30 January 2019

Address to the Superannuation Chair Forum, Yarra Valley


Thank you for that introduction.

It is a pleasure to be here today among superannuation and investment committee chairs and executives – individuals who are responsible for an integral part of Australia’s financial system.

I am pleased to see the attendance at this forum, with a focus on developing capability within the industry for the benefit of members.

Today I’m going to speak about the Productivity Commission report into the efficiency and competitiveness of Australia’s superannuation system, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and the Coalition Government’s superannuation legislative agenda. Three things which I know are of vital interest to your industry.

As you know, we’ve been working closely with industry and we will continue to do so in the future.

Australia is one of the best countries in which to live.

Here, if you have a go, you’ll get a go. This has been one of the Prime Minister’s key commitments. The Government’s commitment is to keep our economy strong, keep Australians safe and keep Australians together. A strong economy helps guarantee essential services that you use daily like Medicare, hospitals and schools.

The Government wants Australians to keep more of the money they earn in their pockets. This includes superannuation and it’s why the Government has acted to ensure you have more money in superannuation for retirement. We want to protect people against excessive superannuation account erosion, and we’re doing just that through our Protecting Your Superannuation (PYS) Bill which is before the Senate.

By contrast, Bill Shorten and Labor have four new superannuation taxes which will punish those saving through super.

  • Labor will abolish the support afforded to those who need it through the Government’s catch-up contributions, allowing more low-tax contributions for those taking work breaks. This will hit mothers returning from maternity leave or time away from the workforce to care for relatives.
  • Labor will abolish tax deductibility for personal superannuation contributions particularly hurting the self-employed.
  • Labor will hike taxes on super contributions by lowering the non-concessional annual contributions cap from $100,000 to $75,000.
  • Labor will lower the High Income Superannuation Contribution threshold from $250,000 to $200,000 - increasing taxes on people’s superannuation.

Labor’s superannuation taxes will hit around one million workers with $19 billion in higher taxes, which is a staggering attack on individual’s retirement security. Labor can’t be trusted with workers’ money or the economy. Labor’s answer to every question is always higher taxes, irrespective of the impact on the economy.

The Need for Integrity and Responsibility in Superannuation

With superannuation assets approaching $3 trillion, it is essential that the superannuation sector be managed with the highest level of responsibility and integrity for the benefit of members.

This brings us to the first major development in the sector which I would like to outline today.

Productivity Commission Report

As you would be aware the Productivity Commission’s landmark report into the efficiency and competitiveness of the superannuation system was released in January.

I want to acknowledge the extensive work undertaken by the Commission in delivering this report.

The report has shone a light on a number of flaws in the current system  including the significant number of unintended multiple accounts, underperformance of some funds including some default funds, high fees, and a lack of effective competition.

The underperformance by some funds and a lack of competition means members just aren’t retiring with the balances they should be. Hard-earned dollars aren’t being translated into good retirement incomes.

The amount that superannuation members stand to gain from fixing the system is staggering. Taken together, members could be $3.8 billion better off each year if the worst problems identified by the Productivity Commission were addressed.

The Government is considering the recommendations in the report and will respond after receiving the Royal Commission’s final report, which will also address superannuation.

However, the Productivity Commission did make clear that there is a need to pass certain existing Government legislation without delay. This includes our Protecting Your Super Bill, which caps fees on low-balance accounts, bans exit fees, ensures expensive insurance premiums aren’t eroding accounts, and allows the ATO to proactively reunite members with their lost super. These are important reforms that put members first.

There is no doubt that measures are needed to address the approximate 39 per cent of people with more than one account and around 14 per cent of people with three or more accounts. Inadvertent account duplication has been a key concern for Government as no doubt it is for everyone here today.

The Financial Services Royal Commission

Moving to the Financial Services Royal Commission, it has conducted a year-long investigation into misconduct and will provide its final report to Government soon.

The Government 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.

In the draft report released in September 2018 Commissioner Hayne identified a number of key over-arching issues that emerged during the Commission’s hearings. It would be reasonable to expect that the final report may make further findings and recommendations in respect of these issues, such as:

  • 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.
  • Misconduct going unpunished once revealed, or the consequences not reflecting the seriousness of the misconduct. 

I also note in the interim report the Commissioner found:

  • That more law is not the only answer: more often than not the misconduct was contrary to existing law; and
  • Complexity of the law may be part of the problem, and simplification may be part of the solution.

Cultural change by the sector is an important step in the process of ensuring the system works for all Australians.

Leaders such as you will be critical to driving that cultural change.

Protecting Your Super

The Protecting Your Super Bill is a significant step in delivering Australians more superannuation savings at retirement.

The Bill aims to ensure people like low income earners, part-time and casual workers, mothers returning to the workforce and students have more in their accounts by capping fees, avoiding unnecessary insurance premiums, and ensuring the ATO can proactively reunite members with their lost super. It also removes a disincentive for people to move money between funds when they wish to consolidate accounts by banning all exit fees on superannuation accounts.

In the first year, the reforms are estimated to:

  • save 7.2 million people more than half a billion dollars in fees; and
  • reunite just under $6 billion of unclaimed or inactive, low-balance super with the active accounts of around 3 million individuals.

Finally, the Bill aims to ensure Australians don’t default into paying expensive premiums on insurance they did not ask for, cannot claim on, or which is significantly beyond what they need.

As I touched on earlier, the final Productivity Commission report calls for passage of the Protecting Your Super Bill.

Member Outcomes No. 1 Bill

As I have highlighted, the Government remains committed to ensuring that the superannuation industry is held to the highest standards of transparency and accountability. This is partly being addressed by the Government’s Improving Accountability Member Outcomes Measures No.1 Bill. 

And in light of the revelations coming out of the Royal Commission hearings and the findings of the Productivity Commission, 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.

Outcomes test

The Bill will replace the current scale test with a new outcomes test – ensuring superannuation funds provide good outcomes for their members, including a requirement that they promote the financial interests of members. It gives APRA powers to manage funds that do not meet these outcomes.

The Productivity Commission in its final report concluded that this Bill should be passed, and that an even stronger outcomes test should also be implemented.

This legislation is before the Senate and the Government remains committed to its passage.

Despite rhetoric from the Labor Party about wanting to clean up underperforming funds, Labor is blocking the passage of our legislation that would do just that,

Member Outcomes No. 2

That leads me onto the Improving Accountability Member Outcomes Measures No.2 Bill. 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 because enterprise agreements can specify a compulsory superannuation fund. This leaves members with absolutely no choice of fund. It is unfair and needs to be changed.

Under the Government’s Bill, these people will be able to choose where their compulsory superannuation contributions are paid. What is important is that members get a choice of where their superannuation is invested and are not forced to hold multiple accounts and pay multiple sets of fees.

And if Australians are to continue to have confidence in the integrity of the superannuation system, we must ensure employees are having their full superannuation entitlement transferred into their chosen super fund. That is why this Bill also ensures that employers cannot reduce the superannuation guarantee amount payable for employees because those employees are making voluntary contributions. This is occurring at the moment, but it is not the way the system was intended to operate and we are closing this loophole.

Treasury Laws Amendment Measures No. 4 Bill

Our Treasury Laws Amendment (2018 Measures No.4) Bill will also ensure that employees are receiving their full superannuation guarantee with the introduction of a Superannuation Guarantee Integrity Package.

We have introduced measures to modernise compliance.

This includes giving the Australian Taxation Office near real-time visibility of how much superannuation 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 superannuation 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 allowing this to occur.

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.

I am pleased to report that the Treasury Laws Amendment (2018 Measures No.4) Bill was passed by the Senate in December last year, and is currently awaiting the concurrence of the House.

Closing remarks

I want to finish by, again, thanking the Forum for the opportunity to update you on aspects of the Government’s superannuation and financial services agenda.

While elements of Australia’s superannuation system are world-class, the Government wants to strengthen those areas that are not delivering the best outcomes for Australians for their retirement.

Whether it is protecting low-balance superannuation accounts, providing Australians with a choice of fund or making sure employees receive their full entitlements, the Government looks forward to working with you to continue to support and to improve the superannuation system.

Thank you.