Labor Senators wish to make the same points about the consultation
process as set out in the dissenting report for the bills Treasury Laws
Amendment (Improving Accountability and Member Outcomes in Superannuation
Measures No. 1) Bill 2017 and the Superannuation Laws Amendment (Strengthening
Trustee Arrangements) Bill 2017.
At the outset, Labor Senators express their disappointment that these
bills were introduced into Parliament on 14th September, on a Thursday morning
on the last day of a two week sitting period. This was made worse when very
short reporting dates were set for not only this bill and the bills mentioned
previously, but also the Treasury Laws Amendment (Putting Consumers First—Establishment
of the Australian Financial Complaints Authority) Bill 2017.
Labor Senators also note Senator Gallagher's request in the Senate to
extend the reporting date for the three superannuation bills given the
complexity of the reforms and note that this motion was voted down by the
Labor Senators are concerned that these bills, which claim to improve
governance in the superannuation sector, are being rushed through the committee
by this Government. What is worse, no clear explanation of the short reporting
date was even offered by the Government as a concession. As this report is
tabled, it will be three weeks before the legislation can be debated in the
Senate. These three weeks could have been put to good use.
Labor Senators thank the Chair of the Committee for allowing two days of
hearings to cover the four bills mentioned previously. Labor Senators want to
thank Senator Hume and her office for being cooperative despite the
unreasonable timeframes set by the Government
Schedule 1—'Choice of fund', the role of collective bargaining and the call
for greater consumer protections
Labor Senators wish to make comments on two principles that inform this
proposed policy. The first is that the collective bargaining of workers has
been able to lift superannuation services beyond community standards. The
second is that when workers are offered “choice” in a mandatory financial
service such as superannuation, there must be adequate safeguards so that
workers are not left worse off.
Collective bargaining and going beyond current community standards
Superannuation is inextricably linked to the package of salary, wages
and other benefits in workplace negotiations. Superannuation is a part of
industrial bargaining and arguments that cast superannuation as a 'financial
product' outside of workplace bargaining misrepresents the situation.
Collective bargaining by workers played an important role in
establishing superannuation schemes well before there was a compulsory employer
contribution scheme. Collective bargaining since 1993 has been able to lift
superannuation contributions beyond the minimum rate in many workplaces,
improve the provision of insurance within superannuation and to put safeguards
in place to minimise superannuation guarantee non-payments.
As part of these negotiations between employers and employees, many
industries determined that there would be benefits to both employers and
employees in having all employees contribute to a single fund, often an
For employers, the administrative costs of making contributions were
lowered. In addition, industry, public sector and corporate funds (most likely
to be receiving all contributions) on average have outperformed retail funds
and so employers, by using these funds, would be likely to face a smaller risk
of workplace disruption should workers become concerned about the management of
their retirement savings.
For employees, single fund arrangements often had stronger safeguards to
minimise superannuation guarantee non-compliance and would likely have easier
access to staff who managed the fund (through workplace visits). Employees who
used corporate, public sector or industry funds, on average, would also see
higher returns from their contributions.
Where efficiencies were gained through a single fund arrangement, any
savings would be apportioned through negotiations to both employers, via
reduced administration expenses and employees, via mechanisms such as a higher
contribution rate or an insurance product with greater risk coverage.
This schedule would disrupt these long standing arrangements and the
Senate needs to be mindful of all the consequences of this bill should it be
passed by the Senate.
As one example, the Senate should be made aware of UniSuper's submission
which notes its open defined benefit plan for non-casual employees.
Contributions are made at levels well above the superannuation guarantee rate.
Opening up choice of fund could undermine the benefits that all members could
In collectively-pooled arrangements, such as defined benefit
schemes, the decisions of some members can have an effect on many members. By
their very nature, defined benefit schemes are subject to adverse selection
risks and have rules in place that, once a member has made a decision to remain
in the defined benefit scheme, employers are then bound to fund that member's
benefit for the duration of that member's employment.
Superannuation remains an evolving industry, and Labor Senators believe
that careful consideration should be given to how opening up choice of fund
might preclude other innovative product offerings if the risk pooling of
membership cannot be achieved.
Labor Senators acknowledge the concerns raised about the consequences of
limiting choice for employees in some circumstances. It is a valid concern when
a worker faces the situation of not receiving contributions to their existing
fund (even a well-performing industry fund) and has to either open a new
separate account or consolidate to the new single fund.
On the argument of multiple accounts, Labor Senators thank AIST for
raising ASIC's submission to the Financial Systems Inquiry which cast doubt on
whether choice of fund was the appropriate policy solution to the problem of
These [choice of superannuation fund] changes also made it
possible for members with multiple accounts to more easily consolidate these
accounts and reduce the amount of fees they pay for maintaining multiple
accounts. However, in practice, this consolidation did not lead to a decrease
in the number of accounts in the industry. The number of accounts continued to
grow to more than 30 million, even though the number of employed persons in
Australia is roughly 40% of this number. This means that for every employed
person there are approximately 2.5 accounts. A large number of these accounts
are small, unclaimed or lost and some are for retirees receiving superannuation
in the form of a pension.
Labor Senators also acknowledge that the introduction of SuperStream
should significantly reduce the administrative costs of paying to multiple
Given the nature of this proposed change, Labor Senators also find it
strange that these arrangements are being debated while the Productivity
Commission is reviewing the efficiency and competitiveness of the
superannuation system, and includes in its scope default superannuation
Labor Senators also note that the Superannuation Guarantee is scheduled
to rise to 12%, with some stakeholders calling for rises beyond 12%.
Labor Senators believe that workplace negotiations are an important
mechanism for lifting superannuation contributions beyond the community
standards where it is in the interests of workers in that industry. Care needs
to be given to how this schedule might limit negotiations that could make
workers better off.
Choice of fund needs to be considered in a context where decision making
is not always a rational evaluation of options. Marketing, sales techniques and
other messaging can influence a person's choice away from the best rational
choice. There need to be adequate safeguards when choice is exercised,
particularly in the case of superannuation, where the benefits of additional
net returns can accrue to substantial sums of money over a long time horizon.
The Rice Warner report commissioned by Industry Super Australia
shows that the assumption of rational decision making needs to be questioned.
In the case of costs, Rice Warner found that:
Members are unlikely to have used fee levels as a primary
reason for switching between funds, as many members are charged a higher fee
20% of members pay lower fees after switching funds, while
49% of members pay higher fees. 31% of members did not have a notable increase
or decrease in fees paid (with a margin of $10 either way).
The aggregate fee outcomes from switching activity reveals a
net increase of $137 million in fees. The major component of this is a $170
million increase in fees as a result of switching into funds with higher fees.
Retail funds account for 92% of this increase in fees. This is modestly offset
by a$33 million saving in fees.
And on net returns, it was found that:
When comparing performance of funds (using a 4 year period to
20 June 2015) before and after a member switch, we observe that:
Members are unlikely to have used past performance as a proxy
for their investment decision as the data shows on average that historical
returns for the incumbent and successor fund tend to be similar.
36% of members would have received higher returns over the
period, while 56% of members would have received lower returns. 8% of members
did not see a notable increase or decrease in investment performance (with a
margin of 0.05% either way).
The aggregate estimated impact on investment returns reveals
a net decrease of $284 million annually. This is largely driven by a $373
million decrease in returns annually for members rolling into funds with lower
returns. Retail funds accounted for 87% of this decrease in returns. This is
offset by an $89 million increase in annual returns for those members switching
into higher performing funds. 52% of this increase is accounted for by industry
funds, while only 33% is by retail funds.
Concerns have also been raised that some superannuation funds might
offer bundled incentives to an employer in return for default fund status in
The Construction, Forestry, Mining and Energy Union also raised these
It should not be assumed that employees will be completely
free to choose the fund/s that best meets their interests if these measures are
approved. The reality of the workplace applies here. The opening up of access
to the full range of superannuation funds on an individual basis will expose
employees to considerable pressure from both employers and superannuation funds
to direct their superannuation contributions to a particular fund which favours
Labor Senators note concerns raised in submissions about the impacts of
this change on women. With so many women employed in part-time and casual work,
often in low paid and insecure industries, a number of submissions explain that
'retail and industry funds are not equal options, and workers must not be
positioned to consider them as if they were. 
The ACTU for example, is particularly concerned about any regulatory
measure which might have a further detrimental effect on the superannuation
gender gap. A number of enterprise agreements exist in female dominated
industries (the service sector, nursing, health, hospitality and the like)
which include superannuation provisions which are better for women workers than
alternative arrangements which would exist in an uncontrolled choice
Moving away from the current provisions may damage investment earnings
potential for women workers, default insurance arrangements, and supportive
mechanisms such as those which pursue unpaid superannuation. The ACTU argue
that women's superannuation entitlements will be advantaged only by the
retention of the current arrangements.
Labor Senators also note the Government's deferral of choice product
dashboards, when these dashboards exist for MySuper products. To enable proper
comparison of all choices available to a worker, there dashboards should be
required across the industry. This is also endorsed by the FSC:
...the FSC supports extending product dashboards to choice
products as well.
Regarding questions of fee disclosure and portfolio disclosure, which
would assist in evaluating the total fees charged for the asset allocation
held, Labor Senators note problems raised by ISA about RG97
and the concern regarding the carve-out of platform products in portfolio
These disclosure problems, coupled with the current decision making of
workers, raises concerns that there are insufficient current protections to
ensure that choice of fund will leave workers better off.
Schedule 2—Closure of the salary sacrifice loophole and the Government's
lacklustre approach to superannuation guarantee compliance
There was universal support in this inquiry for the closure of this
salary sacrifice loophole.
Labor Senators believe that the closure of this loophole, while
important, is only one small component of address the problem of superannuation
Labor Senators have led the way in investigating superannuation
guarantee non-payment. Labor Senators once again draw the Senate's attention to
the Economics References Committee's report Superbad—Wage theft and
non-compliance of the Superannuation Guarantee and its recommendations.
The Government has been dragged into addressing superannuation guarantee
non-compliance. Labor Senators believe that the decision taken by the Minister
for Revenue and Financial Services to establish a secret interdepartmental
working group was in response to the Senate inquiry.
Labor Senators found out that this group existed through the media on
the morning of the first public hearing of the Senate inquiry. This is an
unsuitable way to approach such an important issue.
Labor Senator's welcome the interdepartmental report, but believe that
is was constrained by Government in making more far-reaching recommendations.
The Government can take strong action on unpaid super. Closing the
salary sacrifice loophole is not enough. Labor Senators call on the government
to adopt the 32 recommendations in the Senate Economics References committee
- Making it easier to calculate SG liability, by considering the removal
of the $450 threshold and reviewing the definition of ordinary time earnings
Consider requiring the payment of SG on a monthly frequency, rather than
quarterly (especially given the administrative burden of making payments is
reduced with SuperStream);
Notifying employees when the ATO enters a payment plan with a business
for superannuation obligations;
Moving compliance to a data driven, proactive model rather than a
reactive, complaints drive process;
That default funds have a rigorous arrears collection process;
Taking strong action on the use of insolvency to avoid superannuation
Applying single touch payroll to all businesses, covering all employees
and contractors on payroll.
Labor Senators believe that the Government should act with haste on this
issue and see no reason to delay. The interdepartmental report was issued on 31 March 2017,
the Senate Economics References Committee report was released on 2 May
2017 and the end of the year is fast approaching. Given that superannuation
underpayment is exacerbated by foregone investment earnings and compound
interest, it is important that action is taken quickly to preserve retirement
balances and to reduce the long term pressure on the Federal budget.
Labor Senators position on this bill
Labor Senators welcome the closure of the salary sacrifice loophole, but
it is only one important small step in taking significant action on unpaid
Labor Senators reiterate the recommendations made in the Senate
Economics References Committee report “Superannuation Guarantee non-payment”.
There is a pressing need to consider unpaid super as seriously as unpaid wages,
bring superannuation guarantee reporting from the paper age to the digital age
and shift the compliance model from a reactive complaints based approach to a
proactive data driven one.
Labor Senators support the principle of collective bargaining and also
support the principle that workers should be able to exercise choice of fund if
there are sufficient safeguards. Given the difficulty of this policy problem,
Labor Senators will seek to find amendments that support the principles of
collective bargaining that seeks to lift superannuation arrangements beyond the
community standard and fund choice where it can be exercised in an environment
where there are adequate consumer safeguards.
Labor Senators also believe a better approach on Schedule 1 would be to
await the results of the Productivity Commission inquiry before debating this
bill in the Senate.
To amend the bill in the Senate so as to:
Ensure that there are no impediments to collective bargaining
that would lift superannuation arrangements beyond the community standard; and
Ensure that sufficient safeguards exist when workers exercise
choice of fund.
Labor Senators reserve their final voting position on the bill depending
on the outcome of such amendments.
Ketter Senator Jenny McAllister
Deputy Chair Senator
for New South Wales
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