how the level of regulation and red
tape for product disclosure applying to all funds under FSR legislation is
considerably greater than it was ten years ago.[3]
The particular concern with FSR mainly related to the lengthy, complex and
generally unreadable disclosure documentation that is issued to consumers.
Report structure and chapter summary
1.9
The report consists of 8 chapters. Chapter 2 provides background on the
regulation of the superannuation industry and describes industry trends that have
resulted in total superannuation savings in Australia exceeding the $1 trillion
mark. Chapter 3 examines issues that relate to the reporting requirements of
superannuation funds. These include whether promotional advertising complies
with the sole purpose test and whether funds are properly disclosing to their
members expenditure on advertising; use of the term 'not for profit' by
industry funds in the context of third party transactions with service providers
and the propriety and transparency of these relationships; and complaints about
the inefficiencies and cost associated with regulatory overlap.
1.10
Chapter 4 addresses the issue of member investment choice and the debate
over the role of the trustee and APRA's interpretation of law and policy in
this area. Chapter 5 examines issues under the umbrella theme of safeguarding
superannuation savings. These include capital adequacy, uniform capital
requirements and unit pricing; the relevance of APRA standards; current funding
arrangements for prudential regulation; compensation arrangements in the event
of theft and fraud and employer insolvency; portability and exit fees; and
'lost' superannuation.
1.11
Chapters 6 and 7 address arguably the central issue raised in evidence
during the inquiry: the role of financial advice. Chapter 6 examines
legislative barriers to cost-effective advice and how to overcome them in order
to find a balance between consumer protection and accessibility of advice.
Chapter 7 continues the theme of financial advice by examining how advisers are
remunerated, especially concerns about conflicts of interest associated with
commission-based remuneration models. It also discusses the important role of
education and financial literacy programs in enabling both existing and new
fund members to navigate the complex superannuation environment.
1.12
Chapter 8 examines the reasons for growth in the number of self-managed
superannuation funds and issues relating to the administration, regulation and
future viability of this industry sector.
Acknowledgements
1.13
The committee thanks those organisations and individuals who made
submissions to the inquiry, gave evidence at the public hearings and provided
the committee with additional information and responses to questions taken on
notice. The committee also thanks Mr Leslie Nielson from the Parliamentary
Library for preparing a detailed research paper and assisting the committee in
its deliberations on term of reference 13.
Navigation: Previous Page | Contents | Next Page
Top
|