Introduction
Australia has a first-class superannuation system and ASFA has put on a first-class conference to match. Thank you for inviting me - it is an honour to be here.
The Morrison Government is on your side, because of the values and beliefs we share with you. As you've probably heard the Prime Minister say, if you have a go, you'll get a go. We believe you should keep more of what you earn.
Good financial management and strengthening the economy are in the Coalition's DNA. We understand the importance of a strong economy, hence unemployment dropping to a six and a half year low of 5% and the fact that there have been over 1.14 million jobs created since we came to office.
We also understand certainty that brings to your sector and the retirement savings of millions of Australians, and respect the fact that superannuation is both an integral part of the financial system and Australia's retirement income system. This means any changes need to be carefully considered and calibrated.
This morning, I'm going to outline the Government's superannuation legislative agenda, which includes the following five bills:
- Protecting Your Superannuation Package
- Improving Accountability and Member Outcomes in Superannuation Measures No. 1 and No. 2, and the
- Superannuation Guarantee compliance measures – including the SG integrity package and the SG amnesty
- Treasury Laws Amendment Bill No. 4
Additionally, I'll also discuss a couple of practical amendments to some of these Bills to further improve the superannuation regulatory system and, most importantly, improve outcomes for your members.
Protecting Your Superannuation package
As you are no doubt aware, there are currently no specific protections preventing low‑balance superannuation accounts from being eroded by fees and inappropriate insurance premiums.
The Government's Protecting Your Superannuation Package Bill fixes this scenario and addresses inefficiencies that result from Australians inadvertently holding multiple superannuation accounts.
For a start, our Bill allows the Australian Taxation Office to proactively reunite people's lost or low balance and inactive accounts with their active superannuation accounts, wherever possible.
Our Bill also imposes a cap on certain fees that can be charged on small superannuation balances, and bans exit fees on all accounts - removing a disincentive for people to move money between funds when they wish to consolidate accounts. It also deals with insurance within superannuation.
This is important as the Government believes Australians should not be defaulted into insurance they did not ask for, cannot claim on, or which is significantly beyond what they need.
As a result of our changes, insurance within superannuation will be offered on an opt-in basis for:
- accounts with balances less than $6,000
- new members under age 25, and
- accounts which have not received a contribution or rollover for 13 months or longer.
Importantly, under the Government's amendments, fund members will still have the opportunity to opt-in to insurance cover if they decide it is appropriate for their circumstances.
Further to that, funds will be required to provide adequate disclosure to affected members so they are made aware of the changes, how they will impact on them, and how they can opt-in to keep existing insurance arrangements in place.
I note the momentum for change continues to build outside the halls of Parliament House.
For example, the Productivity Commission's draft report, Superannuation: Assessing the Efficiency and Competitiveness, found the deduction of insurance premiums can have a material impact on member balances at retirement.
On balance, it also said default insurance in superannuation offers good value for many, but not for all, members.
The Commission made specific draft recommendations consistent with the insurance elements of our Protecting Your Superannuation Package, including that insurance through superannuation should only be provided to members under the age of 25 on an opt-in basis.
The draft recommendations also said the Government should legislate to require trustees to cease all insurance cover on accounts where no contributions have been obtained for the past 13 months, unless they have permission of the member to continue providing insurance.
As well as support from the Productivity Commission, the insurance changes in the Protecting Your Superannuation Package are consistent with or build on the momentum of the Voluntary Insurance in Superannuation Code of Practice.
As you would be aware, the Code requires the automatic cessation of income protection insurance after 13 months of inactivity for 'Automatic Insurance Members'. It also requires automatic cessation of death and TPD insurance for accounts under $6,000 after 13 months of inactivity for those members. The Government's changes apply these automatic cessation rules for all members, as all accounts that are not receiving contributions are at significant risk of erosion.
In recognition of the fact that some people may wish to maintain insurance in the absence of contributions, under the Government's amendments, members can opt to maintain their insurance without needing to make annual elections to their fund.
The Code also requires the specific consideration of the needs of younger members when designing insurance benefits. On a similar note, the Government's changes makes insurance opt-in for members under 25. This recognises the fact that the current opt-out arrangements do not suit many young members who work in part time or casual jobs, and have relatively low financial commitments or no dependants.
The groundwork undertaken by the Insurance in Super Working Group in developing the Code was taken into consideration when the Government was developing its solutions to the vexing problems around in insurance in superannuation.
Dangerous occupations
While the Senate Committee recommended the Bill be passed without amendment, the Government has heard from stakeholders that workers in dangerous occupations are likely to benefit from default insurance in superannuation, as they may face barriers to accessing insurance elsewhere.
Therefore, the Government has decided to make available an exception to the opt‑in changes for new members in prescribed dangerous occupations, such as police officers, truck drivers, farmers or concreters, who are under 25 years old or have an active low balance account, where trustees elect to apply it.
In determining which occupations will be considered dangerous for the purpose of the exception, we will consider risks across all occupations, and will consult publicly, in the time available, on the exempt occupations.
Member Outcomes No. 1
The Government is also committed to strengthening the regulatory framework for superannuation via the Superannuation Member Outcomes and Accountability Package.
Given the compulsory nature of superannuation, it is critical that the superannuation industry is held to the highest standards of transparency and accountability.
And in light of the revelations coming out of the Royal Commission hearings, the need for the measures in this package has never been more apparent.
Among other things, the legislation will improve the quality of superannuation products, require higher levels of transparency and introduce stronger prudential supervision requirements.
Again, the Productivity Commission's draft report supported a number of the measures in the Bill.
Outcomes test
The Government has listened to industry concerns and in response we will amend the Bill to extend the outcomes test to choice products as well as MySuper products.
The extended outcomes test will impose a new covenant on trustees which extends the current obligation on MySuper trustees to promote the financial interest of members to trustees of choice products as well.
Our amendment makes sure that trustees are considering the outcomes being provided to all members, including those with over $1 trillion in APRA-regulated assets outside of the MySuper sector.
Disclosure
We are also making a change in response to concerns around the consistency of disclosure. I want to put beyond doubt that the portfolio holdings disclosure applies to all choice products, even where there is a no investment option.
I would like to make it clear that there was no carve-out for platform products in the original Bill, however this change will put any concerns to rest.
We will be looking to table these amendments, as well as some other minor amendments in the Senate today.
Member Outcomes No. 2
That leads me onto the second Bill in the Members Outcomes Package. This Bill is significant for two reasons; it will extend choice of fund to more Australians and it will close loopholes letting some employers reduce their Superannuation Guarantee contributions for employees who choose to make salary sacrifice contributions.
For too long, members have had their retirement savings chipped away by fees and inappropriate insurance arrangements because the current system has forced them to hold multiple superannuation accounts due to lack of choice of fund in certain enterprise bargaining agreement or workplace determinations.
Under the Government's Bill, these people will be able to choose where their compulsory superannuation contributions are paid, including to a self‑managed superannuation fund, if they wish.
And if Australians are to continue to have confidence in the integrity of the superannuation system, we must ensure employers are paying workers their full entitlements, whether they are wages or superannuation.
Measures No. 4
On that note, our Measures No.4 Bill cracks down on employers that fail to pay their workers their full Superannuation Guarantee (SG) entitlements with the introduction of the SG Integrity Package.
We have introduced measures to modernise SG compliance starting from 1 July 2018.
This includes giving the Australian Taxation Office (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 compliance.
Where SG is not being paid, the ATO will have a better range of enforcement tools to allow it to collect unpaid super and pay it into employees' accounts, and to seek tougher penalties for employers who are repeatedly short-changing their workers.
The ATO's recovery powers will be improved by strengthening director penalty notices and the use of security bonds for high-risk employers. These measures will enhance the range of collection tools available to the ATO, allowing it pursue employees' unpaid super more effectively.
For the first time, the ATO will be able to seek court-ordered penalties in the most egregious cases of non-payment, including up to 12 months jail for employers who are repeatedly caught but fail to pay superannuation guarantee liabilities.
To better inform employees, the ATO will also be able to tell all affected employees about their actions to recover unpaid super and will display contribution information using MyGov.
Superannuation Measures No. 1
The Government has also introduced a one-off, 12-month amnesty to encourage employers to self-correct historical SG non-compliance.
I want to be clear about why an amnesty is needed.
We have recognised that the ATO has not had good enough visibility over SG non-compliance in the past. That is why we are extending Single Touch Payroll and more frequent fund reporting through the SG integrity Bill. This will address this information gap and greatly boost compliance action.
But the Government strongly believes employees with long-standing SG owed to them should not miss out.
This is why we are providing an incentive for employers to bring their historical SG debts out into the open. This is estimated to collect around $230 million in unpaid super for 50,000 workers who would otherwise miss out.
Employers only benefit from the amnesty if they come forward before they are identified by the ATO's usual enforcement activity.
But the amnesty always had a carrot and stick approach. And our amendment makes for a much bigger stick. This amendment will ensure any employer who chooses not to come forward under the amnesty will face a minimum 100 per cent Part 7 penalty when they are caught.
This penalty is on top of their workers' entitlements, and can be extended up to 200 per cent at the ATO's discretion.
This amendment will ensure the ATO applies tough penalties when employers don't take advantage of this chance at a clean slate and pay their workers what they are owed.
Royal Commission
I would like to finish by saying a few words about some of the developments taking place in the wider financial sector.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is, of course, front of mind with the next round of hearings set to focus on policy.
The Government established the Royal Commission to ensure that Australia's financial system continues to work efficiently, effectively and in the interests of consumers.
The superannuation hearings identified evidence of concerning behaviour by some industry participants and the Commission received an astounding 475 submissions in response to those hearings.
In the Interim Report, Commissioner Hayne identified a number of key over-arching issues that emerged during the Commission's hearings, for example:
- Financial institutions putting their short-term pursuit of profits over the duties they owe customers and basic standards of honesty and fair dealing.
- A sales culture, rather than a culture focused on good customer outcomes, which is driven by remuneration and incentive structures at all levels in firms and for intermediaries.
- That when misconduct was revealed, it either went unpunished or the consequences didn't reflect the seriousness.
- That more law is not the only answer: more often than not the misconduct was contrary to existing law.
- Complexity of the law may be part of the problem, and simplification may be part of the solution.
The interim report has not made any recommendations - therefore, it is too early to start speculating on what the Government's response to the Royal Commission may look like. Yet, there is an opportunity for the financial services industry, including the superannuation industry, to use the Royal Commission as a catalyst for change.
The financial sector must take responsibility for the misconduct heard by the Commission. Primary responsibility for misconduct lies with financial firms, their boards and senior executive teams.
The policy hearings will start on 19 November and the Commission is required to provide a final report to the Government by 1 February 2019.
The Government will carefully consider the recommendations made by the Commission - and this will be done with the highest priority.
We will also need to consider any recommendations in the context of the significant reforms that have recently been implemented by the Government or are currently in train.
The alternative
Australia can't afford a Shorten Labor Government.
Their retiree tax is a disgrace. It's nothing more than a cash-grab from hard-working Australians, who've done the right thing, grown their own nest eff and planned to provide for their own retirement.
It'll hit over 900,000 Australians, 200,000 self-managed super funds and 2,000 super funds, according to data from the ATO.
Additionally, Labor's property tax is an attack on 1.3 million Australians. It will also punish every Australian with equity in their home. It's a lose-lose policy – if you own your own home it will be worth less and if you rent, it'll cost you more.
This is part of Labor's plan for around $200 billion in additional taxes on people's incomes, savings, properties, and business.
Closing remarks
I want to finish by, again, thanking ASFA for the opportunity to update you on the Morrison Government's superannuation agenda.
Whether it is protecting low-balance superannuation accounts, providing Australians with a choice of fund or making sure employers pay workers their full entitlements, the Government is taking action to improve the superannuation system now.
Indeed, the Bills and amendments I have outlined today are not only practical but they are necessary to protect the hard-earned retirement savings of millions of Australians.
Thank you, and all the best for the remainder of the conference.