Good morning.
Firstly, allow me thank the Lonsdale Financial Group for inviting me to address your 2008 annual conference. I always appreciate the opportunity to speak with industry and hear your views — particularly in such a delightful destination as the Gold Coast!
As the minister with responsibility for superannuation, I have made it my mission to ensure that employees have access to well-performing superannuation funds.
Today, I would like to talk to you about how the Government is working to achieve that goal… our broader priorities for superannuation… and our ongoing efforts to ensure that the Australian financial system is flexible, modern and strong.
Financial market volatility
Despite the significant immediate impact on superannuation fund balances due to the global financial crisis, our superannuation system remains robust, sufficiently liquid, and very well regulated.
The latest available data from the Australian Prudential Regulation Authority (APRA) indicates that, as at June 2008, fund assets totalled $1.17 trillion.
This is more than double the asset figure of five years ago.
Data from superannuation industry research house Super Ratings for the 2007-08 financial year showed superannuation funds had median losses of 6.4 per cent. Further falls in equity markets in over the last few weeks suggest this year is also shaping up as a tough one for superannuation funds.
History tells us that markets always recover over time.
Indeed that is the point with superannuation – there is time to recover given average working lives of 30 - 40 years and retirements spanning 20 years plus.
Superannuation is now a dominant financial asset and a significant item on the household balance sheet. Indeed, individual superannuation balances have grown to the point where, for many people, they represent their most significant asset aside from the family home.
The preservation arrangements and the compulsory nature of superannuation allow superannuation trustees to manage market volatility over time through a progressive rebalancing of their investment strategies in response to market conditions – this is without doubt one of our systems greatest comparative strengths.
In addition the regulator (APRA) has been closely examining liquidity of the funds that it regulates. APRA's initial findings are that in general funds are alert to the liquidity risks and are well positioned to deal with current market stresses.
Over the 35 years to June 2007, Australian superannuation has delivered excellent real returns of about five per cent over and above inflation. Put another way a dollar in a superannuation account ten years ago would have been worth $2.07 on average on 30 June 2008.
I am committed to working with industry to leverage that wealth into the best outcomes for hard-working Australians in retirement.
Government's priorities for the superannuation industry
While our superannuation system is strong, stable and continues to deliver, there is still scope for improvement.
The superannuation system is maturing and, and it is time to take a close look at the operation, structure and cost of our superannuation industry.
We need to consider these issues across all sectors of the industry — corporate, public sector, industry and retail, as well as the self‑managed superannuation fund sector.
I like to call this "renovating the house".
Importance of default funds
One way that we can improve the efficiency and effectiveness of our superannuation system is by providing safe, high-quality default mechanisms for people who fail to make active, informed choices.
Because the proportion of employees who have their super contributions paid into a default fund remains very high, up to 90 per cent, this is a major priority for me.
Lower fund returns produce lower real retirement lump sums. This means that members of consistently underperforming funds will not optimise their post-retirement income prospects if they remain in an underperforming fund.
Under the Government's transitional arrangements, superannuation will continue as an allowable award condition.
This approach will reduce disruption to awards in anticipation of award modernisation. It will also maintain the ability of awards to deliver legally enforceable superannuation requirements, such as frequency of payments, minimum thresholds and the default fund system.
I have made a submission to the Australian Industrial Relations Commission, highlighting the importance of the selection of default funds for inclusion in awards. I urge all the parties involved in the award modernisation process to give this their full consideration.
Despite media reports to the contrary, this issue has not been rejected or dismissed by the industrial parties, and we continue to progress this issue positively.
But my concern with the performance of default funds goes beyond those covered by awards. It is critical that all employees have access to well‑performing default funds.
Financial Services Working Group
As well as ensuring our super system is operating as smoothly and efficiently as possible, we need to do two things.
We need to encourage a culture of saving. And we need to provide the right signals for people to contribute to their superannuation.
An important element of this is ensuring that people have access to easy‑to‑understand information to help them make informed decisions, and compare the relative merits of alternative products.
This is why the Government established the Financial Services Working Group.
The Working Group is facilitating the creation of disclosure documents which are short, simple and readable. Documents which will better enable consumers to understand and compare the full range of financial products.
The Government recently released the first of these documents — a four-page product disclosure statement for the First Home Saver Accounts.
As part of this project, I am keen to improve Australians' access to low-cost advice about their superannuation. There is currently a large unmet need for this kind of simple superannuation advice.
On 30 May this year, the Working Group released its public consultation paper, Simple Choices Within an Existing Superannuation Account. The paper sets out several proposals that may help us to provide intra-product advice relating to superannuation.
The Working Group is currently analysing these proposals, and looking at what regulatory and other steps the Government could take to help more investors get the kind of advice they need.
The next item on the Working Group's agenda is to look at product disclosure documents sector by sector, beginning with superannuation. During this process, the Working Group will consult closely with stakeholders through its advisory panel and public consultation meetings.
Publication of APRA data
The Australian Prudential Regulation Authority also plays an important role in meeting the need for information to assist consumers make informed decisions about their superannuation.
As the prudential regulator, APRA is well-placed to collect and publish the superannuation fund performance data it gathers from the fund income statements and balance sheets made public to members each year.
APRA publications aggregate this data at a sector level, across the industry, public sector, retail and corporate fund sectors.
Clearly, returns for industry sectors do not reflect individual fund performance. For this reason, APRA data does not provide any indication of the actual performance of a particular fund.
With the encouragement of the Government, APRA is moving to consult on how it could report disaggregated long-term performance and volatility data for individual funds. I expect that APRA will be able to release a consultation paper shortly.
This will not duplicate the work of industry research houses, which currently report at the individual fund member investment level.
By publishing this information, APRA will serve, not only the public interest, but also the interests of all industry participants. Making this data public will help to ensure a fully-informed debate on medium-to-long-term fund performance and related issues.
A key issue here is the extent to which commissions are — or are not — included in the relevant data. While APRA publishes some data on fund expenses, this data generally understates expenses. This is because funds are required to report information on indirect expenses only where this information is readily available.
APRA is currently working with super funds to refine its data on direct and indirect expenses and plans to include expense data in future publications.
National regulation of credit
One of the more far-reaching ways the Government is reforming our financial services regulatory regime is by developing one single, national system to regulate consumer credit.
You are probably aware that, on 2 July, COAG made the landmark decision that the Australian Government would assume responsibility for regulating all consumer credit products.
This reform gained further momentum on 2 October, when COAG agreed to a phased implementation plan for the new national consumer credit regime.
Under the first phase of the plan, the Commonwealth will take responsibility for trustee companies, the existing key credit regulation, and the existing State and Territory legislation — the Uniform Consumer Credit Code — by enacting it as Federal law.
The Uniform Consumer Credit Code already covers mortgages taken out to buy the family home. It will be extended to cover mortgages on investment properties to help stop borrowers racking up excessive levels of mortgage debt.
So-called "payday lenders" will also be targeted. For the first time, they will be brought under a national licensing regime which forces them to lend responsibly and assess the capacity of borrowers to repay loans.
Payday lenders charge extortionate fees and charges on small loans and cash advances to some of the most financially vulnerable people in the community — people who may not normally qualify for credit from a bank or other financial institution.
As well, for the first time, all finance brokers, advisers and credit providers will be covered by a national licensing scheme.
Lenders will be licensed by ASIC, which will be given extra powers to police the scheme.
In a further breakthrough, all borrowers will be able to appeal to an external dispute resolution body to which all licensed lenders must belong.
The Corporations Act will be extended to cover margin lending products. Organisations which offer margin loans will have to provide product disclosure statements. These will be considered by the Financial Services Working Group to ensure they are the appropriate length and complexity for the product on offer.
The first phase of the new regime will be dealt with in Commonwealth, State and Territory legislation by the end of June 2009. There will be a two-year transition period for affected businesses.
The second phase of the action plan will look at possible further rules to stem predatory lending practices, such as a review of credit card limit extension offers, an examination of State approaches to interest rate caps and other fringe lending issues.
Ladies and gentlemen, this is a major step forward.
It means that we will have the kind of system we need — one single, national and standard regulatory system which covers all consumer credit and financial services.
A truly national regime will help to ensure that the Australian credit market remains active and competitive — both domestically and internationally.
Role of advisers, auditors and disclosure
Before concluding this morning, I'd like to say a few words about the role of advisers and auditors and disclosure.
Currently, accountants are exempt from licensing under the Financial Services Reform Act in order to provide advice to their clients on a decision to acquire or dispose of an interest in a self-managed super fund. The FSR Act provisions are found in the Corporations Act 2001.
This exemption began in 2004, when the previous government inserted a new Corporations Regulation, which allowed recognised accountants to advise their clients on setting up a self-managed super fund without requiring them to be licensed under the financial services reform licensing requirements.
The regulation provides a carve-out from the licensing requirements that apply to everyone else if they want to advise on the establishment of a self-managed super fund. Not surprisingly, major industry bodies opposed this.
So currently we have a situation where accountants can advise on setting up SMSFs, which is half the equation. However, unlicensed accountants cannot provide advice on the relative merits of establishing an SMSF compared with other products. Nor can they advise the trustees of the SMSF on what to invest in. This is the other, important, half of the equation.
Australia's Future Tax System review
Before concluding my address this morning, I would like to update you on the current review of our taxation and transfer system, chaired by the Secretary of the Treasury, Dr Ken Henry.
This review is the most comprehensive examination of our tax system in over 50 years.
Long-term, forward-looking reform of the tax and transfer system is a vital part of how we create prosperity, reward hard work and meet the current and future challenges facing Australia.
Our future tax system will affect the decisions people make about working, saving and investing. So it has a significant role to play in Australia's future.
In modernising our tax system for the long term, we have several priorities.
We want to boost Australia's productive capacity, and build prosperity in an increasingly competitive global environment.
We want to reward hard work by removing complex disincentives.
We want to streamline, simplify and harmonise a tax system which has become far too complex.
And last, but by no means least, we want to provide certainty and security for pensioners, carers and people with disabilities.
The review panel will conduct a program of extensive public consultation to hear views and ideas from a wide-cross section of the community.
The first round of submissions to the review closed yesterday. The review panel will consider the feedback, then meet with several major organisations to further discuss tax policy review priorities.
These submissions and discussions will inform the development of a paper to be released for public consultation by the end of this year.
The paper will outline the key issues which have emerged and form the basis for further activities in 2009. These will include more opportunities for public submissions, public meetings and direct consultations on issues and options.
I would encourage you to contribute to the review.
This will help us build a tax system which is fairer... simpler... and more efficient.
It will also help us better deal with the major challenges facing Australia.
The pension review
As part of the broader review, my Parliamentary colleague Jenny Macklin, the Minister for Families, Housing, Community Services and Indigenous Affairs, announced that the Secretary of her department, Dr Jeff Harmer, would lead a comprehensive review of the pension system.
The pension review will report in February 2009.
It will produce long-term measures to strengthen the financial security of seniors, carers, and people with disabilities.
In the meantime, however, as announced by the Prime Minister this week, the Government will be making one off payments to all categories of pensioners from 8 December.
Conclusion
Ladies and gentlemen, I opened my address this morning by talking about the global credit crisis.
In closing, I would emphasise two things.
That the current period of financial turbulence has highlighted the need for your services — sound financial advice, with a view to the long term.
And, that dealing with the effects of the crisis will depend on a partnership — a partnership between the Government and the financial services industry.
Everyone in this room can be part of the solution to the issues we now face.
For our part, the Government is tackling the effects of the global credit crisis head-on. Our response is based on the principles of responsible economic management… a comprehensive agenda of reform… and ongoing international cooperation.
In return, I would ask that you continue to deliver the innovation, diligence and sound management that has played such a crucial role in Australia's economic strength.
Thank you, and I trust you will enjoy the rest of your conference.