LOCAL GOVERNMENT (SUPERANNUATION SCHEME) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 2 April 2008. Page 2494.)

Mr PENGILLY (Finniss) (11:04): I rise to indicate that the opposition supports the bill, and I would like to make a few salient points about the measure. The Local Government Superannuation Scheme has been around for about 20 years, and it has been the sole provider of superannuation for the local government sector in South Australia.

The present scheme is in many ways anathema to the modern superannuation landscape. Like industry superannuation funds before the superannuation reform in the 1990s, it operates in isolation of competition and is subject to protective industry rules; for example, local government employees are compelled to choose the fund as their superannuation provider and, if the employee moves on, their subsequent employer is prevented from paying contributions into the local government superannuation fund.

Further, employees from other professional groups cannot elect to have their contributions paid into the local government superannuation fund; and, finally, employers or the member's spouse are also prevented from paying contributions into the member's account.

It is a relatively small fund, and it is a creature of the South Australian statute. It got through the 1990s reform process intact, and it has been immune from any changes to the industry. Consequently, in 1994, it elected to become a commonwealth-regulated fund, placing itself under the jurisdiction of the commonwealth. Since that change the fund has had a membership growth of about 3 per cent (a not insubstantial figure); however, it has grown to represent some 20,700 members and is taking contributions from about 172 employers. Significantly, of those 172 employers only 68 comprise the councils (there being only 68 councils these days in South Australia), with the remainder coming from other industry groups.

Although the fund is a creature of the South Australian parliament, it is regulated under commonwealth legislation. The opposition (as I indicated a moment or two ago) is comfortable with the bill and will be supporting it, but the fact that it is under commonwealth legislation creates a difficult constitutional position. The fund is audited by the South Australian Auditor-General and reports to the South Australian parliament but regulation proper is conducted by the commonwealth, so it is only common sense for us to do what we intend to do in this place—and, hopefully, in the other place. In addition, because of the board's rather proactive approach to declaring organisations outside of local government 'declared organisations', the fund currently has a significant number of members who do not form part of the local government industry. Because of the limited pool from which to draw membership, the task of decreasing administration fees becomes harder to achieve (it is our understanding that the current administration fee is about $1 per week, which is quite low).

The legislation itself is straightforward, it is not contentious, and the opposition does not have a great issue with it. For example, clause 4 provides for the continuation of the scheme under trustees rather than statute, and a new schedule No. 1, which outlines the transitional provisions, is inserted. It will be the responsibility of the local government superannuation board, who are the administrators, to make all the necessary transitional arrangements once this bill passes. Once the board has, in the opinion of its treasurer, prepared the trust deed and correctly made satisfactory arrangements, the Treasurer will issue a commencement notice in the state government Gazette. The members of the board will then automatically cease to become members, because from that moment the constitutional corporation will run as an independent corporation regulated by the commonwealth. The former local government superannuation board will be dissolved, and that will be the end of it. Furthermore, all councils, relevant authorities and organisations are required to continue as contributing employers for a period of three years. Upon expiry of those three years the fund will have completed the transition and will open itself for competition.

It is in the best interests of the fund and of the members that this takes place and, as I have said, the opposition has no argument with that. The South Australia government will be removed from the equation, and there exist significant opportunities for the new corporation to expand and decrease its administration fees—which will ultimately benefit its members and which is pure common sense. Of course, there is some risk involved because local government super is, essentially, throwing itself on the mercy of the market. Deregulating membership of the fund necessarily gives current members the choice of removing their money, and does not require that contributing employers recommend a fund.

Treasury advises that all the above will be satisfactory. We have had a briefing on it and are very comfortable with it. In due course I would like to see some other proactive local government legislation come into this house that we can thrash around a bit more than we could this one. With those few words, I once again indicate that the opposition will be supporting this bill.

Mr GRIFFITHS (Goyder) (11:08): I would like to briefly contribute to this debate. Having previously worked within local government from early 1979 until very late 2005—

The Hon. K.O. Foley interjecting:

Mr GRIFFITHS: I will declare my interests, as the Treasurer has asked. I was a contributing member of the Local Government Superannuation Scheme—and, I think, the group that came before that structure—and over that 27 year period I was quite happy with the returns given on investments. I retained my superannuation investment with the Local Government Superannuation Scheme even during the 15 month period when I moved to New South Wales in local government, and I believe in that period its returns were quite impressive and the equal of any within many other industries.

There has been good growth within the scheme. We were advised, as part of the briefing, that something like 3 per cent additional members each year have chosen to join local government superannuation Admittedly, to a large degree it is because local government employees were required to do so, but there were also opportunities for associated organisations, and, I think, regional development boards, animal and plant control boards, and those sorts of organisations, to take up the option of coming under the local government superannuation structure. No doubt they were also happy with the services they received.

There is no doubt that opening up membership does pose some risk. In the briefing that we had with the chief executive of the Local Government Superannuation Scheme (who I note is in the gallery today) he did recognise that doing this came with some potential for a loss of members if the performance of the scheme was not good enough. If that occurred there would then be an impetus for the scheme to be subsumed, presumably, by a larger superannuation scheme, because all that people want to see is the greatest possible return on their investment.

I am amazed that most people do not take a lot of interest in the investment strategies in superannuation. I am advised by well-informed people that, given that all Australians who work are in superannuation schemes, only about 2 per cent of those actually choose to make a direct investment option decision. I would have thought that younger people, especially, who might take a more aggressive approach because there are longer-term options for them, would choose other things that would provide a better rate of return, but most people seem to take the default option. That is their choice. There is no perfect science to it. Those who took aggressive options in the last four months would have experienced a downturn in their investment through what occurred with the subprime mortgage market.

It is pleasing that this bill has come before the house for debate. I know that the Local Government Superannuation Scheme has been very keen to have it introduced so that it can be tidied up and so, hopefully, the new structure can commence as of 1 July. There will be a transitional period of three years, but that will allow everybody to make sure that things are operating smoothly in the way that they should, because there are over 7,000 local government employees. I am not aware of the number of staff members involved in other organisations who are part of the Local Government Superannuation Scheme, but they want to make sure that they are in a position to make the best choice for their superannuation option.

No doubt local government super will do everything in its power to ensure that it does provide the best possible return and the best quality of services to its members, and, if it does that, there is greater opportunity to keep that membership base. In my brief contribution I commend the bill to the house. I hope that it has swift passage through both houses, and I look forward to local government super, with which I still have money, performing very well in future years.

Mr HANNA (Mitchell) (11:13): I rise briefly to support the government's Local Government (Superannuation Scheme) Bill. The point which pleases me most is the proposal for full choice for members in terms of the fund in which their money is allocated. It is high time that this applied to all public sector superannuation schemes.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (11:13): I thank members for their contribution.

Bill read a second time and taken through its remaining stages.