STATUTES AMENDMENT AND REPEAL (SUPERANNUATION) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 16 May 2012.)

The Hon. I.F. EVANS (Davenport) (11:30): I rise to speak on the Statutes Amendment and Repeal (Superannuation) Bill 2012. This bill was introduced into the House of Assembly by the Minister for Finance on 16 May, and I indicate that I am the lead speaker. This bill seeks to amend the following acts for the purpose of making amendments to the superannuation arrangements provided under these statutes, that is: the Judges Pension Act 1971, the Parliamentary Superannuation Act 1974 and the Police Superannuation Act 1988. The bill also seeks to repeal the Unclaimed Superannuation Benefits Act 1997, and proposes consequential and technical amendments to the Subordinate Legislation Act 1978 and the Superannuation Funds Management Corporation of South Australia Act 1995.

There are a number of proposals under this bill. The opposition is generally supportive of the bill. There is an issue with one section of the bill that I will raise, but generally we are supportive of this measure. The first proposal is the repeal of the Unclaimed Superannuation Benefits Act 1997. What is proposed under this bill is that the commonwealth government, which has introduced national legislation dealing with unclaimed superannuation benefits, which is aimed at having all unclaimed super money centrally located by the Australian Tax Office. The commonwealth and all state Governments have agreed that this arrangement provides a better opportunity for workers to be reunited with their lost super, and in order for South Australia to become part of the new arrangement the state's Unclaimed Superannuation Benefits Act 1997 needs to be repealed. The opposition supports that move.

Proposal 2 is the repeal of some legislation dealing with the method to determine the value of an accrued super interest for the purpose of splitting a super interest under the commonwealth's Family Law Act 1975. The commonwealth rules for determining the value of an accrued benefit or super at a particular date are inconsistent with the state rules, and the commonwealth law prevails, so simply what is proposed here is to repeal those laws that are inconsistent with the commonwealth laws. The opposition supports that proposal.

Proposal 3 seeks to make several amendments to the Southern State Superannuation Act 2009, which contains the Triple S Superannuation Scheme for public sector workers. The Australian Tax Office has issued an interpretive ruling in relation to allowances and over-award payments, and payments made in lieu of leave to be considered as ordinary time earnings. As such, the bill proposes an amendment to the definition of 'salary' to ensure that super benefits under the Triple S scheme are based on ordinary time earnings as properly defined. The opposition supports that principle.

Proposal 4 is a series of amendments to the Superannuation Act 1988. One of the amendments deals with a situation where a contributor has suffered a reduction in salary, which is neither a reduction resulting from disciplinary action taken against the contributor nor a reduction in hours worked. The current arrangement has the effect of disadvantaging the contributor over the long term. As such the bill seeks to amend the current provisions to avoid this disadvantage.

Another proposed amendment is to expand eligibility to vote in elections for a member representative on the Super SA Board and the Funds SA Board of Directors. This bill seeks to change the current arrangement and provide a right to vote for the spouse and for persons who have invested in Super SA flexible roll-over or Super SA income stream products.

An amendment is also being sought to the regulation-making powers contained in the Superannuation Act. The regulation-making powers are proposed to be expanded to enable the making of regulations that will allow the Electoral Commission to withhold sending ballot papers for board elections where the Super SA Board consider the member was a lost member. At the last election held in 2009 about 20,000 ballot papers were undeliverable for this reason.

The last component of the amendments being sought deals with the Electricity Industry Superannuation Scheme. This is the area where there is some conjecture from those people covered by the scheme as to how this particular scheme was set up. I have met with Dr Ray Hickman, Mr Richard Vear, Mr Clive Brooks and others in relation to this matter. I have written letters to the minister outlining a series of questions that the industry groups have put to me regarding this particular matter. The letters were dated 19 January 2012, 24 May 2012 and 25 May 2012, and they go for some pages and I do not intend to read all the questions into Hansard. I thank the minister for his office contacting me and saying that he has prepared answers to the questions (I dare say through his loyal advisers) and that he intends to table the answers so that they can be inserted into Hansard.

I will consider those answers between houses because it is a highly complex matter and even if the minister read the answers in I would be no better informed until I could go and get advice on the answers. In fairness to the house, I am not going to hold the house up long on that particular matter, but I do appreciate the minister's office preparing those answers, and I certainly appreciate the departmental officers preparing them at relatively short notice and also for the information provided in the briefing.

The Electricity Industry Superannuation Scheme members came to see me, and I asked them to outline their concerns about the Electricity Industry Superannuation Scheme. They have had these concerns for many years, and they see this as an opportunity to have some of these issues resolved. The following comments I make are provided to me by the Electricity Industry Superannuation Scheme members and also by Dr Ray Hickman, who speaks for the South Australian Superannuants. These are their comments, not necessarily my comments, because it is a complex matter and they want to put on the record their concerns so that the minister can, hopefully, deal with this issue through an independent review. Their comments, which have been provided to me in writing, are as follows:

The provisions in this Bill dealing with the Electricity Industry Superannuation Scheme (EISS) have been the subject of representations from Dr Ray Hickman who speaks for the organisation, S.A. Superannuants, and from an individual EISS member Mr Richard Vear. I have met with representatives of S.A. Superannuants and Mr Vear and much of what I have to say in this speech relies on what they have put to me in writing after that meeting. What Mr Vear and S.A. Superannuants are seeking is a review of the method, and administrative decisions associated with the authorisation of the method, that EISS uses to calculate the taxed-source pensions that the provisions in this Bill will allow to be transferred to Super SA. They have suggested that the review be conducted by the Ombudsman—

although there may be some issue with that given that, I think, part of this was a ministerial decision and the Ombudsman does not have power to review ministerial decisions, so they seek an independent review—

...but would be pleased to see a review by another competent authority that is independent of the Department of Treasury and Finance, the EISS Board and Super SA Board. S.A. Superannuants and Mr Vear have both written to me saying that if an independent review is carried out then they will accept its findings regardless of what the findings are on the basis that the government accept its findings regardless of what the findings are.

On this basis, the opposition is prepared to put on the record its concerns so that the minister can properly deal with the matter and their concerns be given a fair hearing. In what follows I will refer to Mr Vear and the SA Superannuants as 'the petitioners'.

The petitioners say that the superannuation provisions of the Electricity Corporations Act 1994, as modified by the Electricity Corporations (Restructuring and Disposal) Act 1999, are sound and there is nothing to be gained by EISS members who transfer to the proposed Administered Electricity Industry Superannuation Scheme unless the Government is going to provide its own guarantee for the security of their pensions, on top of the guarantee that their current employers are providing. Even if this is the case it would be a very inefficient way of providing extra security. The Government would do better to simply guarantee the pensions where they are currently located. If the EISS provisions in this bill become law the result will be as follows:

1. The EISS Board will decide whether or not it is interested in making use of the legislation.

2. If the EISS Board decides it is interested it will have to find out from its members, getting taxed-source pensions, if they are interested in transferring to the Administered Electricity Industry Superannuation Scheme.

3. Unless there is substantial interest among members in transferring there will be no point in the EISS Board proceeding because transfers are to be voluntary for each member. The petitioners say the level of interest in transferring among EISS pension division members needed to be established prior to the legislation being prepared.

4. Assuming there is an interest in transferring the EISS Board will have to approach the Super SA Board to have prepared a trust deed and set of rules.

5. Once the EISS Board and the Super SA Board have agreed on the trust deed and the rules these will have to be provided to all EISS members interested in transferring.

6. For each member who transfers, the EISS Board will transfer funds equal to the sum of the actuarial value of that person's pension and an amount sufficient to meet Super SA's costs of administering the new scheme. The effect will be that the EISS will see its investment pool of assets backing pensions reduced and it will be paying Super SA to administer the transferred pensions as it continues to bear the cost of administering the pensions that remain with it.

The petitioners say this is a highly implausible scenario. They say the EISS Board would not be acting in the best interests of the pension division members collectively, or their employers, if it allowed the splitting of the pension division.

The petitioners say a more likely reason for the EISS Board to want to move its taxed-source pensions to Super SA is to improve its chances of effecting a merger with other superannuation funds. It is a small fund by current standards (assets of $740 million as at 30 June 2011) with relatively few members (3,192 as at 30/6/2011). At first glance the EISS should be an attractive merger partner. But its potential merger partners will all be funds operating under the Commonwealth's Superannuation Industry (Supervision) Act 1993 (SIS). The rule EISS is using for the calculation of taxed-source pensions would certainly be recognised by any potential partner in a merger as being of dubious legality. This would make the rule a severe obstacle for EISS in merger negotiations. It will not do EISS much good to tell potential partners that the South Australian Crown Law Office has assessed the rule as lawful because the facts pointing to the opposite conclusion are far too persuasive.

The petitioners are adamant that the EISS taxed-source pensions have been calculated by a method that was designed to reduce employer costs for pensions compared to what the cost would be if the pensions continued as an untaxed-source pension. They say that this is forbidden by the Electricity Corporations Act 1994 which provides that rules for reducing benefits must be related to the tax costs associated with the change in tax status of EISS and may go no further than to avoid or reduce an increase in the associated employer costs. They point to clause 11, Part F of Schedule 1 Superannuation of the Electricity Corporations Act 1994. It states:

11—Treasurer may vary rules in relation to the taxation

(1) The Treasurer may, after consultation with the trustee of the Scheme, insert into the Rules a rule or rules relating to changes in benefits for members and employer costs in relation to those benefits, following the Scheme's loss of constitutional protection.

(2) A rule inserted by the Treasurer may—

(a) prescribe a decrease in the level of gross benefits; or

(b) require benefits to be paid on an untaxed basis or partly on an untaxed basis; or

(c) make provisions of the kind referred to in both paragraphs (a) and (b),

in order to avoid or reduce an increase in employer costs caused by changes in the incidence of taxation as a result of the Scheme's loss of constitutional protection.

(3) Subject to subclause (4), the change in benefits effected by a rule made under this clause must not result in the level of net benefits to which a member, or a person in respect of a member, is entitled being less than the level of net benefits to which he or she would have been entitled if the Scheme had not lost constitutional protection.

Subclause 11(1) requires that there be a relationship between the change in employer costs and the rule or rules for changes to benefits. This did not happen with pensions, where the rule introduced used only personal income tax rates to calculate the taxed-source pension value. The change in employer costs associated with the pension being paid as a taxed-source pension was ignored.

Subclause (11)(2) requires that the rules must not reduce employer costs and are restricted to just avoiding an increase in those costs or keeping any increase to a minimum. The petitioners say that (11)(2) place an obligation on the Treasurer and the EISS Board to be very confident that the rule changes were not going to reduce employer costs and, in that way, pass to employers a tax advantage that otherwise would have gone to its members.

The petitioners accept that subclause (11)(3) was being complied with until 2007. Then the EISS Trustees made a rule change in response to the federal government's 'Better Super' policy of 2007. The new 10 per cent rebate applied to untaxed source pensions for members over 60 years was excluded from the EISS taxed source pension calculation with the effect that the taxed source NET pension was no longer equal to the untaxed sourced net pension. The petitioners say that the net benefit of (11)(3), whichever way it is defined, is merely a 'no-detriment' provision that sets the floor below which no pension may be reduced. It is not an authority to reduce every pension to that level. They reject the position being taken by both the EISS Board and the Government that as long as (11)(3) is being complied with the EISS method for calculating taxed-source pensions is valid.

The petitioners have said to me, without my looking for them to do so, that they are satisfied that the previous Liberal government did not intend to authorise EISS to use the method it is now using to calculate taxed-source pensions. They say, if the previous government had intended to do this, section 11 would have looked something like this:

11—Treasurer may vary Rules in relation to taxation

(1) The Treasurer may, after consultation with the trustee of the Scheme, insert into the Rules a rule or rules relating to changes in benefits for members following the Scheme's loss of constitutional protection.

(2) A rule inserted by the Treasurer may—

(a) prescribe a decrease in the level of gross benefits; or

(b) require benefits to be paid on an untaxed basis or partly on an untaxed basis; or

(c) make provisions of the kind referred to in both paragraphs (a) and (b); and

(3) A rule inserted by the Treasurer must have the effect of ensuring that, subject to subclause (4), the level of net benefits to which a member, or person in respect of a member, is entitled is equal to the level of net benefits to which he or she would have been entitled if the Scheme had not lost constitutional protection.

The petitioners say that the EISS members have sought, but never been given, a good explanation of why the percentage reductions of EISS lump sum benefits, obtained by commutation of pensions, are typically about 10 per cent less than reductions made to pensions.

The experience of one EISS member, Mr Barry Foster, illustrates this point. Mr Foster had 41 years of service in the electricity industry and retired at the of 2002. He was among the first EISS members to feel the effect of its new rules. If Mr Foster had commuted 100 per cent of his untaxed-source pension the tax payable on the lump sum would have reduced it by 5.7 per cent. He did not want to commute his pension and was told that the only alternative then was to have his untaxed-source pension entitlement paid as a taxed-source pension, which would be 17.1 per cent less in its gross amount than the untaxed-source pension. He did not want to take his pension in this form and would have preferred to take the original untaxed-source pension. He is adamant that the person outlining his options made it clear that he could not opt for the untaxed-source pension. This person was an actuary and the same person who had developed the rules for changes to EISS benefits.

The petitioners claim that the percentage reduction in Mr Foster's pension that would have been sufficient to avoid an increase in employer costs would have been close to 5.7 per cent and nowhere near the 17.1 per cent by which it was actually reduced. The difference of 11.4 per cent measures the advantage that Mr Foster's employers gained. The written materials that Mr Foster was given, in February 2003, outlining his entitlements at retirement included a sheet headed 'Benefit Reduction' on which it was explained that benefits were subject to reduction as a consequence of the change in tax status of EISS. The explanation included the sentence 'This reduction is intended to represent the amount of the tax that the scheme will become liable to pay in respect of your benefit.'

Late in 2005 Mr Foster became aware that SA Superannuants was investigating the possibility of a change in taxation status for the State Pension Scheme and, after talking with Dr Ray Hickman, who was then president of the organisation, he set about trying to find out more about why his pension had been reduced by such a large amount. On 25 March 2006 he wrote to EISS asking to be told the amount of tax that the scheme had paid in respect of his benefit. In a letter dated 2 May 2006 he got the answer:

The amount of tax paid by the scheme in respect of your pension is almost impossible to determine.

On 18 May 2006 he wrote again to ask if his pension had been reduced by an amount greater than that needed to avoid an increase in employer costs. In a letter dated 28 September 2006 he got the answer:

The Board is required to adjust your pension in accordance with the rules inserted by the Treasurer, and has done so accordingly.

In response to his pointing out that the commuted lump sum was reduced by tax by a much smaller percentage than was his pension, he got the statement:

You raise the issue of the difference between the adjustments to lump sums and pension benefits. The adjustment is very different because the taxation is very different.

The petitioners say this is incorrect. They say the tax payable on contributions and earnings in a taxed superannuation fund are the same whether that fund pays benefits as lump sums or as pensions. They say, for a particular person in an untaxed fund, the tax payable on a lump sum that the person elects to take from the fund by commutation of a pension is calculated by the same method, and using the same tax rate of 15 per cent, as is used to calculate the tax payable on the sum that the fund retains to pay the pension that has not been commuted and is to be converted to a taxed-source pension. This can be confirmed by reference to the Explanatory Memorandum to the Taxation Laws Amendment Bill (No.5) 2001—Chapter 2—Changes in status of constitutionally protected superannuation funds.

In the letter of 28 September 2006, that told him lump sums and pensions had to be adjusted differently, Mr Foster was also told that he could have opted for his untaxed-source pension rather than the taxed-source pension. He rejects this and has a clear recollection that he was led to believe that a commutation, or a taxed-source pension, were his only options. The written statement he was given about his entitlement in February 2003 contained information about commutation and a taxed-source pension only. It said nothing about him being able to opt for the untaxed-source pension. In the letter of 2 May 2006, that told him the tax payable in respect of his pension is almost impossible to determine, EISS admitted that the availability of the untaxed-source option was not made explicit for all members until 2005. The petitioners say it is simply not believable that this delay was an oversight on the part of EISS. They say that the untaxed-source option only became available from December 2005 and then only because of the mounting pressure from Mr Vear and other members.

It was not until April 2006 that the EISS made available to all members the method of calculating the benefit reduction to their pensions. This came about as a result of the intervention of the commercial manager at Torrens Island Power Station to address employees' complaints. The experience of Richard Vear is consistent with that of Barry Foster.

Richard has made a very strenuous attempt to get a clear answer to the same question about his pension but with no more success. In Richard's case, the reduction to his pension would have been 17.6 per cent if none of the pension had been commuted and, had he commuted all of his pension, only 7.9 per cent of the resulting lump sum would have been lost as tax. He actually commuted half of his pension and paid 7.9 per cent of that lump sum in tax; the remaining half he took as a pension was reduced by 15.3 per cent.

This illustrates another feature of the EISS method that is a good indicator of the method being one that reduces pensions by more than the tax cost associated with paying them from a taxed source. As the value of an untaxed-source pension increases, the reduction made to it by the EISS method gets larger but the rate of tax paid on the lump sum back into the pension is still only 15 per cent.

The petitioners have anticipated that members listening to this account might think, 'Why are they coming to parliament with this story? Why don't they go to a tribunal, a regulator or a court?' The Electricity Corporations Act 1994 intended for the EISS to operate under the commonwealth Superannuation Industry (Supervision) Act 1993 (the SIS Act) which would have seen it regulated by APRA and its members having access to the Superannuation Complaints Tribunal (the SCT).

Years went by without the provisions of the act that were intended to achieve this becoming law. Even today the EISS remains outside the SIS arrangements and regulation by APRA. So, it sits outside of that arrangement. Access to the SCT is now available but only since June 2008. Richard Vear attempted to get a hearing at the SCT but was told it could only deal with matters originating after the EISS entered its jurisdiction in June 2008.

There is a court system but the costs and risks associated with legal action are daunting. The petitioners believe it is reasonable in the circumstances to them to see this parliament as the regulator for the EISS. I ask that the parliament arrange for the matter to be settled once and for all by a competent, independent authority. It is not just the large difference between the reductions made to pensions and the lump sums obtained by the commutation of the pensions; it indicates that the EISS method of calculating its taxed-source pensions is designed to favour employers.

The petitioners point to two authoritative documents held by the Department of Treasury and Finance. One is the study of the taxation status of the South Australian government superannuation funds dated January 1998. This is a Mercer report and it outlines and method that could be applied to untaxed-source pensions of the State Pension Scheme to convert them to taxed-source pensions. The method it proposes is essentially the same as EISS is using it taxed-source pensions. The report estimated savings for the government in the range of $300 million to $540 million—that is in 1998 dollars—if the method was applied to the State Pension Scheme. Referring specifically to the reduction of the state pensions in the 1998 Mercer report, on page 63 it states:

The Government may need to cope with the demands from members of the pension scheme that they, as well as the Government, should share in the gains achieved. An important part of the response would be that these people are still members of schemes which have been closed because of their generosity, and yet their benefits have been continued. Thus they should have little to complain about if the advantage of applying the PJFC (pre-July 1988 Funding Credit) is not passed through to them, so long as they are not detrimentally affected. A critical point is that the benefit reductions should be such as to remove the windfall gains, but not to the extent of causing detriment to any members.

The petitioners say that the detailed explanation provided in the report of where employer gains will come from is arithmetically correct, but the gains have to be achieved by diverting the tax advantage inherent in the taxed superannuation environment from members to employers. This is what section (11)(2) of part F of schedule 1 of the Electricity Corporations Act 1994 is designed to prevent. The petitioners point also to the heads of government agreement on superannuation, which says in the first paragraph:

The Commonwealth and the State and Territory Governments recognise the need to apply national standards to certain aspects of superannuation without distinguishing between employees of the public and private sector. For example, it is important that members' accrued entitlements are securely protected, and that there is consistency of taxation outcomes for members' superannuation benefits.

According to the petitioners, the authors of the 1998 Mercer report have things the wrong way around when they say that a gain by members from a change to a taxed-source pension would be a 'windfall gain'. It is not a windfall gain because tax rules intend for members to make this gain. The gain would only be a windfall if it passes to employers, as the 1998 report recommends should happen.

The other review that the petitioners raise is the Review of Taxation Status of the SA Government Superannuation Funds dated 23 December 2004. This is another Mercer report and a follow-up to the 1998 report. On page 7, this report states:

In the Lump Sum Scheme/Pension Scheme there is a net tax advantage in moving from an untaxed environment to a taxed environment. These advantages could be used to increase members' benefits and/or reduce employer costs. If members' benefits are maintained at current levels (after allowing for tax effects), then savings of the order of $450 million are estimated for the employer.

This is consistent with the 1998 report. However, on page 9 of this 2004 report, it is said that in other states it was not members' benefits that were held constant to produce savings for employers, but the employer costs were held constant to increase the members' benefits. The formula used in these other states to ensure that employer costs stayed the same is set out in the 2004 report.

The petitioners say that this formula, or something very similar, was required to ensure compliance with the Electricity Corporations Act 1994 when the EISS was authorised to begin paying taxed-source pensions. The formula provides a lawful method for converting the pensions because it connects the pension reductions with the tax payable by the scheme. This connection is through the formula's inclusion of 15 per cent (0.15) tax rate applicable to the employer-financed contributions. The preamble to the formula and the formula itself are described in the report as follows:

To ensure that the employer contributions remain the same (before and after the fund becomes taxable) other superannuation funds have adjusted benefits (other than death benefits and the insured component of disability benefits) to the following level:

Current(untaxed benefit) x (1-0.15 B/C x P)—

and the house will be pleased to know I did not come up with that formula—

Where B=the period in days of contributory service that began on 1 July 1988

C=the period in days of contributive service

P=the proportion of the benefit deemed to be employer financed

The petitioners say, when this formula is applied to the pensions of Barry Foster and Richard Vear, it produces the result that their pensions would be reduced by about the same amount as the lump sums obtained by commuting their pensions and not by the much larger amount resulting from the use of the EISS method. The petitioners say that this fact reinforces the validity of the formula set out in the 2004 Mercer report.

There is another Mercer document that the Department of Treasury and Finance holds that deals directly with the EISS rules for benefit reductions. It is the explanatory memorandum dated 27 June 2002. This document has the following interesting features:

1. It was written by the actuary (regrettably, now deceased) who developed the rules being used by EISS, including the rule for calculation of taxed-source pensions.

2. This actuary was a co-author of the 1998 Mercer report, but in his 2002 explanatory memorandum he says that 'employer costs are not expected to change as a result of the tax changes', which is a direct contradiction of the 1998 report.

3. The date of the explanatory memorandum is one day before the EISS rules took effect.

4. The explanatory memorandum contains nothing that would allow a person to assess if the claim it makes about employer costs has a sound basis.

The petitioners say that if this explanatory memorandum is taken at face value, one must conclude there is no advantage for anyone in moving an untaxed pension fund into the taxed superannuation environment. They say: if this was the case, why would the large pension funds of New South Wales and Victoria be operating in the taxed environment, and what was the point of moving EISS to that environment?

The petitioners are adamant that, at the time the EISS pensions became payable from the taxed environment, there was a large tax advantage obtained through the move and it went to employers not to members. In 2007, the tax advantage of doing this was substantially reduced through the availability of a 10 per cent tax offset on untaxed-source pensions, but when this happened, EISS changed its rules to allow the 10 per cent tax offset to be ignored. In this way, it continues to offer taxed-source pensions that deliver an advantage to employers.

Of great concern to the petitioners is the fact that the government has a crown law opinion stating that all of the EISS rules are fully compliant with the Electricity Corporations Act 1994. This opinion was obtained in 2008, or thereabouts, but the petitioners say it is not credible for these reasons:

1. The exact question put to the Crown Solicitor is not known; and

2. The content of the briefing given to the Solicitor was inadequate.

Much of what the petitioners have to base their views on has been obtained through the freedom of information mechanism. This has been effective largely because SA Superannuants has had the benefit of the knowledge and experience of Mr Clive Brooks, its vice-president. Mr Brooks is retired as a senior solicitor from the crown law office and so is not inclined to denigrate its work, but the full set of facts about EISS taxed-source pensions do not appear to allow the possibility that the method for calculating them is compliant with the Electricity Corporations Act 1994.

This led Mr Brooks to persist with attempts to establish what documents had been provided to the Crown Solicitor. He has recently established, through the involvement of the Ombudsman's office, that the only document provided to the Crown Solicitor was the explanatory memorandum—nothing else. This accounts for the opinion given by the Solicitor. Confirmation that the Crown Solicitor was given only the explanatory memorandum is in the form of a letter from Mr Brett Rowse, principal officer, which had a copy of the explanatory memorandum enclosed with it and which refers to this as 'the document' forwarded to the Crown Solicitor.

In the view of the petitioners, the documentation needed for the Crown Solicitor to reach a reliable opinion about EISS taxed-source pensions had to include, at a minimum, the Mercer reports of 1998 and 2004 and the arguments put to the Treasurer by people who believed that the method for calculating them was simply not valid. The petitioners say that the only way to settle this matter now is to go outside the South Australian Public Service to an independent and qualified authority who can:

1. Rule on the question of whether or not the method used to calculated EISS taxed-source pensions is designed to reduce employer costs for those pensions compared to what the cost would be if the pensions continued as untaxed-source pensions; and

2. If it is a method designed to reduce employer costs, rule on the questions of:

(a) whether or not the EISS board and Department of Treasury and Finance knew this, or ought to have known this, at the time the rule was authorised for use; and

(b) whether or not, since the time of the rule's authorisation, the EISS board and the Department of Treasury and Finance have dealt properly with the representations being made to them about the validity of the rule; and

(c) whether or not it is a method that complies with the Electricity Corporations Act 1994 and the heads of government agreement on superannuation.

3. If the method does not comply with the Electricity Corporations Act 1994, recommend a method for calculating taxed-source pensions that does comply with the act and with the Heads of Government Agreement on Superannuation.

I thank the house for its indulgence in letting me put that on the record. As I made clear at the start of the contribution in relation to the EISS scheme, it is a highly complex matter, and that is why I asked the members of the scheme to write that component of the speech: so that their argument was put before the house. I hope the minister will agree to send it to a competent independent authority so that we can resolve this matter once and for all. Subject to the minister's answers between the houses, the opposition in principle supports the bill.

Mr GRIFFITHS (Goyder) (12:11): I wish to make a brief contribution and confirm my personal support for the position put by the member for Davenport as the lead speaker. Superannuation is a bit of an interest for me, so I have read the briefing paper supplied by the shadow minister in some detail. I do have some questions, if I may. My questions actually relate to part 7 of the bill—amendment of Superannuation Act—and specifically to clause 10, where it talks about the ability to contribute a rate reflective of some level of salary change and, indeed, notional salary determinations being made.

When we go into committee I will ask some questions about this, but I just seek a bit of an explanation. On my first read, I presume that it relates to a person who suffers some form of reclassification into a role with a lesser degree of responsibility and therefore a lower pay rate. They are probably towards the end of their working life and want to preserve their superannuation payout. I am guessing that it is based on a defined membership scheme benefit. I can respect how that occurs, but that is where my questions really lie.

I understand that superannuation is a key issue for all people. I suffer a level of frustration because of the vast amount of financial illiteracy that actually exists in the community, where people do not respect how important it is and do not ask questions about their super schemes to ensure that they are getting the best benefits.

I recognise that it has taken some time for this issue to be brought to the house. In a different role, I met with Mr Ray Hickman—to whom the member for Davenport has referred—probably about four years ago, and he put some concerns to me. I am quite pleased that the shadow minister and the minister, as I understand it, have already had discussions and that some position has been reached about the level of investigation that might occur.

It was appropriate that the member for Davenport put a very large amount of information provided by the superannuants association before the chamber because this matter affects real people, and these people have based their decisions about retirement dates, opportunities, what they might choose to do and their quality of life upon what they believe their superannuation benefits to be. So, when a change occurs that is beyond their immediate area of control, naturally they intend to lobby about it. This has been an ongoing activity from that group for some years, and it is one that has merit, so I am indeed pleased that the minister has had discussions with the shadow minister about reaching a conclusion on that. I look forward to the committee consideration of the clauses.

The Hon. R.B. SUCH (Fisher) (12:13): I will be extremely brief. I believe that the member for Davenport has adequately canvassed some of the concerns that have been expressed to him, and likewise to me; the same people basically have been in contact. I strongly support the notion of having an independent review.

There are many people out in the community—people who have served their state and their community—who feel that the current arrangements and propositions are not fair and reasonable, and I think it is appropriate, as the member for Davenport has indicated, that there be an independent review. With those words, I support the general thrust of the bill but ask the minister to take on board the notion of an independent review.

The Hon. M.F. O'BRIEN (Napier—Minister for Finance, Minister for the Public Sector) (12:14): I have minor confusion. My initial understanding was that the member for Davenport did not want to go into committee. However, the member for Goyder has a couple of matters that he wants some explanation on.

In closing the debate, let me say that the member for Davenport agrees with the content of the bill but seeks an independent review. The review is also independent to the passage of the act; it will not be an impediment. The review will consider the matters raised in relation to the EISS in the letters of 24 and 25 May (that I have supplied him with, that he will consider between houses and that I also table) and the matters just raised in considerable detail by the member for Davenport in this house. I will ensure that an independent review is undertaken and I will determine the terms of reference for that review on the basis of the matters raised by the member for Davenport, both in his letters and in the course of debate this morning.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. I.F. EVANS: In relation to the minister's answer in his second reading contribution about committing to an independent review, I thank the minister for committing to that because it will give clarity to the issue one way or the other in finality. I am sure that the petitioners would want me to ask whether you will consult them about the appointment of the reviewer and the terms of reference prior to the reviewer being appointed and the terms of reference being set.

The Hon. M.F. O'BRIEN: I certainly will, member for Davenport, because I think we would both like this matter resolved.

Clauses 2 to 17 passed.

Clause 18.

Mr GRIFFITHS: I have an inquisitive mind sometimes and I reviewed the shadow minister's briefing paper on this. I have had a closer look at the clause and I am a bit intrigued as to how it works. Upon reviewing clause 10, I presume it is a case (as I outlined briefly in my second reading contribution) whereby a person has suffered a financial loss as a result of either a reclassification or taking on a role that provides them with smaller remuneration; that is, I presume, someone towards the end of their career. If it is defined benefits I think a percentage of the final average salary is what their superannuation benefit is calculated on. It states that they can make a contribution based on a notional salary. A notional salary is above what their total remuneration might be at a figure that they determine based on the contributions they are making.

It is linked to what their previous role would have been paying; but I am a bit intrigued about the financial implications attached to this. I can only guess that it comes at some cost. I would be interested to know how many people this might catch up. It talks about the fact that some might have already made the declaration or are yet to make a declaration. I am just interested in some of the Treasury work that has been done on what the implications might be.

The Hon. M.F. O'BRIEN: Member for Goyder, the intent of this particular provision is to ensure that we move from the regime that is currently in place, where adjustments are in line with CPI, to adjustments in line with salary movements in that particular employment category. It applies to between five and six individuals. If they wish to take up the improved benefit, the cost to government—not to them—for the five to six individuals will be between $300,000 and $500,000. It is a measure of fairness, if you like, and a substantial improvement in their position on retirement.

Mr GRIFFITHS: Is the $300,000 to $500,000 a whole-of-life cost on the basis of their projected life, how long they will live, and what the implications might be? The minister nods his head in agreement with that, so I do not need an answer to that. Are these people who have held CEO of department positions or quite important roles? I can only imagine, because we are talking about a fair quantum. Can you give the committee any outline of the types of roles these people have held?

The Hon. M.F. O'BRIEN: We believe that the majority if not all of the five to six individuals would have held middle level positions. The advice that I have just received indicates that nobody at a senior management position is caught up.

Mr GRIFFITHS: My final question, therefore, is: having some awareness of the long-term advocacy role that the superannuants association has taken for some changes to reflect a better level of benefit to their members, is this a long-running issue within discussions about a superannuation review for amendments to take place to benefit these five or six people, or is it a position reached just recently after only a short-term level of advocacy?

The Hon. M.F. O'BRIEN: The advice that I have been given (and I think it is quite colourfully described as having festered for the last four or five years) is that these are individuals who have been employed at a reduced position for 10 to 15 years and are now beginning to consider what the impact will be, so over the last four to five years they have raised it as a matter of some concern.

Clause passed.

Remaining clauses (19 to 34), schedules and title passed.

Bill reported without amendment.

Third Reading

The Hon. M.F. O'BRIEN (Napier—Minister for Finance, Minister for the Public Sector) (12:27): I move:

That this bill be now read a third time.

The Hon. I.F. EVANS (Davenport) (12:27): I just want to place on record my thanks to the minister, particularly for agreeing to set up the inquiry, and also to the officers who gave me a very good briefing about some rather complex matters in simple terms that I could understand. My thanks to the officers.

Bill read a third time and passed.