SOUTHERN STATE SUPERANNUATION BILL

Second Reading

Adjourned debate on second reading.

(Continued from 14 May 2009. Page 2360.)

The Hon. R.I. LUCAS (16:23): I rise to speak briefly to the legislation. I had not intended doing so until I received an email yesterday morning from a gentleman who is a regular contributor to debate in relation to public sector superannuation legislation. The gentleman's identity would be known to the government's advisers. As I said, he has been a regular contributor both on his own basis and on behalf of the association that he represents, and on virtually all other pieces of public sector legislation in recent years he has offered commentary, suggested amendments or, indeed, provided support to proposed government changes.

I received the email only yesterday and I had an opportunity only this morning to try to quickly understand the particular issue that was being raised. I will raise the issue during the second reading debate and hope that the government's advisers are either already familiar with the issue and have a ready answer or, even if they are unfamiliar with the issue, will still have a ready answer for the minister, so that we will not delay the passage of the legislation. My correspondent refers in particular to clause 6—'Participating employers', which provides:

(2) An arrangement under subsection (1)—

(a) may modify the provisions of this Act or the regulations in their application to, or in relation to, employees to which the arrangement relates (but not so as to put those employees or their spouses in a more advantageous position than other members or spouse members);

That is the relevant part of clause 6 which is raised for consideration here. This person mentions that he is not a member of the Triple S scheme but is a member of the state pension scheme which was established under the Superannuation Act and notes that clause 6 of this legislation currently before us is analogous to section 5 of the Superannuation Act.

In the past few moments I have had a look at section 5 of the Superannuation Act 1988 which indeed provides:

(1a) An arrangement under subsection (1) may modify the provisions of this Act in their application to, or in relation to, employees to which the arrangement relates but not so as to put those employees in a more advantageous position than other contributors.

What is being raised there is that the provision in the bill before us is exactly the same as the existing provision in the Superannuation Act. This gentleman says that he became interested in section 5 of the Superannuation Act recently, 'after it became known to me that the arrangements authorised by section 5 of the Superannuation Act include arrangements which alter the definition of salary'. I think that is his threshold point.

I will expand on why that is important, but he contends that he became aware recently that the arrangements authorised by section 5 of the Superannuation Act include arrangements that alter the definition of salary. He goes on to state:

The role that salary plays in all superannuation schemes where the members are employees of employers associated with the scheme is fundamental. Looking at the definitions of salary set out in both the SouthernState Superannuation Bill 2009 and the Superannuation Act 1988 it is difficult to imagine how any alteration to the definition of salary would not put the member, to which the change applied, at an advantage over other members. So I have a concern that the words I have underlined in sub-section 2(a) above may not be having their intended effect.

His email continues:

If members of the schemes established under the Superannuation Act 1988 are getting an advantage over other members as a result of the change in the definition of salary, it is, at least, their employers that are bearing the cost and not other members. This will not necessarily be the case with changes to the definition of salary for members of the SSS.

The SSS scheme is funded entirely from contributions made by members, and the defined contributions made by employers. If some members get an advantage over other members from a change in the definition of salary (or any other change) this advantage is at the cost of other members.

He then goes on to make this general point:

I believe that all arrangements which involve changes to the rules of superannuation scheme should be published in the Annual Report of the relevant Board and, for Government Schemes, in the Government Gazette.

He then encourages me thus:

If you see merit in this I hope you will attempt to have this become the case for the SSS scheme. This should assist to have the same change made for the other South Australian public sector superannuation schemes.

He indicates that he has sent a copy of this email to other members, evidently, in this chamber as well. In relation to that latter point, the lateness of the hour is probably going to preclude me delaying the legislation on this occasion to seek to engage in a debate with the government on that particular issue. I will flag that, when next the legislation comes before us, as inevitably it will, perhaps that is an issue on which we should seek a response from the government as to whether it would have a problem with the sort of proposal that is raised by this gentleman.

In essence, that is the subsidiary issue. The question which I put to the government's advisers and on which I seek a response at the reply to the second reading or during the committee stage is the essential point that this particular person is raising; that is, he is saying that these exact same words are in the Superannuation Act. He contends that he has become aware recently that the arrangements authorised by section 5 of the Superannuation Act do include arrangements which alter the definition of salary. Is his contention in that respect correct, and can the government's advisers indicate to us the detail of that and how that has occurred?

As I said, he then makes the essential point: if that is indeed the case, 'I have a concern that the words I have underlined in subsection (2)(a) above may not be having their intended effect'. He is saying that these words are meant to be giving solace to existing members of superannuation schemes that the new members will not be in a more advantageous position than the existing members, and the words in their ordinary meaning would lead you to believe that. He is arguing, given what he has outlined in relation to those same words in the Superannuation Act 1988, that whilst it appears that they give that solace, maybe in practice they do not. If that is the case—his argument in relation to the Triple S scheme—then the existing members of the Triple S scheme perhaps ought to be having some concern about this particular provision and how in practice it is being interpreted. With that, I conclude my contribution. I look forward to the minister's response.

The Hon. P. HOLLOWAY (Minister for Mineral Resources Development, Minister for Urban Development and Planning, Minister for Small Business) (16:32): I thank members for their contribution to this debate. I believe that we can answer the question then asked by the Hon. Mr Lucas during the committee stage. I again thank members for their contribution and indications of support for the bill.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. P. HOLLOWAY: I intend to answer the question, as I understood it, asked by the Hon. Mr Lucas. I gather that, as it relates to clause 6, we can always deal with it further then, if it is necessary. It is my understanding that there is no intention to allow any modification of definition of salary used for the purposes of the act. I am advised that the intention of the clause is to allow an employer who becomes a participating employer under this scheme to apply only 9 per cent of salary and not the extra 1 per cent that the government may pay for someone contributing 4.5 per cent. There is no intention to allow modification of salary used for the purpose of the act. Rather, the intention of the clause is to allow an employer who becomes a participating employer only to be required to pay 9 per cent of salary and not the extra 1 per cent that the government may pay for someone contributing 4.5 per cent plus.

The Hon. R.I. LUCAS: The contention from this particular person is that these exact same words and arrangements appear in the Superannuation Act 1988. This person is claiming that he has become aware that in recent times those exact same arrangements authorised in section 5 of the act had included arrangements which did alter the definition of salary. Can I clarify that with the minister? First, is that claim correct; that is, the same words and the same provisions in the Superannuation Act have led to alterations in the definition of salary as contended by this particular correspondent?

The Hon. P. HOLLOWAY: The same words are used, but here it is applied to a different scheme, to an accumulation scheme. I understand that the issue raised by the correspondent related to a defined benefit scheme. Under those defined benefit schemes it may be possible for someone to have had a previously higher salary with a previous employer. That arrangement would have changed the definition of salary under that previous scheme, under a defined benefit scheme, but that is not the case in relation to the accumulation scheme—which we have here.

The Hon. R.I. LUCAS: Therefore, in relation to the Superannuation Act 1988 position that the correspondent has claimed, I think the minister's adviser has now confirmed that in those circumstances it either has occurred or could occur—I am not sure what the actual situation is. The words in the Superannuation Act provide that, in essence, that change can occur but not so as to put those employees or their spouses in a more advantageous position than other members.

How has that particular provision operated in the Superannuation Act? My correspondent is arguing that if you can change the definition of salary (which has occurred in the Superannuation Act), clearly there must be an advantage. Will the minister reply to that? He is arguing that if you look at these words they should prevent there being an advantage to new members compared with the old members. I am seeking from the minister whether or not his advice is that that is, indeed, the case?

The Hon. P. HOLLOWAY: My advice is that it is to stop people being made worse off. Under the Superannuation Act—and we are talking here about defined benefit schemes—if someone previously had a higher salary, if they were not to keep the benefit of what they had accrued on their previous higher salary, they would be worse off. When they come to the new employer they will be accruing benefits only on their new lower salary, so it was to address that issue. The point is that they would not have been in the more advantaged position.

The Hon. R.I. LUCAS: I thank the minister and his adviser for that response. I take it from what the minister has said that, in relation to this act and this particular scheme, there is not an intention under these arrangements to alter the definition of salary. That is now on the public record, and I will relay that information to this particular interested party.

This person has raised the general issue of whether all arrangements involving changes to the rules of the superannuation scheme should be published in the annual report of the relevant board and for government schemes in the Government Gazette. He is arguing that that should be the case with the Triple S scheme. Will the minister indicate the government's position on that matter as a possible future change? I do not intend to seek to delay passage of this legislation in order to try to achieve that, but I am wondering whether the minister through his adviser could give a response. Is there a government position on that? Is it prepared to consider that in relation to future amendments to the legislation which, inevitably, will come before this place?

The Hon. P. HOLLOWAY: There is not a government position on that, but we are happy to consider the matter that was raised before it comes forward again. When it does arise we will have a considered response one way or the other.

The Hon. M. PARNELL: My second reading contribution focused, not surprisingly, on the question of ethical superannuation options. I posed a question in my second reading contribution, but perhaps it was not worded as clearly as it could have been that I was interested in an answer from the minister. I will take the opportunity to ask the question again. I pointed out that the Triple S managers had written to people who they knew were interested in ethical superannuation options. I posed the question: who else have they contacted?

In the absence of a full-blown campaign to make people aware of this new option, schemes such as this could fail. My question is: how has the new ethical option been promoted? What efforts have been made by the fund managers to promote its existence?

The Hon. P. HOLLOWAY: I thank the Hon. Mr Parnell for his question, and I am sorry I did not address that earlier. My advice is there is a notice on the Super SA website in relation to that. I am also informed that that information is to be distributed to all members in forthcoming newsletters, so that will be the other method that will be used to advise members of those provisions.

I can give the honourable member some advice in relation to the socially responsible investment option. The option was introduced on 1 March. As at 31 May 2009, 57 members of Super SA invested their money in the SRI option. Of those, 36 members are in Triple S, seven members are in the state lump sum scheme, and 10 members have a flexible rollover product in terms of section 47B of the Southern State Superannuation Act. The total amount of money involved in the option amounts to $3 million. There are also four members who have an allocated pension or income stream product in terms of section 47B of the Southern State Superannuation Act.

The Hon. M. PARNELL: I thank the minister for his answer. I think it is most important that all members be made aware that this is now an option, and the fact that 57 members have taken it up with minimal promotion I think is a good sign. My next question is: what process did the fund managers go through to choose the ethical option that was eventually settled on, the AMP managed option? What process did they go through? Was there a tender process? Was there an investigation of the products in the market? What process was adopted?

The Hon. P. HOLLOWAY: That is a decision that, obviously, was taken by Funds SA, and it is difficult for us to answer that. If the honourable member wishes, we can perhaps seek a response and provide it to him later.

The Hon. M. PARNELL: I thank the minister for offering to chase that information, which I think is important. As I pointed out in my second reading contribution, as well as the big oil companies represented in this socially responsible investment option we find companies such as James Hardie. I personally struggle to understand how a company with that record, especially with its moving offshore and the controversy over its fund to compensate asbestos victims, would end up in such an option. I would look forward to a response to the question of how that particular fund was chosen. Could the minister extend his inquiries to ask, in particular, about how a fund was chosen that has shares in James Hardie? I would appreciate that as well.

The Hon. P. HOLLOWAY: I think the honourable member just indicated the issues you are always going to get when you establish these types of funds—the definition of what is socially responsible and what is not. I know we have had that discussion at great length during previous debates, and I think the difficulties are highlighted by that. If there is any further information we can get in relation to that, I will provide it. I imagine the number of products available is not necessarily very large, so one has to take options from what one gets. If there is any more information we can provide on that, we will do so.

Clause passed.

Clauses 2 to 23 passed.

New clause 23A.

The Hon. DAVID WINDERLICH: I move:

Page 16, after line 16—After clause 23 insert:

23A—Participation in other schemes

(1) The regulations must make provision for members, or members of a particular class, to elect to enter into alternative superannuation arrangements with a complying superannuation fund.

(2) Regulations made for the purposes of this section—

(a) must make provision for the payment of contributions to be made by an employer of a relevant person to the person's specified fund in accordance with the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth in order to avoid having an individual superannuation guarantee shortfall in respect of the person within the meaning of that Act; and

(b) may do one or more of the following:

(i) prescribe procedures for making elections;

(ii) provide for the cessation of a relevant person's membership of the scheme;

(iii) make provision in relation to a relevant person's liability to make payments, or eligibility to make contributions, under this Act (including by providing for the cessation of the liability or eligibility);

(iv) make provision in relation to a relevant person's eligibility for invalidity or death insurance or income protection provided through the scheme;

(v) provide for the carrying over of amounts standing to the credit of accounts maintained by the Board in the name of a relevant person to his or her specified fund and for the closure of those accounts;

(vi) provide that an election is irrevocable;

(vii) make provision for a relevant person to vary an election;

(viii) prescribe terms and conditions, and make provision for related or ancillary matters, connected with the entry by a relevant person into alternative superannuation arrangements with a complying superannuation fund.

(3) A regulation under this section will have effect in accordance with its terms despite any other provision of this Act.

(4) In this section—

complying superannuation fund has the meaning given by section 45 of the SIS Act, but does not include a self managed superannuation fund;

relevant person means a person who has made an election to enter into alternative superannuation arrangements with a complying superannuation fund;

self managed superannuation fund has the same meaning as in the SIS Act;

SIS Act means the Superannuation Industry (Supervision) Act 1993 of the Commonwealth;

specified fund of a relevant person means the complying superannuation fund with which the person has elected to enter into alternative superannuation arrangements.

This amendment has three key parts. The only significant one is the first part, which is that the regulations must make provision for members, or members of a particular class, to elect to enter into alternative superannuation arrangements with a complying superannuation fund. The rest is really consequential on all that, and the argument is very simple: it is an argument for choice (which is generally supported by the government and the opposition). Giving members the ability to choose their superannuation fund would achieve some of the objectives that the Hon. Mark Parnell is seeking in his dogged attempts to introduce an ethical investment option into public servants' superannuation. If members are allowed to choose other superannuation funds—if they decided they saw one with a better spread of ethical offerings—they could leave this one. The Triple S would then start to wonder why it was losing members and might do a bit of a survey and find out they wanted a better ethical offering. So you can get a better social or environmental outcome out of offering competition in this context.

The other one relates to giving members the opportunity to build a better nest egg and earn a better return elsewhere, and here it is worth contrasting the performance of Triple S with some other superannuation funds. I have been to the SuperRatings website and it states:

SuperRatings look at every part of a super fund's business as part of our research to decide which funds will receive our silver, gold and platinum ratings awards.

By comparing fund with fund, we are able to see the funds that perform best in the key areas of investment returns.

Here are the Top 10 returns for popular balanced funds (in this case, funds with between 60 per cent and 76 per cent invested in growth-style assets) over 3 years.

There is a little bit more text, which is not very important. However, the important thing is that it goes through the top 10. We get MTAA Super—Growth, Military Super—Balanced, Buss(Q)—Balanced Growth, Statewide—Aussie Choice, LGsuper Accum—Balanced, Club Plus Super—Balanced Option, MTAA Super—Balanced, HOSTPLUS—Balanced, Catholic Super—Balanced, Vision SS—Balanced. Triple S is not in the top 10.

If we look a little more closely and compare a couple of investment options, in 2007-08 Triple S high growth returns declined by 13 per cent and in balanced by 9.26 per cent. It has not been a great year, necessarily, but if you look at REST, the matching figures are minus 8.15 and minus 2.93, so that is significantly better on one count.

If we look at Australian Super, we get minus 5.78 for balanced and minus 8.36 for high growth—again, below Triple S. If we look at MTAA we get minus 2.3 for balanced and plus 2.97 for growth. So, it is clear that there are opportunities for better returns elsewhere. I believe public servants should have the opportunity to make a choice, whether on ethical grounds, because they want their investment to go into socially or environmentally better outcomes, or whether it is simply to maximise their returns.

Interestingly enough, we have had a little petition circulating around the Legislative Council in respect of Carlson Wagonlit Travel, and there are a lot of signatures on it. The argument seems to be that members want a choice because they think they will get a better outcome if they exercise that choice rather than have their travel arrangements decided on a monopoly basis. We should consider giving that same choice, which we value when confronted with a monopoly, to public servants so they can make a choice to take their super elsewhere.

The Hon. P. HOLLOWAY: First, I indicate that the government opposes the amendment. In relation to the returns one gets on a superannuation fund, in the current financial environment I am not sure that looking at one 12-month period necessarily gives one an accurate picture of returns over a longer period. I am well aware that in the past some of the better performing funds in one particular year may be much more ordinary if you look at them over a longer period. One could debate the merits of that for a long time.

The main reason the government is opposed to this amendment is that it would result in a one-way street choice arrangement. In other words, government employees and existing members would be able to move to other schemes, resulting in a loss of membership by Triple S, but Triple S would not be able to compete for membership from non-government employees. The government is not prepared to allow Triple S to compete for members from the general public and non-public sector employees. The government does not believe it should be in the business of running a public offer superannuation scheme. It is one thing to have a scheme for the employees of government but another to run it as an organisation with public offer superannuation schemes: we do not believe that that is an appropriate role of government.

To prevent the possibility of Triple S losing a sizable portion of its membership, and not having the ability to counter the loss by recruiting members from the general public, the government believes that the most appropriate position is that government employees not have access to a fund choice arrangement. If Triple S were to lose a sizable portion of its membership, it would place pressures on its low cost of administration to the disadvantage of those members who elect to stay in Triple S.

One of the other problems associated with a fund choice arrangement being made available for government employees is that it would place significant administrative pressures and create administrative efficiencies from Shared Services having to deal with potentially 20 or 30 different superannuation schemes compared with generally one at the moment. One is producing inefficiencies. For that reason the government believes the amendments should be opposed.

The thought occurred to me, when the honourable member was comparing specific funds, that obviously in any given year one will get a better return from one particular type of superannuation fund, even offered by the same body, than one might get in other years. In the current climate, when you have had a significant drop in the equities market, funds dealing in equities clearly will have a different performance than those that have a higher proportion of cash or property, or whatever the case may be. Again, I would have thought that any member of those funds would need to make their decision over a much longer period of time than just on 12-month figures.

The government does not believe its fundamental business should be running public offer schemes, so we oppose the amendment. If we were not to do that, this amendment if carried would result in a loss of membership to the detriment of all other members of the scheme.

The Hon. D.W. RIDGWAY: The opposition has thought long and hard about the Hon. Mr Winderlich's amendment and understands its intent. Our spokesman, Stephen Griffiths, spoke to Mr Deane Prior about this amendment and Mr Griffiths indicated that, given the potential costs, we would not be able to support it at this stage.

The Hon. M. PARNELL: Of the two arguments the Hon. David Winderlich advanced for this amendment I agree with the minister's response in relation to the rate of return. I do not see that that is necessarily relevant, but the question of choice is fairly fundamental. The reason I have pushed for so long for an ethical superannuation offer option for public servants is that they do not have the ability to go outside and get their superannuation somewhere else. Now that we have what we call a socially responsible investment option, the scheme has come part way to meeting the concerns I have had and that many people who have contacted me have had, which was the reason I asked those questions in clause 1.

I need to understand exactly how ethical this option really is and the process Funds SA went through in selecting this ethical option, because it seems that if it is a substandard option then people will still want the option to go outside the Triple S scheme and choose a genuinely ethical superannuation option out in the private sector. However, it is a difficult matter. The minister has pointed out that it would be a one-way scheme that invites public servants to leave but invites no-one else to come back in, and I concede that there is a difficulty with that.

I come from a fairly old school group of people who, when there was choice in the marketplace, would bank with a state bank and insure with a state insurer; I would go for the public option. Although I am generally supportive of the honourable member's desire to offer choice, one concern I have with his position is that the profit motive of the private sector, with the advertising campaigns it would run, could encourage many people out of what is, in fact, a better scheme to one that has higher overheads and administrative costs. I also accept the argument that the cost of administering the scheme would proportionately fall more heavily on a smaller number of members if people did abandon the scheme.

From members' contributions to date it is clear that the amendments will not succeed, but I would like to congratulate the honourable member for bringing it to our attention because I think our public servants are entitled to choice, and I hope that through the Triple S scheme they will be offered more choice than the ethical option currently available. I have by no means abandoned my campaign for genuine ethical investment, and I have congratulated the fund managers to a certain extent for having got us to this stage, where there is at least an option. I do not believe it is the best option, but I look forward to better ones being offered by Triple S in the future.

The Hon. R.I. LUCAS: Before I address the specific amendment, I would like to ask the minister whether members of parliament have an ethical investment option under their scheme. I would certainly be very keen for the Hon. Mr. Parnell to have the option of putting all his money into one of those choices. Do the current arrangements for the parliamentary superannuation scheme allow for a member to take up such an option?

The Hon. P. HOLLOWAY: My advice is that the PSS 3 does have an option.

The Hon. R.I. LUCAS: Excellent; in the near future I will ask the Hon. Mr. Parnell whether he has transferred all his money into an ethical option.

The Hon. P. Holloway interjecting:

The Hon. R.I. LUCAS: That is right, but we can certainly ask the Hon. Mr Parnell whether he has transferred all his money into an ethical option, given his undying commitment to the cause. In relation to this amendment, the Hon. Mr Ridgway and Mr Griffiths, in another place, have outlined the opposition's position, but I would like to make a few brief comments.

I thought it ironic that the Hon. Mr Winderlich moved an amendment to bring the chill winds of private sector competition to the government superannuation scheme. He is championing the cause of an almost de facto privatisation option, where public servants can flee the state scheme to private sector schemes. Speaking personally, I have some sympathy for the position put by the Hon. Mr Winderlich, but the advice given by Mr Prior to the government, the opposition and others is cautionary. If people are allowed to flee the scheme, I believe the issue will be whether people will also be allowed to come into the scheme.

In the original debate, when the Hon. Mr. Parnell first raised the issue of socially responsible investment, I said that whilst the opposition did not support it at that time I suspected it was an inevitable evolution, that eventually that option would occur, and it has occurred sooner rather than later. I suspect we will see an inevitable evolution in fund choice in relation to these issues, but it probably will not be in exactly the form moved by the Hon. Mr. Winderlich today. There may well be some to-ing and fro-ing, and the option of moving in and out of the scheme. Hopefully, if it is a good scheme, if you lose members you can also attract other members because of the schemes' lower costs and better-run nature, and because of the good performance of the state run scheme—if that is, indeed, the case.

The Hon. Mr. Parnell spoke passionately about his support of state banks and state insurance companies, and I interjected most inappropriately, 'Look what happened to those, even with the Hon. Mr Parnell's support.' I think that is the issue, and I believe the Hon. Mr Winderlich is raising it—that is, whilst he has not used the words, state-run financial organisations have not had a very good history. Through his amendment the Hon. Mr Winderlich is canvassing the fact that if someone wants to flee the state-run schemes they should be given that option, if they see better schemes out in the real world in the private sector. Why should they not have that particular option? It is their money and their retirement, and they should be given the private sector option, which the Hon. Mr Winderlich is championing.

In a few years down the track when this inevitably happens, the Hon. Mr Winderlich—whether or not he is still here—will be seen as the champion of this particular amendment, having moved it first in this chamber. Although it appears that it will be unsuccessful on this occasion, as I said, speaking personally, I suspect that some version of this will inevitably enter the arrangements for public sector superannuation.

New clause negatived.

Remaining clauses (24 to 30), schedule and title passed.

Bill reported without amendment.

Third Reading

Bill read a third time and passed.