The current superannuation performance testing regime does not encourage individuals or superannuation funds to take a truly long-term perspective when deciding where to invest retirement savings. In fact, by singularly focusing on financial returns the current regime risks undermining people’s quality of life in retirement.
Financial markets do not take into account that the state of the environment or social harmony are likely to have a large bearing on people’s quality of life in retirement. It’s a debased system if the thing you are invested in to maximise financial returns is going to make the world a less habitable and happy place by the time you’re old enough to enjoy these returns.
Australia’s $3.3 trillion in retirement savings should be invested in a way that protects the planet's life supporting climate and ecosystems, and that fosters a more caring world for its citizens. This requires making reforms to the superannuation performance testing regime to encourage individuals and superannuation funds to make a proactive choice to invest money to further environmental and social aims. Further, the performance testing regime should acknowledge that, for some people, the pursuit of environmental and social outcomes is more important than monetary returns, and it should accommodate their willingness to invest accordingly.
While Schedule 5 of this bill is in accord with these aims, it begins the task in a restricted and inequitable fashion that is likely to undermine the pursuit of these broader goals.
This inquiry heard evidence that the nature of the carve-out provided for in this bill is, in-effect, a form of religious discrimination.
In his submission, UNSW Associate Professor Scott Donald stated that:
…as a practical matter minority faiths are unlikely to be able to satisfy the requirements … depriving them of the opportunity afforded more affluent, mainstream religions to use the Supplementary Test.
ASFA CEO Dr Martin Fahy gave a detailed explanation of the technical impediments to establishing an alternative performance test:
…the question of how you would construct faith-based indices really speaks to the challenge of the screening which that faith-based product has undertaken and your ability. If we take an ASX 100, stripping from that all of the screened-out financial services companies to arrive at an adjusted index is not an easy task. It's not impossible, but I'm not aware of 'off-the-shelf' indices that you could go to which wouldn't in and of themselves produce tracking errors.
Reflecting these issues and the very niche application of Schedule 5, this inquiry heard consistent evidence, summarised in the Chair’s report, that instead of adopting a selective carve-out, the government should establish a holistic framework for the performance testing of all values-based superannuation investments.
A number of submitters made the obvious point that the establishment of such a framework should come out of the review of the Your Future, Your Super reforms that is currently underway. In fact, Treasury officials confirmed that performance testing of broader ESG funds and products are within the scope of this review.
It is of vital importance that establishment of alternative performance tests for values-based investment is done properly from the start. The integrity and sustainability of the system must be ensured, as well as the opportunity for the entire population to participate.
Recommendation
The Australian Greens recommend that either:
Schedule 5 be opposed, and the consideration of alternative performance tests for all values-based superannuation be deferred until the Your Future, Your Super review is completed; or
Schedule 5 be amended to allow all values-based superannuation products to apply to use a supplementary performance test, and to ensure all faith-based superannuation products are able to be assessed.
Senator Nick McKim
Member
Greens Senator for Tasmania