Thank you for that introduction, and thank you to the Association of Superannuation Funds of Australia for inviting me to join you all on the final day of this conference.
Australia has one of the most stable banking, superannuation and financial services sectors in the world – one that is the envy of many other economies.
This important sector performs a vital role in underpinning our economic stability and growth.
And, it is a sector that impacts on almost all Australians – by providing the products and services needed to buy a home, insure against unexpected events, run a business, and to save for retirement.
The sector is also a major employer, with around 430,000 people working in varied roles across the industry.
Given the significant impact that the sector has on most Australians, financial firms clearly operate under an implicit social licence.
And Australians expect, and rightly deserve, the highest standards from the sector.
Sadly there have been examples of misconduct. And the Government has responded by taking swift and decisive action to strengthen our financial sector and prevent future harm to consumers through a number of practical reforms.
We have legislated to lift the professional, educational, and ethical standards of financial advisers, as overseen by the Government’s new Financial Adviser Standards and Ethics Authority; and to limit the incentives paid to advisers for the sale of life insurance products, to ensure that consumers are treated fairly.
We have significantly bolstered the powers and resources of ASIC and have introduced industry funding for the regulator, to make sure that that those financial firms who cause the need for regulation, pay for it.
And critically, we have legislation before the Parliament now which will establish the Australian Financial Complaints Authority (AFCA), a one-stop-shop to provide consumers of financial products and services with independent and timely access to justice, and access to compensation where appropriate.
AFCA will be a game changer in improving how financial disputes are dealt with in Australia.
It is surprising then, that the Labor Party would stand in the way of this important reform and would prevent small businesses from being able to access compensation of up to $1 million from its commencement; and force those with a superannuation dispute to continue to wait over two years on average for a resolution.
The Government is also taking action to prevent harm to consumers through a product intervention power for ASIC and strengthened penalties – for example penalties that are three times the benefit gained or 10% of annual turnover.
Next week I will be introducing into Parliament a strengthened and enhanced corporate whistleblower protection regime; and the Parliament will debate the Treasurer’s new Banking Executive Accountability Regime, which will empower the Australian Prudential Regulation Authority to disqualify executives and directors who have done the wrong thing, and to intervene in remuneration policies and payments.
A Royal Commission
Despite all of this important work and reform, ongoing speculation and politicking about a banking inquiry or Royal Commission had reached a tipping point and was undermining the reputation of Australia’s world-class financial system.
We could not let that continue.
As announced yesterday, the Government will establish a Royal Commission into the conduct of Australia’s financial services entities.
The inquiry will include scrutiny of the banks, insurance companies, other financial services licensees and superannuation providers.
As all of you in this room would be well aware, the superannuation system in Australia has created a $2.5 trillion retirement savings pool, which continues to grow rapidly.
The compulsory superannuation system operates on the premise that working Australians are compelled to defer income received today, to fund their retirement in future.
The proposed terms of reference require the Royal Commission to consider the use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations, or is otherwise not in the best interests of members.
Despite the views of some in the superannuation industry, there is no compelling case to carve out such a significant part of our financial system from this inquiry – especially given that the superannuation system operates under a compulsory model. The entire financial services industry must be able to stand up to scrutiny. That is what Australians expect, and rightly so.
I note that there has been some reportage in the press today about the inclusion of superannuation in the Royal Commission.
But I note, the shadow treasurer confirmed that Labor’s plans for a Royal Commission would include all elements of the financial services sector, including superannuation. Chris Bowen said, and I quote: “It will not exclude industry funds.”
Of course, the Royal Commission will not defer or delay any of the proposed or announced policies, legislation or regulations that I spoke about earlier. Just as we always have been, the Government will remain focused on putting in place necessary measures to protect Australian consumers.
And the same can be said for the Government’s reforms in superannuation, so let me now turn to these.
Improving outcomes for superannuation members
The Turnbull Government has introduced a comprehensive package of reforms that are squarely focused on protecting members’ money and members’ interests through increased transparency, accountability and stronger powers for the regulator APRA.
The truth is that these reforms are long overdue.
First, they will require superannuation funds, which are in the privileged position of managing the superannuation savings on behalf of busy working Australians who have not made an active choice about where to place their own super savings, to annually assess their MySuper products to ensure they promote the financial interests of these members and make a public determination confirming this.
I want to make an important point here that one of the greatest myths surrounding these changes has been the way some parts of the industry have asserted that somehow this means bank-owned super funds are not impacted.
Let me be clear, all RSE Licensees that offer a MySuper product, and that includes all of the superannuation providers owned by the big banks, will be required to comply with this requirement.
This reform is important. It represents a necessary strengthening of the MySuper framework, which was implemented under a Labor Government with higher obligations placed upon trustees offering these products in recognition of the fact that most members effectively outsource all decision making to trustees.
It will improve the quality of all MySuper products, ensure well-performing MySuper products are pushed to perform even better; and, where there are poorly performing products, ensuring they are either improved or removed from the market.
Separately, the Government believes that improving outcomes for all members, including members in choice products, is vital.
APRA has confirmed that the most efficient way to achieve this is through prudential standards, which have the force of law, and will introduce an appropriate outcomes test that will improve the quality of all products.
Second, these reforms will, for the first time, introduce a consistent minimum standard in legislation for every super fund in the country to have at least some directors who do not have any conflicts – with a strong and objective definition enshrined in the law.
Hardly controversial. Moreover, this was a concessional recommendation made by a Labor-initiated review of the superannuation system and a lower standard than was recommended by the Financial System Inquiry.
Ordinary Australians would be surprised to learn that superannuation funds, with the responsibility of managing trillions of dollars of compulsory savings, are not required to have directors that are free from influences that may impede their ability to only act in their members’ best interests– whether that influence is from a related party such as a bank, trade union, shareholder, or employer group.
Another great myth surrounding these reforms is that requiring industry funds to incorporate independent directors onto their boards will destroy industry fund performance. This is simply untrue.
The benefits of independence are already being embraced by funds in both the for-profit and not‑for-profit sectors. The industry fund-initiated Fraser Review – used to broker a deal to delay these reforms two years ago – noted that this trend is likely to continue to increase into the future.
Third, the reforms will safeguard members’ interests by strengthening the prudential regulator APRA’s, powers to help prevent fraud and mismanagement inside funds, as well as provide new oversight to force funds to be more transparent about how they spend members’ money. Money can only be spent in members’ best interests.
Fourth, the reforms close a legal loophole that has been used be some employers to short-change workers who make salary sacrifice contributions and ensure around one million more workers are afforded the right to choose their own superannuation fund where they are currently prevented from doing so by an enterprise bargaining agreement or workplace determination.
Finally and most vitally of all, I want to stress that each of these important reforms will apply equally to all retail, bank-owned, industry, corporate and public sector superannuation funds in Australia.
The Turnbull Government knows that superannuation belongs to each and every hard working Australian superannuation fund member – not the government; not the industry; not the bank executives; not the shareholders; not the employers; and not the trade unions.
It is disappointing that some industry participants have used members’ money in a multimillion dollar advertising campaign and lobbying effort in their bid to defeat increased transparency and accountability in the sector. One can only wonder why.
Australia’s superannuation system is world-class. But, it can be even better.
With the efforts of this industry — combined with the commitment of the Turnbull Government — I am confident that we can continue to deliver great outcomes for Australians.