CHAPTER 14
CONCLUSIONS AND RECOMMENDATIONS
Government Senators' view
Labor Senators' view
Australian Democrat Senator's view
GOVERNMENT SENATORS' VIEW
14.1 Government Senators consider that there is clear support for the
choice of fund principle. Choice of fund will, in the longer term, bring
significant benefits to employees.
14.2 The Government has acknowledged the importance of informed choice
and has indicated that the necessary education programs for employers
and employees will be in place. The private sector will also play a significant
role in this process.
14.3 The Government has also consulted extensively on disclosure requirements.
Regulations setting disclosure requirements depend on passage of Taxation
Laws Amendment Bill (No.7) 1997.
14.4 Government Senators found the evidence presented about choice of
fund to be very persuasive. Government Senators also recognise the tight
time for some people.
Recommendation:
Government Senators recommend that the Senate pass Taxation Laws Amendment
Bill (No.7) 1997 without further delay.
(signed)
Senator John Watson Senator Alan Ferguson Senator Julian McGauran
Chairman
NON-GOVERNMENT SENATORS' CONCLUSIONS AND RECOMMENDATIONS
LABOR SENATORS' VIEW
14.5 Labor Senators acknowledge that the implementation of choice of
superannuation fund is potentially one of the greatest changes to superannuation
since the introduction of the Superannuation Guarantee.
14.6 Evidence provided to the Committee about the disastrous outcomes
where other countries have introduced choice of superannuation fund, particularly
the United Kingdom and Chile, suggests that the Committee should carefully
consider any proposed choice of fund model put before the Parliament.
It is prudent for the Committee to begin in the first instance, from the
position of whether Australia should be implementing a choice regime,
with its inherent costs and risks to individuals' retirement incomes.
14.7 The Committee received much evidence on choice of fund which supported
the view that there is very little public demand for choice from employees.
Labor Senators believe that the Government's choice model which will deregulate
the retail superannuation market, does not reflect the demand for choice
from superannuation consumers. Rather, choice is being driven by the Government's
ideology and vested interests who stand to benefit from choice.
The principle of choice
14.8 Labor Senators are not opposed to the principle of employee choice
of fund, provided that employees are not forced to choose and are able
to make an informed choice. The overwhelming weight of evidence provided
to the Committee was for informed choice.
14.9 In addition, Labor Senators consider that choice should be implemented
in a way that will not disadvantage superannuation fund members and is
simple to both comply with and administer. Clearly, choice of fund should
not put onerous compliance and administrative burdens on employees, employers,
or superannuation providers.
14.10 Labor Senators believe that the Government's choice of fund model
does not meet these principles.
Economic benefits
14.11 Labor Senators' doubt the Government's major claim that the introduction
of its choice of fund model will benefit to consumers through increased
competition in the superannuation industry and lower costs, resulting
in better retirement incomes.
14.12 The Committee received evidence from a variety of witnesses who
refuted this claim. Mr. Ken Lockery, Principal, Towers Perrin, noted that
the majority of employees in large employer based or industry funds would
not receive any benefit and might instead suffer a net economic loss.
Mr Lockery quite rightly pointed out that the Government was ignoring
the fact that competitive choice already exists in the superannuation
industry, at the wholesale market level:
The key issue that the government has failed to recognise is the efficiency
of our present trustee based system in producing intense competition
at the wholesale level between investment managers and between fund
administrators. It is clear that many other industries' participants
support our view. [1]
14.13 Similarly, a submission by the Australian Institute of Superannuation
Trustees highlighted several costs areas which are expected to rise as
a result of the Government's choice model, including marketing, administration
and legal costs.
14.14 On the issue of marketing, Helen Hewett, fund Secretary, C+BUS,
provided evidence to the Committee that advertising budgets of industry
based funds would have to rise to meet the need to compete with other
funds in the marketplace. Ms Hewett cast doubt on the impact that competition
would have on providing better retirement incomes for fund members.
14.15 Labor Senators also express their grave concern that the Government's
model of deregulating the superannuation industry at the retail level
will expose employees to products with expensive entry, management and
exit fees. For example, some personal superannuation products and master
trusts contain much higher fees and charges than industry funds and many
corporate funds.
Education
14.16 Education is clearly one of the most important components of delivering
a choice model. In particular, education is crucial if individuals are
to make an informed choice, which will require an appropriate general
understanding of superannuation and an understanding of the impact choice
of fund will have on their retirement incomes.
14.17 Labor Senators believe that an education program must include three
separate groups. These are employees; employers, especially small business
and community organisations; and superannuation providers. The education
campaign should have two phases - an introductory phase and an implementation
phase.
14.18 The Committee received a significant amount of evidence in support
of a public-funded education campaign, even from those organisations who
are generally supportive of the Government's choice of fund model.
14.19 The need for a comprehensive education campaign was highlighted
in evidence to the Committee from Mr Ian Silk, from the Industry Funds
Forum, who cited evidence on the relatively low levels of literary and
numeracy rates in Australia. Mr Silk's evidence demonstrated that many
Australians do not have an adequate level of education to be able to make
an informed choice of superannuation fund.
14.20 Labor Senators recognise that there is clearly a need for a well-planned
education campaign, not only for employees but also for employers and
superannuation providers.
14.21 When in Government, Labor's money tree campaign demonstrated how
effective a well researched, targeted and well resourced education campaign
can be.
14.22 However, Labor Senators are sceptical about the Government's bona
fides on an education campaign for choice.
14.23 The Australian Taxation Office finds itself in an unenviable situation
with regard to the implementation of the Government's choice agenda. Clearly,
the ATO has been left with little choice but to implement a major initiative
in an impossibly short timeframe.
14.24 Despite comments made by the Assistant Treasurer about the importance
of education, the Government obviously considers that ensuring employees
are in a position to make an informed choice is a low priority. There
are two key factors that clearly indicate this is the case:
- the indecent haste with which the government is seeking to implement
this policy; and
- the inadequate amount of money allocated for education.
14.25 Labor Senators note the comments made by Mr Michael Monaghan, Deputy
Commissioner, Superannuation, ATO, in which he assured the Committee that
there was sufficient time remaining for education of those who would have
to make choices after 1st July. He told the Committee that:
Clearly it is part of our role to ensure that the people who are making
decisions are equipped to do so, and we are satisfied that there is
still ample time for us to do that. There has been a lot of work going
on preparing us to develop actual strategies to educate people and we
do not see any reason why people who are making choices in July will
not be adequately equipped with information to help them to do that.
[2]
14.26 The Committee sought further information from Mr Monaghan about
the ATO's timetable for conducting the necessary education program to
accompany the choice of fund implementation.
14.27 Mr Monaghan advised that:
We have just completed tendering for an advertising agency to undertake
this work on our behalf. We cannot announce the decision now, because
we are still completing the paperwork; but that is imminent. We have
already undertaken considerable research. [3]
14.28 Labor Senators acknowledge that the ATO has already undertaken
significant background work towards implementing a campaign for educating
employers and employees about choice. However, it is extraordinary that,
three months from the starting date, tenders for conducting the Government's
information campaign have not yet been announced.
14.29 Labor Senators consider that it is highly questionable whether
an adequate campaign can be managed and run in the remaining available
time. Inevitably, some of the first people who will be required to make
a choice may not have received adequate education about how they should
go about making an informed choice.
14.30 Labor Senators also note Mr Monaghan's comments about how there
is a need to `find the hook to get people wanting to take an interest'.
Labor Senators believe that this indicates that planning for the advertising
campaign and education campaign is at a very preliminary level.
14.31 Labor Senators recommend that a well researched, resourced and
targeted education campaign be conducted before choice of fund is implemented.
The education campaign should be targeted at employees and employers,
particularly small business employers.
14.32 Labor Senators further recommend that the start of choice of fund
should be delayed to provide additional time for an education campaign.
14.33 Labor Senators believe it is appropriate for the Government to
make a substantial contribution towards funding an education campaign
and consider using part of the supervisory levy raised by the ISC.
14.34 Labor Senators recommend that the Government consider implementing
investment choice as a first step towards educating the public about choice
of fund.
Disclosure
14.35 Labor Senators welcome the change to an "up-front" disclosure
model. It is essential that consumers have the appropriate information
and evidence in front of them before they make a decision about choice
of fund.
14.36 However, for employees to be able to make an informed choice decision,
they must be able to compare, on an equal footing, information about one
superannuation fund with information about another fund. This will require
a consistent, standard disclosure regime for the presentation of key feature
statements.
14.37 Labor Senators recommend that choice of fund disclosure regulations
provide only for a consistent, single disclosure regime for key feature
statements, similar to that proposed in evidence by William M Mercer.
14.38In addition, Labor Senators recommend that when designing the disclosure
regime for choice, the ISC consider including additional generic material
in key feature statements, as proposed by Mr Grenfell of Mercer's.
14.39Evidence from Ms Krystyna Hassall, with a background of some 16
years in the superannuation industry, suggests that Australians without
a detailed knowledge of superannuation may have some difficulty in understanding
the information presented to them.
14.40 For this reason, it is essential that key features statements are
`road tested' to ensure that ordinary Australians can understand and apply
the information they contain. An appropriate level of understanding could
be the 80 per cent understanding level which the Government is applying
to its incoming telephone call identification system.
14.41 Labor Senators recommend that the Government commission field tests
of key feature statements on employees and employers before final disclosure
regulations are introduced into the Parliament. The field tests should
achieve a level of 80 per cent understanding before the Government proclaims
the legislation and proceeds with choice of fund.
Timing
14.42 The Committee received an overwhelming amount of evidence in support
of delaying the start date for choice.
14.43 Arguments for delaying the start of choice include allowing additional
time for:
- a comprehensive education campaign;
- superannuation providers to prepare administration arrangements;
- employers to prepare for choice of fund; and
- the development of adequate and appropriate disclosure standards.
14.44 Labor Senators believe that there is a strong case for delaying
the start of choice of superannuation fund. The question should be, for
how long?
14.45 On balance, of the several options for delay which were presented
to the Committee, Labor Senators recommend that the start date be delayed
until at least 1 July 2000 and that new and existing employees begin choice
simultaneously. This recommendation is made for several reasons.
14.46 First, the 1 July 2000 start date is the date set by the Government
set for existing employees in the transitional provisions of its own choice
proposal. The confusion of having two separate start dates for new and
existing employees is unnecessary and unwanted.
14.47 Second, the superannuation industry and ordinary Australians are
still suffering from the last major superannuation policy the Government
tried to rush through the Parliament: the superannuation surcharge tax.
Given the importance of choice of fund, it is essential that any teething
problems have an adequate lead time to be sorted out before the measure
takes effect.
14.48 Third, the delay will allow the Government, in consultation with
industry and consumer groups, to conduct a comprehensive and targeted
education program.
14.49 Fourth, a delay will enable appropriate disclosure standards to
be settled.
14.50 Fifth, Labor Senators are concerned that choice of fund will lead
to many complaints from disgruntled employees and employers. With the
recent Federal Court Bishop decision effectively gutting the powers of
the Superannuation Complaints Tribunal, it is important that the issue
of access to a cheap, fast and independent complaints body is resolved
before choice begins.
14.51 Labor Senators note that evidence provided to the Committee by
Mr John Trowbridge, President of the Institute of Actuaries and recently
appointed as a member of the Treasurer's Financial Sector Advisory Council,
strongly supported delaying the start date of choice.
14.52 Labor Senators also note the submissions of William M Mercer and
Coopers and Lybrand which outlined the many tasks employers will have
to undertake before choice begins.
14.53 On the issue of delaying choice, Labor Senators draw the Government's
attention to an editorial in The Australian newspaper which discussed
the Government's desire to press ahead with the 1 July 1998 start date:
…If the Government remains set on its course, it would provide
ammunition for critics who believe the member choice initiatives are
motivated more by a desire to water down union-affiliated industry fund
involvement in superannuation than by a genuine wish to empower individual
savers. [The Australian 2 March 1998, p.8].
14.54 Labor Senators therefore recommend delaying the start date of choice
of fund until 1 July 2000 for both new and existing employees.
Default fund
14.55 Labor Senators believe the submission made to the Committee by
Mr Peter Kell of the Australian Consumers Association, on the issue of
default funds, is worthy of closer consideration.
14.56 In addition, Labor Senators support the concern expressed in evidence
by the former Coalition shadow Minister, Mr David Connolly, about the
gaps in insurance cover that will inevitably occur under the Government's
default fund arrangements.
14.57 Determination of the default fund is an area of the Government's
choice model that it should reconsider. Removal of superannuation from
awards is, in essence, removing an established procedure for determining
which default fund should apply and also removes the independent arbitrator,
the Australian Industrial Relations Commission.
14.58 Labor Senators endorse the Committee's view that there is a strong
case for setting minimum default fund standards, particularly in the area
of insurance cover and investment choice.
14.59The Committee received clear evidence that the majority of employees
will choose the default fund. Labor Senators recommend that the default
fund not be the lowest common denominator chosen by employers.
14.60 In addition, Labor Senators believe the Government should consider
allowing the default fund to be determined by reference to the relevant
industrial award.
Insurance
14.61 Labor Senators draw attention to evidence from Mr David Connolly
on the issue of insurance cover, which Mr Connolly described as `one of
the biggest problems faced'.
14.62 Mr Connolly, the author of the Government's 1996 pre-election policy,
told the Committee that he was "saddened" that the universal,
compulsory minimum insurance model he proposed was the only part of the
Coalition policy which was not adopted.
14.63 Labor Senators believe that minimum insurance standards are appropriate,
particularly for default fund products.
Definition of `industry-based funds'
14.64 Labor Senators believe that the definition of `industry-based funds'
in the Government's choice of fund legislation is too broad.
14.65 Labor Senators recommend that the definition be amended to reflect
the key `not-for-profit' feature that current typifies industry funds.
National consistency
14.66 The Government's choice model will cause massive confusion for
both employers and employees due to the lack of consistency with other
States' choice of fund models and the inconsistency between State and
Federal award arrangements. Employers with workers employed under both
State and Federal awards, will be required to offer two different choice
of fund models. Employees who change industrial jurisdictions will also
suffer.
14.67 Labor Senators believe that the Government should opt for a choice
of fund model which provides greater consistency between State and Federal
jurisdictions.
Removal of superannuation from federal awards
14.68 Labor Senators note the Government's intention to remove superannuation
as an allowable matter in federal industrial awards.
14.69 Many industrial awards provide for more frequent payments of superannuation
contributions (monthly or quarterly) than the superannuation guarantee.
One of the many adverse consequences of removing superannuation from awards
would be a shift to annual payments resulting in significant enforcement
and compliance problems and a major reduction in interest accruing on
members' accounts. This will result in lower retirement incomes for many
workers.
14.70 Labor Senators recommend that the Government not proceed with this
policy which would have a disastrous impact on the retirement incomes
of low and middle income workers.
Overriding Federal Awards: S32U
14.71 Labor Senators believe that Section 32U, which seeks to override
superannuation provisions in awards, will result in lower protection for
employees particularly given that the Government's choice model effectively
gives choice to employers, rather than employees.
14.72 In addition, Labor Senators note the Government's hypocrisy in
proposing to override awards in respect of choice of fund, but not for
the earnings base which could result in employees being better off.
14.73 Section 32T allows employers to continue to use the notional earnings
base for calculating employees' superannuation entitlements, for both
existing and new employees, despite the choice model overriding the award
in other respects. The Government cannot have it both ways.
14.74 Labor Senators recommend that Section 32U be removed from the bill
allowing the award to continue in operation.
Independent arbitrator
14.75 Labor Senators note the Committee's summary which states that in
the event of a dispute between an employer and employee relating to choice
of fund, there is a need for a nominated arbitrator.
14.76 Labor Senators recommend that superannuation should not be removed
from the industrial awards system and that the Australian Industrial Relations
Commission should remain as the independent arbitrator of disputes.
RECOMMENDATION
14.77 Labor Senators recommend that the Bill not be supported in its
current form without extensive amendments to address the issues raised.
(signed)
Senator Stephen Conroy Senator Chris Evans Senator the Hon. Nick Sherry
Deputy Chairman
AUSTRALIAN DEMOCRATS' VIEW
SENATOR LYN ALLISON - SUPPLEMENTARY REPORT
14.78 The Government's choice of funds arrangements represent the most
significant reform to superannuation since the 1992 Superannuation Guarantee
legislation. Choice, in principle, is difficult to oppose. In a perfect
world, maximisation of choice offers good opportunities for well informed
consumers to identify and act on their best interests. However, the superannuation
system in Australia does not represent a perfect world, and consumers
of superannuation products may not be well informed.
14.79 The Government's choice proposals need to be considered, in the
light of existing arrangements and the existing positions and rights of
superannuation consumers and providers. To pursue a choice regime for
purely ideological reasons without consideration for the real world impact
on consumers, providers, employers and public finances will not produce
a good public policy outcome.
14.80 In assessing the Government's choice regime, the Democrats will
give primary consideration to the interests of superannuation fund members,
and consider how the choice regime will change or impact on the investments,
prospects, rights and protection of fund members.
14.81 We are very conscious of the low level of understanding of and
confidence in the superannuation system among most Australian workers
and many employers. More change of unproven value is unlikely to improve
confidence. Change should only be supported which will clearly add to
understanding and confidence.
Member and the Industrial Relations System:
14.82 This legislation also marks a major change in the status of superannuation
as an industrial matter. Over the past decade and a half, major improvements
in superannuation for workers have been achieved as a direct result of
union agitation through National Wage Cases and, following the failure
of the Australian Industrial Relations Commission to deliver the union's
desired outcome in 1991, Commonwealth SGC legislation. This industrial
aspect of superannuation is reflected in union representation on the large
industry funds, superannuation clauses in awards and in union offices
providing advisory services to members on superannuation matters.
14.83 The choice regime seeks to end the characterisation of superannuation
as an industrial matter by removing award superannuation clauses and by
establishing superannuation arrangements directly between employers and
individual employees rather than by collective determination. This very
significant change should not be lightly dismissed. The unions have built
up considerable expertise in superannuation matters and have provided
a highly effective level of consumer advocacy on behalf of four million
Australian workers with little or no knowledge of investment matters.
14.84 Nevertheless, the passage of the SGC legislation and the SIS Act
have resulted in superannuation being partly regulated by two legal systems
and two regulators, the ISC and the AIRC. At the time of the 1996 Workplace
Relations Act agreement with the Government, the Democrats recognised
that there could be some merit in having one piece of legislation governing
superannuation. However, the then Democrats Leader set the following conditions
on such a move:
Such legislation must ensure that workers are not made worse off as
a result of any overriding or repeal of award superannuation clauses.
The legislation should also not be used to undermine the industry superannuation
funds, which we believe have provided good value for money for workers,
or to provide an unfair advantage for the larger financial institutions
with large advertising and marketing budgets. [4]
14.85 These are still the primary concerns of the Democrats in assessing
the best way forward for choice in superannuation and consequential changes
to awards.
14.86 The Government, for its part, argues that the choice regime will
provide substantial benefits for members. The Minister, in his second
reading speech, argued that:
The choice of funds arrangements are designed to give employees greater
choice and control over their superannuation savings, which in turn
give them greater sense of ownership of these savings. The arrangements
will increase competitions and efficiency in the superannuation industry,
leading to improved returns on superannuation savings. [5]
14.87 The testing of the assertions made in this statement have been
the major subject of this Inquiry. Will the proposed "choice"
regime increase the control employees have over their superannuation,
or the control of employers? Is member choice the best way to increase
competition on returns on superannuation? Will competition lead to greater
efficiency i.e. lower costs?
14.88 The evidence to the Committee has provided little concrete support
for proving the Government's claims. The Committee report summarises the
evidence fairly comprehensively and the Democrats propose to comment only
on some of what we see as the key issues.
Member choice or employer choice:
14.89 The Australian Consumers Association, while supporting moving to
a choice regime, was strongly critical of the Government's proposal, arguing
that it is effectively the employer's decision of the type of choice offered
or whether there will be any choice at all. Choice should be open-ended.
[6] The Democrats certainly have some sympathy
that the proposed choice regime places far too much weight on the rights
of employers rather than employees in defining this aspect of choice.
The reforms announced in December made this imbalance considerably worse.
Such an approach reduces the scope and hence the quality of the choice,
and thereby the potential of the scheme as a whole to deliver a truly
competitive outcome.
14.90 Against that, other submissions have raised very strong arguments
against unlimited choice. Indeed, unlimited choice would greatly increase
employer costs, while the benefits to individual employees would depend
on how informed they were in choosing funds. The South Australian Local
Government Superannuation Scheme argued that the cost of compliance for
a defined benefit scheme would be such that it would result in an increase
in employer contributions.
Member choice and returns on funds:
14.91 In many cases, while members are still directed without choice
into an industry fund, there is heavy competition between funds in choosing
investment managers and fund administrators. [7]
Because of the onerous nature of trustee obligations, fund trustees do
tend to shop around and regularly review the performance of their managers
and administrators. Importantly, they are in a position to make informed
choices.
14.92 Making informed choices about likely investment returns will prove
extremely difficult for most workers. Indeed, the tendency identified
by many witnesses before the Committee for the less informed to err on
the side of caution and conservatism, or take an option which is inappropriate
for their circumstances, is likely to reduce the long term returns for
many workers. While many submissions argued for extensive education to
improve the quality of choice decisions, it is unlikely that any but a
very small minority of members will have sufficient expertise to weigh
up risks and returns and consistently achieve better long term outcomes
than professional fund trustees and investment managers.
14.93 It would be folly for the Parliament to approve a scheme which
could result in the reduction in long term rates of return on superannuation,
or higher cost regimes, because any reduction in superannuation payouts
into the future will need to be offset by increased pension payments.
It may be that removing effective decisions about the best high return/low
cost investment strategies from the hands of professional investors and
placing it in the hands of uninformed investors or employers could have
a significant deleterious effect on national savings.
Member choice at whose cost:
14.94 It is very clear from the evidence that choice, instead of reducing
costs across the industry as claimed by the Government, will considerably
increase them as funds will need to considerably increase spending on
advertising, marketing and commissions to attract and retain members.
Industry funds utilising minimal marketing costs and improving economies
of scale, have been able to offer administration fees up to 80 per cent
lower than commercial funds. By contrast, it has been estimated that the
costs of commissions, marketing and widespread fund switching costs up
to 18 per cent of contributions in the Chilean choice system. [8]
A recent projection of low fee industry funds and the more high fee master
trust funds found that the low fee nature of industry super funds would
result in a superannuation payout $100,000 higher than the average master
trust. [9]
14.95 Any disclosure requirements, worthy as they are, will add further
to such heavy administrative costs. Further, employers could face quite
onerous administrative costs of complying with choice, which becomes more
costly with a larger number of casual workers. Employees, faced with the
need to make informed choices, will probably need to seek independent
financial advice at further personal cost. The costs of competition are
likely to be considerable. Against that, some efficiency savings will
come from the likely mergers or acquisitions of many smaller funds. However,
without modifications to capital gains taxation, these efficiency gains
are unlikely to be maximised.
What sort of choice?
14.96 Choice need not be at the fund level – choice can and does
occur within funds. Many superannuation funds in Australia already offer
choices to members about different types of investments. Several submissions
argued that this approach should be expanded first to help educate workers
about the types of judgements needed for choosing investment and risk
strategies before moving to full employer choice. Such an approach would
have the advantage of eliminating the heavy up front marketing costs that
funds would face in a full choice regime. However, the evidence from most
funds offering investment choice is that few members avail themselves
of investment choice. Nevertheless, even if the proportion is small, provided
the cost to the funds of managing such choices are not excessive, then
even providing such choice is likely to increase "ownership"
of superannuation in a positive sense without the negative cost aspects
of a full choice regime.
14.97 Investment choice could also allow for greater democratisation
of superannuation funds. It could be used as a means by trustees to gauge
the desires of members on broader investment policy decisions e.g. whether
funds should invest funds offshore, or whether a small proportion of funds
could be allocated to venture capital or infrastructure, or small business,
or housing. Such an approach of allowing greater employee choice over
investment could partly free trustees from their onerous duties pushing
them always towards maximising short-term returns. Instead, all or some
of the members of a fund express a preference for investing, for example,
in Australian businesses, then the trustees would be expected to largely
comply with that request. However, the greater the nature of choices provided,
obviously the greater the costs for funds.
Informed Choice:
14.98 The Committee report extensively outlines the need for high quality
and user friendly education of members and disclosure requirements. The
Democrats strongly endorse the sentiments of the Committee's main report,
and believe that all stakeholders – the Government and superannuation
providers – need to accept responsibility for developing an informed
market for superannuation products through education and disclosure. The
Democrats strongly support disclosure requirements aiming for simple and
meaningful comparisons for the key features of schemes rather than lengthy,
technical text. Careful piloting and testing of disclosure documents will
need to be an essential part of any choice regime. In an effort minimise
problems with disclosure, the Democrats believe that the regulatory regime
must also extend to limiting the use of commissions and inducements employers,
and also the content and placement of advertising and marketing materials
to ensure that member choice is based on facts rather than marketing strategies.
Uninformed Choice:
14.99 Many workers, possibly the vast majority, would inevitably prefer
not to make any choice about superannuation. Certainly this has been the
experience in the State schemes offering choice in New South Wales and
Queensland and where choice has been offered within schemes. This makes
the choice of the default scheme extremely important [10].
Currently this is regulated by award clauses and tends to default to an
industry fund where the interests of members are protected by union trustees.
This bill leaves the choice of default scheme in the hands of employers.
The Democrats believe that there is much merit in maintaining industry
funds as the appropriate default fund, but note concerns that the Government's
proposed definition of industry fund may need substantial modification
to reflect funds with joint employer-employee trustees. [11]
If the Government proceeds to remove the provision of award clauses setting
the default scheme.
14.100 The level of individual and collective disputation is likely to
increase if the Government's choice regime with its high discretions to
employers is introduced. There is clearly a need for maintaining an impartial
dispute resolution mechanism, [12] a role which
many argue could continue to be performed by the Industrial Relations
Commission, [13] particularly given the legal
doubt over the future of the Superannuation Complaints Tribunal and the
general ineffectiveness of voluntary regulation and dispute schemes.
Timing of Reforms:
14.101 If the Government proceeds with its freedom of choice regime,
there is a strong case for delaying the start-up date for the new scheme.
These issues are canvassed in the main report in some detail. The Democrats
do wish to place on record our view that we do not believe that a July
1 1998 date is feasible, particularly given the high administrative costs
superannuation providers already need to incur this year complying with
the Government's Superannuation Surcharge Tax legislation.
Portability of Superannuation:
14.102 To maximise the potential gains from choice, superannuation funds
ought to be fully portable. However, this could create serious problems
for employers, particularly those with defined benefit schemes. It would
also require careful attention to the quantum of exit and transfer fees
charged by many superannuation providers, and to determining what is a
reasonable period of notice for providers to be given for transfer of
funds. Fund switching has the potential to become a significant cost burden
for superannuation funds. The bill does not clearly prohibit exit fees
and charges which might be so high as to become effectively anti-competitive.
Conclusions:
14.103 The Democrats see some merit in moving to improve the choice mechanisms
within the superannuation system as a means of enhancing the ownership
and control by members over their investments. However, this needs to
be done in a way which maximises benefits to employees while minimising
costs to the system as a whole. The Government's choice regime as it presently
stands does not effectively achieve this balance effectively, and will
need to be substantially amended to shift the balance back in favour of
the interests of employees.
(signed)
Senator Lyn Allison
Footnotes
[1] Evidence, p. 302 - also para 3.15.
[2] Evidence, p. 407.
[3] Evidence, p. 408.
[4] Letter from the Leader of the Australian
Democrats to the Minister of Workplace Relations 18/10/96.
[5] Second Reading Speech, Taxation Laws
Amendment Bill (No. 7) 1997.
[6] Submission, Australian Consumers'
Association, p. 8.
[7] Evidence, Mr Ken Lockery, Towers
Perrin, p. 302.
[8] Submission, Industry Funds Forum,
p. 11 and Submission, Motor Trades Association of Australia Superannuation
Fund Pty Limited, p. 4.
[9] Beth Quinlivan, Personal Investment,
December 1997, p. 65.
[10] See Submission, Australian Consumers'
Association.
[11] Submission, Australian Institute
of Superannuation Trustees, p. 1.
[12] Submission, The Association of
Superannuation Funds of Australia Limited, p. 7.
[13] Submission, Australian Council
of Trade Unions, p. 4, and Submission, Motor Trades Association
of Australia Superannuation Fund Pty Limited, p. 4.
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