30 October 2018

Address to the 10th Annual SuperRatings and Lonsec Day of Confrontation, Melbourne


Thank you for that introduction, it's great to be with you.

Your focus on transparency and engagement are what bring about improvement in our superannuation system, for the benefit of consumers. These are goals we support.

Events like this are important in putting the cold hard facts on the table, encouraging debate and generating new ideas.

Superannuation is a pillar of our retirement system.

Superannuation assets total $2.7 trillion, including $750 billion in self-managed superannuation funds.1 And there are 28.6 million superannuation accounts in Australia.2

According to the Australian Taxation Office, there are 28.6m accounts held by 14.8m people, meaning that at least 40 per cent of those with a superannuation account, have more than one account. Around 15 per cent of people hold three or more accounts.

Given the economic importance of superannuation to Australians; given the mandatory nature of our system; given the number of members not actively choosing a fund; it is critical that superannuation is managed with the highest level of integrity and concer for members.

Superannuation members have a right to expect the highest levels of transparency, accountability and governance around how the money they entrust to be managed by superannuation funds is managed.

Indeed, the Government makes no apology for putting the interests of consumers ahead of self-interest in the superannuation sector.

On that note, I am pleased to outline some of the major developments in the superannuation sector, the legislation we have before Parliament and, most importantly, how our reforms benefit superannuation members.

Royal Commission

In November 2017, the Government announced the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, with a broad remit to inquire into the practices of financial institutions.

We established the Royal Commission to further ensure Australia's financial services are working efficiently, effectively and in the interests of consumers.

We set up the Royal Commission on the premise that all Australians have the right to be treated honestly and fairly in their dealings with financial service providers.

The Government provided $75 million to enable the Royal Commission to undertake its work. And to date, the Royal Commission has held six rounds of hearings and received more than 10,000 submissions - some 12 per cent of those submissions relate to superannuation.3

On 28 September, there was an important juncture with the Royal Commission releasing its interim report.

Among other things, the interim report highlighted that entities and individuals in the industry have been motivated by financial gain or short-term profit at the expense of basic standards of honesty.

I note the interim report does not make any specific recommendations but it does address policy questions and case studies of misconduct that have arisen in the first four rounds of hearings.

Some of the themes in the interim report - including financial advice and conflicts of interest - are generally relevant to your sector.

However, the interim report does not directly consider issues raised in the superannuation hearings that took place in August 2018.

Those hearings focused on:

  • the duties of superannuation trustees, including governance arrangements, selling practices and the relationship between trustees and financial advisors,
  • the treatment of Indigenous Australian members and
  • the effectiveness of superannuation regulators.

The hearings have identified evidence of very concerning behaviour by some industry participants.

The final report will directly consider superannuation and will present recommendations to address issues highlighted in the hearings.

The Government will, of course, carefully consider the Royal Commission's final recommendations.

Productivity Commission Report

As You're aware, the Productivity Commission is continuing its inquiry into the efficiency and competitiveness of the superannuation system and is due to report in late December 2018.

The Commission's draft report was released in May and found there was room for improvement in the system, with underperforming products in both choice and MySper segments.

I understand SuperRatings datawas used bby the Commission in concluding its draft report.

The draft report also highlighted problems with duplicate accounts and erosion of small balances by fees and charges and recommended change to default insurance in superannuation.

In the 2018-19 Budget, the Government had already taken action to address a number of these concerns, with the Protecting Your Super package.

Findings in the draft report also reinforced the need for other reforms the Government currently has before the Senate to ensure funds operate transparently and in the best intersts of members. These include measures to ensure APRA is appropriately informed about the financial activity of funds it regulates, and changes that would ensure workers can actually choose their fund rather than be compelled to pay into a fund chosen by their employer.

Protecting your super

Let me provide some further context on the Protecting Your Super legislation.

Announced as part of the 2018-19 Budget, the reforms are a significant step in delivering all Australians higher superannuation savings at retirement.

The Government is improving the superannuation regulatory system to protect Australians from the excessive fees, inappropriate insurance premiums and the inefficiencies which result from inadvertently holding multiple accounts.

We have introduced legislation that will:

  • empower the ATO to proactively reunite people's unclaimed, or low and inactive accounts with their active superannuation accounts where possible
  • cap certain fees for low balance accounts
  • ban exit fees on all accounts, and
  • require insurance be provided on an opt-in basis only for members with low balances (below $6,000), inactive accounts (without a contribution for 13 months or longer) and new members who are under 25.

Let me give you a practical example; take someone like Rachel. She starts out her working life with a part-time job and ends up working four jobs over her career accruing four super accounts.

She pays fees and insurance premiums on each, eroding her inactive accounts, meaning her balance at retirement would be $397,000.

With the Protecting your super measures in place, Rachel would potentially have a retirement balance of $454,000 - a difference of $57,000.4

Now, that is confronting. And there's lots of Rachel's out there - it adds up quickly.

For example, taking a broader view, in the first year alone, our reforms are estimated to:

  • save 7.2 million people more than half a billion dollars in fees
  • reunite approximately $6 billion of unclaimed or inactive, low-balance super with the active accounts of around 3 million individuals, and
  • provide around 5 million people with the opportunity to choose whether they want insurance cover through their super, potentially saving up to $3 billion in premiums that Australians don't actually want to pay.

Member outcomes

Another important set of reforms I want to update you on is the Member Outcomes Package.

Just over a year ago, the Government introduced legislation to give Australians more power over their superannuation and strengthen the prudential framework to deliver a more transparent and accountable compulsory retirement savings system.

The package includes measures that will, among other things:

  • improve the quality of default superannuation products
  • require higher levels of transparency
  • introduce stronger prudential supervision requirements
  • ensure employees can choose their fund, rather then being compelled to pay into a fund chosen by their employer and
  • improve the governance arrangements for trustee boards.

The Member Outcomes Package also imposes civil and criminal penalties on superannuation directors who fail to execute their responsibilities to act in the best interests of members, or who use their position to further their own interests to the detriment of members.

Under the Package, APRA will be able to intervene at an earlier stage to address prudential concerns and ensure that trustees act to protect the interests of their members.

This means that they will be able to take action at an early stage - before members' superannuation savings are lost.

The package also introduces a minimum independence standard for superannuation trustee boards to strengthen the oversight and conflict management of funds.

These reforms will help to ensure that our superannuation system is underpinned by greater accountability and transparency across all superannuation funds whether they are industry, corporate or retail funds, with a strong prudential regulator.

The reforms are member-focused, apply equally to all APRA-regulated funds, and will make every superannuation fund in the country more accountable for how they manage members' money.

Superannuation Guarantee (SG) compliance

At the same time, if Australians are to continue to have confidence in the integrity of the superannuation system, we have to make sure the manded minimum superannuation contribution is being paid for all workers.

That is why the Government has introduced targeted measures to improve compliance with the Superannuation Guarantee (SG).

For example, we are moving to close a legal loophole used by some employers to short-change employees who make salary-sacrifice contributions to their superannuation.

We are also giving the ATO near real-time visibility of how much SG employees are owed and the contributions their superannuation funds actually receive.

This will allow the ATO to detect non-payment early, and be more proactive in enforcing SG compliance.

Compliance is the preferred approach, but employers that do not pay employees their SG entitlements are breaking the law.

So for the first time, we are providing the courts with the powers to impose penalties of up to 12 months jail for employers who continue do not comply with their obligation to ensure the superannuation guarantee is paid.

The Government also has legislation before the Parliament that would introduce a one-off, twelve month amnesty to encourage employers to self-correct historical SG non-compliance.

The SG amnesty incentivises employers to do the right thing by their employees by paying any unpaid superannuation in full. Employers who do no self-correct in this period would then face above-normal penalties.

The amnesty does not leave employees worse off and does not let employers off the hook.

Franking credits

Labor's policy, which will affect around 900,000 Australians – including low-income earners and self-funded retirees, is a disgrace.

Their 'pensioner guarantee' is a farce.

A whopping 96% of individuals impacted by their retiree tax have taxable income of less than $87,000.

Labor's retiree tax is a terrible attack on self-managed super funds to benefit the union-aligned industry fund sector.

Their policy is yet another reason why you can't afford Labor.

Australian Financial Complaints Authority

As a final topic, I want to mention our landmark reforms in establishing the Australian Financial Complaints Authority (AFCA).

We are about to start a new era for external dispute resolution in the financial sector with AFCA opening its doors and accepting complaints on Thursday (1 November 2018).

Dispute resolution underpins confidence in our financial system - it is fundamental that those who have wrongfully suffered a loss receive fair compensation.

The new one-stop shop will replace the three existing external dispute resolution schemes; the Financial Ombudsman Service, the Credit and Investments Ombudsman, and the Superannuation Complaints Tribunal (SCT).

The new system will be free, fast and provide a binding service for consumers and small businesses with significantly higher monetary limits than the previous regime.

For instance, AFCA will have the ability to hear complaints from individuals regarding matters of up to $1 million – double the previous limit of $500,000.

And, in the case of small businesses, AFCA will have the ability to hear disputes related to a credit facility of up to $5 million - up from $2 million.

Under AFCA, there will be no monetary limits or compensation caps for superannuation disputes, as is the case under the SCT.

In another key feature, AFCA will retain key statutory powers to resolve superannuation disputes, which are often complex and involve third parties.

AFCA will also have maximum flexibility to deal with complaints in a timely manner by having control over its funding and processes. This will allow a more timely resolution of superannuation complaints.

The Government also recognises that the SCT is managing a heavy case load and has provided additional funding to the SCT of $9.5 million from 2017-18 to resolve outstanding complaints and assist in the SCT's wind-down.

Closing remarks

So on that note, let me finish by thanking SuperRatings and Lonsec for hosting today's event.

Again, I welcome the objective of your event in creating a stronger superannuation sector and I appreciate the opportunity to provide the Government's perspective.

Good financial management is part of the Liberal Party's DNA.

The deficit is the smallest its been in a decade at $10.1 billion. Standard & Poor's and Fitch have affirmed our AAA credit rating.

Unemployment reduced to just 5% in September – the lowest rate since April 2012.

1.15 million jobs have been created since the Morrison Government came to office.

Full-time employment is at a record high (8,654,000).

Female full-time employment is at a record high (3,178,300).

We see superannuation as a vital cog in our financial system.

We continue to progress our reforms through Parliament to protect the superannuation savings of Australians, improve outcomes for members and make sure consumers have access to free and fast dispute resolution when things go wrong.

I appreciate that many of you in this room are also working to improve outcomes for your members and I wish all the nominees for an award this evening the best of luck.

Thank you.

1 APRA Quarterly Superannuation Performance June 2018 (issued 28 August 2018)

2 APRA Annual Superannuation Bulletin June 2017 (issued 28 March 2018)

3 https://financialservices.royalcommission.gov.au/Pages/default.aspx

4 https://www.budget.gov.au/2018-19/content/overview.html