LOCAL GOVERNMENT (SUPERANNUATION SCHEME) (MERGER) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 4 April 2012.)

Mr GOLDSWORTHY (Kavel) (11:14): I want to advise the house that I am the lead speaker on behalf of the opposition in relation to this particular piece of legislation. It is not my intention to hold the house unnecessarily during the course of the debate. I understand that the member for Goyder also intends to make a contribution and that we will look to go into committee to explore some of the intricacies of the legislation and what that may or may not mean. I know that the member for Goyder has some questions in the committee stage.

Can I say from the outset that I certainly appreciate the cooperation that the minister's office provided me in terms of a briefing. It is a bill of a reasonably technical nature and it is not uncomplicated. There are some complications in relation to the technicalities that the bill looks to achieve; however, I think I have a reasonable understanding of the intention of the legislation and some of the technicalities within it and, over the next couple of minutes, I will expand on those.

As the Clerk announced, this legislation is entitled the Local Government (Superannuation Scheme) (Merger) Amendment Bill 2012, and it is my understanding that the bill seeks to make amendments to the Local Government (Superannuation) Amendment Act 2008. We know that the local government superannuation scheme is a commonwealth regulated superannuation scheme, conducting business as the Local Super scheme.

The scheme, essentially, ceased to be subject to state legislation following the enactment of the amendment act in 2008, and the expiry of part 2 of schedule 1 of the Local Government Act 1999 in January this year. The Local Government (Superannuation) Amendment Act 2008, essentially, took the Local Government Superannuation Scheme from government control placing it into the private sector investment area, regulated by the commonwealth legislation. Although I note, looking back through the 2008 second reading speeches and the legislation that took place then, amendments were made dating back to 1994, the commencement of transition from the public sector to the private sector in relation to managing the superannuation schemes.

I also note from the minister's second reading speech, and some other information that we have been provided with, that the federal government has undertaken what is referred to as the Cooper Review into Australia's superannuation system, undertaken by a gentleman by the name of Jeremy Cooper, I understand. While I have not had the time to fully read through the Cooper Review (because I think it is many hundreds of pages), I have accessed some information in relation to the review and I can provide the house with a couple of dot points that I have gleaned through a level of research into it. I have looked at the report but, as I said, it is many hundreds of pages, and I did not think it was absolutely necessary in the context of this legislation for me in my role to be completely across dotting every last i and crossing every t in relation to it. I am quoting from some information that I have accessed on the Cooper Review:

A very changed industry over the next 10 years looks to be emerging following the many recommendations made by the Cooper Review into the superannuation system. While many of the recommendations are currently the subject of much debate in the superannuation industry, there are [arguably] many positive elements in the package of proposed reforms in a broad range of areas, including:

a new 'architecture' for the superannuation system

improvements in the operational efficiency of super funds

changes to trustee and investment governance

insurance provided through super

retirement products.

Things may have changed in the last month or so, and the minister may be across this, but it is my understanding that as at 31 March the federal government had not yet released its response to each of the proposals and the many recommendations of the review, which will require industry consultation ahead of legislative changes being made. The minister may have some additional information in relation to that. I am not sure, but when he makes his concluding remarks in the second reading speech, he may be able to update the house on any developments there.

As I said, it is my understanding that another aspect of the Cooper Review is that it is encouraging superannuation funds to consider merger and acquisition opportunities because the general feeling is that small-scale super funds may not have the economies of scale or the level of funds required to have some increased positive outcomes and benefits for the members of their funds. It is regarded that scale is important to improve returns for investors through the various schemes.

Against that background, taking that into consideration, Local Super Pty Ltd, which is the company formed as a trustee for the Local Government Superannuation Scheme, and the Statewide superannuation scheme, which is a state-based industry fund, are planning a merger. That has been quite clearly communicated in the wider community. The Local Government Association is well and truly supportive of it. I am happy to read into the Hansard a communication that I have received from the LGA supporting that. However, as I outlined earlier, there have to be some changes to the 2008 act for the merger to take effect.

Aspects of the bill to note are that the current members' benefits will be protected if and when the merger takes effect, which is anticipated to be by 1 July this year. Part 2 of the bill, clause 3(3)(a), covers this point. I will quote from the actual bill, where it says:

the fund confers on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.

That is obviously an important aspect; that is, members' rights under the existing fund are preserved and transferred to any new fund that may evolve, take place or be established under the merger. There is another aspect in relation to subclause (4) concerning the schedule. As we have discussed, this has some technicalities about it but, through my briefing and study of the bill, etc., I think I have a reasonable understanding of this. I certainly appreciate Mr Prior—if I may identify him in the house—and the briefing he provided via the minister's office.

Subclause (4) relates to the name of the scheme once the merger takes effect. The act currently states that the scheme is known as the Local Government Superannuation Scheme, which may well cause an issue when the merger takes effect because one would not anticipate that a newly created scheme from the merger between StatewideSuper and Local Super would want to continue the name of the Local Government Superannuation Scheme. Currently, the act states that the scheme will be named that; however, the bill looks to amend that, and obviously it is an important part of the legislation.

Another aspect of the bill relates to part 2, clause 3—Amendments to Schedule 1, subclause (5). It is my understanding that there are 167 employers within the local government sector who contribute to the Local Super scheme. I will not go through the bill word for word, but basically it provides that a new trustee will need to be created and that the 167 employers will be signatories to the new trustee.

If an employer and/or an employee wants to withdraw from the scheme they are able to; however—and this is covered in clause 5(7); I know we are getting a bit technical, but it is important to highlight these things—if the employee wants to continue in the newly created merged scheme, then the employer has to contribute to that. So, the bill looks to protect members' benefits and also the choice of the individual members if things change; that is my understanding.

I know the member for Goyder has some issues he would like to raise, and he can explain his involvement in the matter. As I said, the bill allows for some flexibility for employers to transfer to a different scheme; however, if an employee remains in the existing scheme, then the employer must continue to contribute into that scheme. That pretty well encapsulates what I have said previously.

Finally, I would like to refer to a communication I received from the Local Government Association, which states:

I refer to the Local Government (Superannuation Scheme) (Merger) Amendment Bill 2012 as introduced in the House of Assembly on 4 April 2012 by the Hon Michael O'Brien MP, Minister for Finance.

This is paraphrasing slightly. The bill seeks to amend the amendment act 2008 to enable the possible merger of Local Super with some other superannuation scheme.

In January 2012 the LGA State Executive Committee resolved to support legislative changes required to give effect to the merger of Local Super with another scheme, specifically StatewideSuper. That support was conveyed to the Department of Treasury and Finance in February 2012. Now that the bill is before the House of Assembly I reconfirm the LGA's support for the bill in its current form. So, I just wanted to highlight that the LGA is supportive of it.

Another aspect of the bill that I also want to cover is under subclause (4). I know we are jumping around a bit but I think it is also important to highlight this. This legislation is broad enough to cover any future mergers, so any mergers from the newly created scheme from Local Super and StatewideSuper. If that entity wants to undertake any further mergers in the future then the legislation in this bill is broad enough to provide for that as well, as I understand it.

It is certainly our intention to support the legislation, I think that is fairly clear from my remarks. I understand the member for Goyder wants to make a contribution and we will go into committee for a period of time. However, as I have stated, the opposition is happy to support the bill.

Mrs VLAHOS (Taylor) (11:32): I would like to rise today to speak about this bill. This is something that is important to many people in my electorate who work in local government, and for their investment options for the future it is certainly an important amendment to be made. Australians typically spend about 35 to 40 years in the workforce before they retire, and over 20 years in retirement or more as our population ages and lives longer. It is my belief and that of my party that the years of dedicated service deserve appropriate compensation and superannuation is one way that people receive that.

Successive Labor governments have worked towards that end by ensuring everyday, hardworking Australians are given every opportunity to secure a comfortable retirement following their years of service to the workforce. When Bob Hawke took office in 1983, over 40 per cent of the workforce had some superannuation cover. In 1987 a modest 3 per cent superannuation benefit was included in most industrial awards, giving most workers some superannuation coverage. By the time I entered the workforce in 1991, after the Hawke Labor government had introduced a major superannuation reform, the proportion of the workforce with superannuation increased to around 72 per cent.

In 1992 the Keating Labor government introduced legislation to establish the universal superannuation schemes that exist today. Indeed, the superannuation industry has changed many times since that date. The Gillard Labor government is still leading the way with low cost and simple superannuation forms such as MySuper. Australians now have over $1 trillion in superannuation savings and the compulsory nature of superannuation contributions means that by 2035 Australians are projected to have an increase in their collective super savings of around $6 trillion.

In this environment, key challenges to fund managers over the medium to long term include finding adequate economies of scale to ensure effective delivery of member services and the continued growth which their members expect. That is why it is now critical that we keep up with the modernisation of the superannuation industry. A fund with more money can provide significantly increased investment capabilities through higher returns to its members.

The Local Government Superannuation Scheme is a commonwealth-regulated scheme conducting business under the Local Super name. Local Super has around 26,000 members and 170 participating employers, with around $1.7 billion of funds under management. Local Super is currently in discussions with StatewideSuper, which is well-established and a not-for-profit industry superannuation fund for South Australians, regarding a merger of the two schemes as of 1 July 2012. A merger of the two funds will create a new fund with over 160,000 members and over $4 billion in funds under management.

Local Super anticipates that a key benefit of having more money will be significantly increased investment capabilities and a reduction in investment management costs, resulting in higher investment returns for its members. The reason for the legislation contained in this bill is to make one major amendment to the existing provision under the Local Government (Superannuation Scheme) Amendment Act 2008, which, unless amended, would prevent Local Super from merging with another fund.

The offending provision is section 2(1) under schedule 1—Transitional provisions in the Local Government (Superannuation Scheme) Amendment Act 2008, and the provision states that the scheme known as the Local Government Superannuation Scheme is to continue to exist under a trust agreement. The bill therefore seeks to amend this provision to facilitate the possibility of the scheme merging with StatewideSuper or any other super scheme that is suitable.

The bill also caters for the possibility of a subsequent merger of Local Super and other schemes after an initial merger. The amendment has been sought by Local Super Pty Ltd, the trustee of the scheme, and is supported by the Local Government Association. Indeed, I know I have people in my electorate who are eager for this change to take place. I commend the amendment to the house.

Mr GRIFFITHS (Goyder) (11:36): I will only speak briefly at this stage, but I do have a couple of questions I wish to ask the minister in the committee stage about some board issues and investment options that exist. I will declare at the start of my contribution that I am a member of Local Super and have been since 1984, when it started, after 27 years in local government.

Upon leaving, I have left my money within that scheme because I had confidence in the way it was being managed and its investment returns. All members would have been frustrated about the global financial crisis and indeed the impact that had on all superannuation schemes across the world and I, like others, was caught up in a significant reduction.

I note that the member for Kavel, as part of the joint party discussion about this, commented on the need for smaller schemes to look for amalgamation options to improve the benefit opportunities for members and a question was asked in our room about the membership structure. I knew that local government had 7,000 current staff members. I was not aware at that time that there are 25,000 members of Local Super. The member for Taylor refers to $1.7 billion, whereas the website talks about $1.6 billion in schemes under investment, but it has served the needs of people very well.

I noted on the website again that, in the last five years, it has had a platinum rating. I am not sure who that is judged by, but it must be some association that looks at the performances and has been very pleased with what it has done in challenging times. It is frustrating to me. I actually get excited about talking about super; not many people do, but I do because it impacts on all of us in such a way.

I am scared about the level of financial illiteracy that is out in the community of people who do not appreciate and comprehend the importance of planning for their own future and the fact that superannuation is a tax-advantageous opportunity that they should pursue at every chance, to ensure that they have a quality of life that they want to live when they retire, based on the level of return—be it higher risk or lower risk or medium options—that gives them the level of lifestyle that they choose.

I think that it has been well managed. I know there has been some consistency in the board membership over a long time within Local Super. I do not know about StatewideSuper, but certainly, from the member for Taylor's contribution about the number of members and the level of funds and the management, it demonstrates that they are a community organisation. There is an obvious connection to make between organisations that are both South Australian focused for an amalgamation to occur, so I am pleased that that is in fact happening.

The questions that I have on the bill, minister, you might be able to answer as part of a wrapping up, but I note in relation to the board that there is a brief reference in clause 3(2) to a deed prepared by the board. I am a bit interested in the board membership: is there going to be a flow-on of the number of local government super board members in the complete amalgamation with the StatewideSuper board members, or will there be a reduction; and, if so, how is that to be achieved? Or if there is to be an amalgamation, how long will that new board be in place before it comes down to a smaller number?

Indeed, as to my question about investment options, the member for Kavel has confirmed the protection being there for members' benefits. I presume that is only for defined benefit scheme members because, for accumulation scheme members, it really depends on performances—and the minister is nodding his head at that.

I am interested to see that, on investment options that people choose, the flow-on protections are there to allow them to continue with those investment structures that they think are best for them, but is that forever? If, indeed, they decide to change at one stage, is that option lost to them if it does not exist as part of the new structure that is in place or can they go back to what was previously their investment strategy? That might be a mix of the high-growth options and all that sort of thing. You talk about protection for members, and I commend the amalgamation discussions on that, but I am just interested in whether that flows through forever or if there will be some form of consolidation and change for future investment decisions.

The Hon. M.F. O'BRIEN (Napier—Minister for Finance, Minister for the Public Sector) (11:40): The issues raised by the member for Goyder I will probably address in committee, particularly in relation to board structure. The issue of investment strategies, I think, is an unknown in that, if the merger occurs with StatewideSuper, I imagine there would be a range of products available—high risk, low risk and the like. To be able to give surety that the investment strategy pursued by Local Super would remain in place, I think, would be a bit difficult to encapsulate in legislation.

The member for Kavel mentioned recommendations of the Cooper Review. The one that exercised both of the superannuation funds considering merger and other superannuation funds and the industry as a whole, and the concerns that were reflected particularly in the Financial Review, related to the application of capital gains tax provisions in the event of a merger. The concern there, as I read it, was that there is a fear or a recognition of the reality that the losses that have been incurred, particularly as a result of the global financial crisis, would actually be crystallised and that in turn would be reflected in a diminution of the asset value or the book value of the merged entity.

The commonwealth has taken those concerns on board and will not be applying capital gain provisions over several years to allow these mergers to occur. My reading was that the superannuation industry had conveyed to the federal government that what it was seeking to achieve by these mergers, and reduction in the number of funds and resulting simplicity for members in only dealing with one fund, would not occur and the mergers would not occur if the capital gains provisions were in place.

As the member for Kavel has pointed out, all of this flows from the Cooper Review. Local Super entered into discussions with StatewideSuper to talk about the possibility of a merger. There was an agreement in principle. The only impediment was the provision in the Local Government (Superannuation Scheme) Amendment Act 2008 that talked about the continuing existence under a trust deed that prevents the merger. What the amendments seek to achieve is the stripping out of that particular provision in the legislation and all associated legislative devices that flow.

The member for Kavel has pointed out that the LGA is highly supportive, as are both of the superannuation funds. I think the benefits for members will be enhanced. There is a provision for the protected benefits—

Mr Goldsworthy: Preserved.

The Hon. M.F. O'BRIEN: —preserved benefits, yes—that is contained in the legislation. Discussions have occurred with all of the entities that make up local government in South Australia and they are aware of their ongoing responsibilities to fund the retirement of their members that have this benefit. That is it, in essence. It is fairly straightforward. As the member for Kavel has pointed out, it is a reasonably technical piece of legislation, but the intent is fairly clear and I do not think there are any groups or individuals that are opposed to the passage of the legislation.

Bill read a second time.

Committee Stage

In committee.

Clauses 1 and 2 passed.

Clause 3.

Mr GRIFFITHS: Again, I have a question in regard to broad structures. Hopefully, between you and Mr Prior there will be an understanding of how it is occurring. I know that both organisations had boards in place. I am interested to hear about the transitional arrangements of how the amalgamation of board membership will occur. Can you give us some details on that?

The Hon. M.F. O'BRIEN: I thank the member for Goyder for the question. I have just had a brief discussion with Mr Prior. At this stage neither of the funds have flagged what the board membership will look like. They are awaiting the passage of the bill before they commence those particular discussions, but I think they would be very much aware of your particular concerns that local government continue to have a significant influence on the management of the funds and the membership that will flow into the merged entity.

Mr GRIFFITHS: I thank the minister for the answer. I understand that it may be a little bit early for those agreements to have been reached, but the amalgamation has been in train for some time. I presume there would have been an indication some time ago that there was no objection to it. I hate to be penny-pinching, but I am by nature a quite frugal person. I do know that there is a payment made to board members.

I do respect the fact that you are going to want to ensure that there is a transfer of historical knowledge, not just within the staff structure but also within the board membership structure. I would have thought that there would be some direction given on transitional arrangements where there might be a collective of six months or so but then a reduction in membership to get back to a reasonable level. After all, the longer the involvement of all those members, the greater the cost to members, and this is all about creating a lower cost structure for membership.

The Hon. M.F. O'BRIEN: I have met with Local Super and their concern was to ensure that the legislation flowed through the house in a timely manner so that the merger could occur come the end of the financial year. The issues that you have raised I am sure will be noted by the management of both funds and by the board. I would be sure that they would be getting the Hansard; in fact, I will ensure that they receive the Hansard because I think the points that you are making are highly relevant.

The issue is that the state government has very little legislative power of influence, if I could describe it that way, in that these are commonwealth regulated and, ultimately, administered in the sense of a regulatory function; so, we are only facilitators of the merger. As far as giving any direction, we really do not have that power, but I will be writing to both boards suggesting that they take on board your suggestions because I think they make a lot of sense.

Mr GRIFFITHS: You use the word 'management'. I will put on the Hansard for the benefit of board members and staff who may review this that I have always been happy with the quality of service provided to me when I have had any query about Local Super. Because Statewide is so much larger and Local Super is so much smaller within its structures, is there going to be a staff loss from an administration point of view or will those staff be fitted into roles within the new group?

The Hon. M.F. O'BRIEN: Member for Goyder, I really have no idea. As I said, I met with the senior management team from Local Super and they were very keen to see the merger occur because the benefits, as they saw them, were reasonably significant. The Cooper Review has mapped out a path for consolidation, which will serve superannuants well. I think a large number of individuals will take the opportunity to merge their various schemes into one, and that will give administrative simplicity.

I think you are right: one of the benefits that flows from the Cooper recommendations is the administrative costs. In terms of that burden, that was felt very heavily during the GFC when returns from investments were in decline and people became very aware of what they were paying in administrative charges. One of the strong benefits that flows from the Cooper Review is driving those administrative charges down. Probably that answers your question.

Mr GRIFFITHS: Again, this is a detailed question and it is probably not the right forum to ask it, but I will put it on the record, and it relates to the fee structures. I understand it is fairly competitive as it relates to contributory members to Local Super, but for non-contributory members, the management cost is a percentage of the value of the investment held. Are you able to comment on whether there is any intention to review that and would that be an up or a down movement?

I know that for some people who are no longer contributing members but who hold substantial funds there, the cost of management of their dollars within the scheme is quite a bit per year. I know that those people would be particularly interested to see if there is some level of protection to ensure that there are no greater costs that will be put upon them for their dollars.

The Hon. M.F. O'BRIEN: Again, the member for Goyder, the commonwealth basically provides the regulatory framework for superannuation. All this legislation is seeking to achieve is the removal of an impediment to the merger. As to the way in which the fund or the merged entity would operate, ultimately that responsibility would reside with the commonwealth. I can give no guidance on that at this point in time.

Mr GRIFFITHS: I understand that. This will be my final comment. I am grateful for the chairman's leniency. For the membership it is an important issue for them, and if the parliament has to pass legislation to allow the merger to occur before 1 July there should be an opportunity in a public forum for that level of information to put onto the record in some way.

If it is not this way I do not understand how it actually does occur. I suppose I am frustrated that there is not that knowledge of the detail behind this legislation because it is important for thousands of people who are out there. Yes, I have a personal interest in it, but I think I am asking questions on behalf of other people, too.

The Hon. M.F. O'BRIEN: It is a fair comment. What we will attempt to do is get a response from the CEs of both funds in advance of this legislation being either debated in the Legislative Council or returning to this chamber so that we have some clarity on that particular matter.

Clause passed.

Title passed.

Bill reported without amendment.

Third Reading

The Hon. M.F. O'BRIEN (Napier—Minister for Finance, Minister for the Public Sector) (11:56): I move:

That this bill be now read a third time.

Bill read a third time and passed.