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Chapter 1
Introduction
1.1
On 29 November 2012, the House of Representatives referred the Superannuation
Legislation Amendment (Service Providers and Other Governance Measures) Bill
2012 to the committee for inquiry and report. The committee resolved to table
its report by 5 February 2013.
1.2
The bill is the fourth tranche of legislation implementing the MySuper
and governance elements of the Stronger Super reforms. This inquiry continues
the committee's scrutiny of the legislation that will give effect to these
reforms; the earlier tranches of legislation have been the subject of previous
inquiries by this committee, and readers can view those reports on the
committee's website. The earlier tranches are referred to throughout this
report, and for reference are listed below:
- Superannuation Legislation Amendment (MySuper Core Provisions)
Act 2012 (Core Provisions Act);
- Superannuation Legislation Amendment (Trustee Obligations and
Prudential Standards) Act 2012 (Trustee Obligations Act); and
- Superannuation Legislation Amendment (Further MySuper and
Transparency Measures) Act 2012 (Further MySuper Act).
1.3
Included in this bill are a range of distinct and unrelated measures
that form part of the MySuper and governance reforms but which were not
addressed by the earlier legislation. The bill includes proposed amendments
that would:
- implement certain recommendations of the 2010 final report of the
review into the governance, efficiency, structure and operation of Australia's
superannuation system (also referred to as the Super System Review or the
Cooper Review);
- address concerns raised by the superannuation sector about how some
aspects of the earlier tranches will operate; and
- make consequential amendments to ensure the effective operation
of the first three tranches of legislation.
1.4
Specifically, this latest bill proposes to amend the Superannuation
Industry (Supervision) Act 1993 (SIS Act), the Corporations Act 2001 and
other Acts to:
- override any provisions in a fund's governing rules that require
the trustee to use a specified service provider, investment entity or financial
product;
- provide the Australian Prudential Regulation Authority (APRA)
with the power to issue infringement notices for certain breaches of the SIS
Act;
- require persons to seek leave of the court before bringing action
against an individual director for a breach of their duties;
- extend legal defences available for trustees and directors to
proceedings involving breaches of MySuper obligations;
- amend existing defences related to the making of an investment or
the management of reserves;
- require trustees to provide reasons for decisions made in
relation to a complaint;
- increase the time limit for members to lodge complaints with the
Superannuation Complaints Tribunal;
- apply the Corporations Act's requirements for adequate resources
and risk management systems to dual regulated entities;
- provide that directors of corporate and individual trustees are
only prohibited from voting on any company business in limited circumstances;
and
- introduce other measures and make consequential amendments.
Conduct of the inquiry
1.5
The committee advertised the inquiry on its website and in The
Australian, inviting submissions from interested parties by 17 January
2013. The committee also wrote directly to stakeholders to invite submissions.
In total, ten submissions were received. Details about these submissions can be
found in Appendix 1.
1.6
The committee held a public hearing in Melbourne on 22 January 2013. It
received evidence from representative bodies for the superannuation and
financial services sectors, a representative of superannuation law
practitioners, and the relevant government department—the Australian Treasury. Further
details about this hearing can be found in Appendix 2.
1.7
The committee thanks the organisations that made submissions and the witnesses
who gave evidence at the public hearing in Melbourne. Given the short period of
time between the hearing and the reporting date, the committee would also like
to express its appreciation to the witnesses that provided prompt answers to
questions on notice.
Structure of the report
1.8
This report is comprised of four chapters. The remainder of this chapter
provides some brief details about the Stronger Super reforms with a particular
focus on the nature of and rationale behind the MySuper product. Chapter 2
examines the amendments related to legal actions brought against directors, the
legal defences available and the requirements for processing and considering
certain claims and complaints. Chapter 3 considers the proposed infringement
notice scheme. Chapter 4 examines the remaining amendments, including the
service provider measures and the proposed dual regulated entities requirements.
A discussion of other matters that were raised during the inquiry and the
committee's overall assessment of the bill can also be found in chapter 4.
Background to the Stronger Super reforms[1]
1.9
The Stronger Super reform package was initiated in response to the 2010
report of the Cooper Review. The review panel was tasked with developing
options to improve the regulation of the superannuation system, to promote the
best interests of members and maximise retirement incomes for Australians,
while reducing business costs.[2]
One of the main recommendations of the Cooper Review was that a simple, low
cost, default superannuation
product called 'MySuper' be introduced.
1.10
On 16
December 2010, the government formally responded to the Cooper Review by
releasing 'Stronger Super'.[3]
The Stronger Super reforms aim to:
- introduce MySuper;
- make the
processing of everyday transactions easier, cheaper and faster, through the
'SuperStream' package of measures; and
- strengthen
the governance, integrity and regulatory settings of the superannuation system,
including in relation to self‑managed superannuation funds.[4]
1.11
From 1 July 2013, superannuation funds will be able to offer MySuper.
This product is intended to improve the simplicity, transparency and
comparability of default superannuation products.[5]
From 1 October 2013, employers must make contributions for employees who have
not made a choice of fund to a fund that offers a MySuper product in order to
satisfy superannuation guarantee requirements.[6]
1.12
The following statements by the Minister for Financial Services and
Superannuation and a senior Treasury officer help explain the government's
reasoning behind introducing MySuper and the principles that informed its
design:
... 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 ... 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.[7]
* * *
... a
key driving principle behind MySuper is that, for those people who do not
actively choose an option for their superannuation savings, we want public
policy to mandate a default option with carefully designed features that we
judge will promote the wellbeing of those who use this option.
Crucially,
this mandated default option is not imposed on anyone. Freedom of choice is a
central feature of the choice architecture model that underpins the MySuper
proposal. Actively engaged people can choose a MySuper default option, or they
can choose from a potentially wide array of alternative 'choice' options.
The
evidence is that around 80 per cent of members of superannuation funds in
Australia are invested in the default option in a super fund chosen by their
employer or an award. Of that 80 per cent, anecdotal evidence suggests around
20 per cent explicitly choose the default option, with the rest making no
active choice.
... The
idea is not to have a centrally determined option for everybody; nor is it
laissez faire. While the system compels people to save into super through the
Super Guarantee, the Cooper Review's proposed choice architecture means that
people are able to choose between the default option (which must be a MySuper
product), or opt for a saving plan with greater choice but greater responsibility.[8]
Figure 1.1: Recent reforms to Australia's
superannuation system
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