Statutes Amendment (Fund Selection and Other Superannuation Matters) Bill

Second Reading

Adjourned debate on second reading.

(Continued from 11 November 2020.)

The Hon. S.C. MULLIGHAN (Lee) (17:45): I rise to speak as the lead speaker on behalf of the opposition on the Statutes Amendment (Fund Selection and Other Superannuation Matters) Bill. This is a government bill that basically seeks to pick up the initiative that has been twice moved in the other place by the Hon. Connie Bonaros to introduce what is commonly known as choice of fund for South Australian government employees, and other members of public sector superannuation schemes, to give those members the ability to have their superannuation funds in their accounts invested with someone other than, in most cases, the state's Southern State Superannuation Scheme, or Triple S scheme, as it is commonly known.

This initiative has a very long history, even before the initiative of the Hon. Connie Bonaros. There have been repeated requests spanning back at least 20 years, as far as I am aware, particularly by members of the Triple S scheme wanting to have the ability to choose another superannuation fund, not exclusively—and I would not even wager that this falls into the category of the majority of these calls—but is not too hard to imagine that members of the Triple S scheme may want the opportunity, for example, to invest if not in an industry or a retail fund then perhaps in a self-managed super fund.

You might be thinking: why has it taken so long for this initiative to come to this place? Well, basically speaking, there are a couple of reasons. One is that there was, as far as I am aware, a predominant view within the agency responsible for managing these superannuation funds, now called Super SA. There was a long-held view that providing the ability for members to choose a different fund would necessarily diminish the pool of funds available for investment from the superannuation scheme and with that make it more expensive to invest those funds in the various categories of investment. That is to say, with a diminishing pool of funds and a similar cost of administration and investment of those funds, investment costs for each member would necessarily increase, and so on.

There was also at times the argument put that, having fewer funds under management may also affect investment returns but, in my view anyway, that is perhaps not as persuasive an argument as the previous one. More to the point, the overarching concern—in the face of what we have seen pretty much now for the last 25 years from the commonwealth—is the ongoing push from federal treasurers for South Australia to reach an agreement with the commonwealth to remove what is referred to as its constitutionally protected status with regard to the superannuation scheme.

If you consider that a public sector fund like the Triple S scheme enjoys constitutional protection, it basically means that it maintains a tax-exempt status or a tax exemption, at the least, for the moneys paid as contributions into that scheme, both the superannuation guarantee contributions—the mandatory employer contributions—and any additional contributions a member may elect to make themselves. That is a very generous concession, make no bones about it.

The superannuation contributions tax, I think I am right in saying, is currently 15 per cent. If we think about how much the state government spends on employing people and what 9.5 per cent of those employment expenses are, using that as a proxy for the amount of money the state government spends on those superannuation guarantee mandatory contribution payments, it does not take too many calculations to work out that we are talking something in the order of $100 million in taxation that the commonwealth could be collecting from the South Australian government that it is currently not.

That is a lot of money spread across those members of the schemes. The concern that a move by South Australia towards fund choice might put that at risk has really been at the heart of concerns about whether to move towards a choice of fund arrangement. Of course, that raises the issue of whether that is a reasonable concern, or is that jumping at shadows or fearmongering or similar?

It is certainly my recollection as someone who used to work for a former Treasurer, and also the recollection (to put the words in his mouth) of the member for West Torrens, who was a former state Treasurer, that there was a constant formal communication from federal Treasurers urging the state to give up this constitutional protection and reach an agreement with the commonwealth about the arrangements under which that tax-exempt status would be forfeited.

It is worth bearing in mind that South Australia is the last public sector regime, as far as I am aware, that enjoys this status. It is also the last that does not have choice of fund. The concern is that if South Australia were to change its very unique arrangement here and move towards a choice of fund, that might enliven the interest of the commonwealth, and that would re-enliven those calls from the commonwealth for South Australia to finally submit to the taxation regimes that other public sector funds around the country have done.

It is a bit like that argument about what it takes to change the GST arrangements in Australia. It is not accurately understood by many people what confers this tax exemption or this constitutional protection on the South Australian superannuation schemes. It is not a state instrument that does that: it is a federal instrument. I think it is a schedule to the federal taxation administration Income Tax Assessment Regulations.

Perhaps in that regard it does not even require formal legislative change but merely an amendment to those regulations—that is to say, it is reasonably easily done. As recently as when the current Prime Minister, Scott Morrison, was the federal Treasurer, I am told it was their communication with the state government, urging there to be a change in this regard. That is really the other main concern about why this move has not occurred.

What does this bill propose to do? It proposes to introduce a regime to provide members of the Triple S scheme with a choice of fund. It allows a Triple S scheme member to nominate an eligible fund—one that meets the appropriate standards and is registered and appropriately regulated and so on—and to have those state government employer contributions made to that fund rather than to the public sector Triple S scheme.

It also allows what you could refer to as a partial nomination or what the bill and the explanatory clauses refer to as portability of a portion of your superannuation account balance to another fund, that is, not moving all your arrangements to a fund other than Triple S but maintaining some of those arrangements but taking some balance out and applying it outside of the Triple S scheme.

It also enables Super SA to try to attract members into the Triple S scheme. If choice of fund is to be allowed, I have been advised in the briefing I received on this bill that Super SA expects to lose some members who will make the choice to go to a different superannuation fund. I am told their best available modelling estimates that 5 to 10 per cent of members of the Triple S scheme may go and presumably a corresponding amount of funds available for investment in the scheme may also leave.

To try to offset that potential reduction of the superannuation fund, Super SA proposes to engage in a strategy of trying to move people back into the Triple S scheme—perhaps we could call them dormant Triple S accounts; perhaps at one point they were a member of the Public Service and they moved on to a different employer—and encouraging them to move their current superannuation arrangements outside of Triple S and consolidate them within Triple S. I am told by Super SA that it is hoped that this choice of fund manoeuvre will have some offsetting benefit to the loss of members and fund balances.

Perhaps with that move of becoming almost a partially open scheme, if we could call it that, where Super SA is able to compete in a very limited way for accounts to be moved or accounts to be re-enlivened within Triple S, moving funds from outside the scheme into the scheme might also enliven the interest of the commonwealth. Perhaps for the commonwealth that has for so long, particularly under conservative federal governments, sought to have these tax-exempt constitutional protection arrangements removed for South Australia, this might also prove enough of an incentive for them to look at doing this.

This bill also proposes—perhaps not a central idea necessary to implement a choice of fund regime—to allow the Super SA Board to be responsible for the employment of staff within Super SA, including the chief executive, rather than the current regime which effectively sees those people employed by virtue of the Treasurer and the Department of Treasury and Finance. They are the three main elements of this bill. Given the hour, perhaps I might suggest to the house that I have leave to continue to my remarks at the next appropriate opportunity.

Leave granted; debate adjourned.

At 17:59 the house adjourned until Wednesday 2 December 2020 at 10:30.