LOCAL GOVERNMENT (SUPERANNUATION SCHEME) (MERGER) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 3 May 2012.)

The Hon. R.I. LUCAS (15:32): I rise to speak to the second reading of the Local Government (Superannuation Scheme) (Merger) Amendment Bill. There was a relatively brief debate on this in the House of Assembly and that is essentially because, on the evidence available to the opposition at this stage, there has been no individual, group of individuals or stakeholder who has provided any evidence as to why the legislation should not be supported.

Put simply, the bill seeks to provide the framework for which a local government superannuation scheme and an industry super scheme can be merged, and that industry scheme is Statewide Super. As we understand it, that would lead to (in approximate terms) a virtual doubling of the size of the funds under management for the merged superannuation scheme. Local super would appear to have about $1.6 billion to $1.7 billion of funds under management. We understand that a merged entity may well have over $4 billion in funds under management and 160,000 members.

One of a number of questions I put to the government that we can further explore, if necessary, during the committee stages, is if the government can provide either confirmation of that information or, if that is not correct, provide for the chamber what the parameters of a merged scheme would be, in terms of funds under management and the total number of members that would be included in the merged scheme.

The claim is made by those supporting the merged scheme that, in essence, it is a response to federal government initiatives, and the Cooper review and others have led to settings in terms of superannuation management where the view is that bigger and merged superannuation schemes and funds are the way to go in terms of providing greater security and, obviously, hopefully, better returns for members of those schemes.

Certainly the government and the proponents of this, as I understand it, are claiming what they believe to be significantly increased investment capabilities and a reduction in investment management costs, resulting in higher investment returns for members. For the benefit of members—and there was a relatively limited debate in the House of Assembly—I seek from the government and those who propose this scheme an indication of the relative industry performance, both Local Super and Statewide Super, that is, in terms of its investment performance certainly the government and I know its advisers are well versed in providing information in relation to the government superannuation scheme in terms of its investment performance.

There are measures available in the superannuation industry which compare the performance of a fund or scheme on a one-year, three-year and five-year basis in terms of their investment performance, and certainly, as one member of the committee, one member of this chamber but speaking on behalf of my party, I am interested in seeing what the performance of Local Super has been on that sort of measure in terms of industry measure, but equally of Statewide Super.

We are being asked as a parliament to endorse this, and I think it is important that we are aware of what has been the relative performance and we are able, as a chamber, to monitor, if this legislation goes through and the merger goes through (and I will address some comments to that in a moment), over a period of time, on behalf of members, the relative performance of the new merged scheme, compared with the performance of, in particular, Local Super.

The member for Goyder, in acknowledging his own personal interest as a member of Local Super, given his previous employment in local government, was quite praising of the investment performance and governance arrangements of Local Super. I hasten to say that there is nothing in his speech where he criticises the investment performance of Statewide Super or what might be the performance of the merged scheme at all. I am the one raising the questions in relation to these particular issues.

I repeat that it is important, as we are asked to tick off on these arrangements, that we are in a position to be able to monitor the performance, and over a period of time members will be able to look back on the performance of the merged scheme (and clearly it will not be called Local Super or Statewide Super but called something else, we would imagine), but we are able to look at its investment performance and compare it with the investment performance of Local Super and Statewide Super before that.

I am also interested in having placed on the public record some measure of the management costs of both Local Super and Statewide Super, because again one of the claims being made in relation to this merger as a benefit is that there will be a reduction in investment management costs, which will result in higher investment returns for members. That is what is being held out as the carrot for members of Local Super in particular, to say 'Hey, you should support this merger.'

I acknowledge that, as I understand it, all individual councils are supporting this change; certainly, the LGA is urging support for the change. However in my view, and with the greatest respect to the LGA and to individual councils, they are not in a position to independently make a judgement on the investment performance of the funds. They would be relying on information provided to them, and the claims being made by those proposing the merger, in relation to the benefits will come from such merger.

It is important that those of us in this parliament who are being asked to tick off on this and approve it are provided with information on investment management costs and administration fees that currently exist within Local Super and StatewideSuper, as well as what the proponents of the scheme see as the annual administrative savings that might be achievable if the scheme were merged. That is the claim, that there will be savings, and we need to be aware of them. Rather than the warm and woolly words of the second reading, that there will be lower costs and that this will lead to higher investment returns, let us put something on the table so that we can actually see what is being claimed and so that over the coming years we can measure performance against those claims.

I think it is important that this parliament does not just sign off on something without being aware of what the claims might be that are being made by the proponents of the merger. As a state parliament, we are charged with the responsibility of protecting the interests of those who currently invest in Local Super; that is a product of the history of the arrangements between local government and state government in this nation and therefore, of course, in South Australia. We are not actively engaged in the administration or performance of the Local Super scheme, we acknowledge that, but we are nevertheless being asked to vote on this merger, and we should do so armed with the detail of the claims of what the benefits will be so that over a period of time we can make some judgements.

If we are not given that information, in three years' time or five years' time those in this chamber who have an interest in representing employees within local government will start asking, 'Why did we ever do this? We think the performance of the old Local Super was actually better than the merged scheme. Are we in a position to make these sorts of judgements?' As members of parliament we should be in position to say, 'Okay; this is the information we were given and on this basis the state parliament in 2012 approved the proposed merger and supported this particular legislation.' I am seeking that sort of information prior to our having the debate in the committee stage of the bill.

I want to refer to a story in the Financial Review as recently as 9 May, just last week. The article is entitled, 'Mistrust undermines super funds merger'. This refers to a proposed $10 billion merger between two industry super funds, which we are told has been three years in the making and which, according to this story, could collapse because of last minute concerns about corporate governance and risk levels. The particular point of interest in this is that this lack of trust is between the directors of Vision Super and Equipsuper, which we are told jointly cater to 150,000 local government and electricity workers in Victoria.

What is occurring in Victoria is a much bigger merger; it is taking it up, evidently, to $10 billion. The one here, we are told, is evidently around about $4 billion. What is being proposed in Victoria is, on this article's reading anyway, a merger between their version of local super and their version of the superannuation arrangements for electricity workers of Victoria, called Equipsuper, and the date proposed for the merger is 1 July. As I have said, there have been three years of negotiations going on.

I note that the Equipsuper Chief Executive, Danielle Press, is quoted as saying that she is confident they will still get there. She said, 'I don't think it is a certainty. There is certainly a chance politics plays a hand.' In that case, Ms Press—again, similar to the proponents of the merger here, but they actually provide some detail—predicted that any delay to the proposed merger would cost fund members between $300,000 and $400,000 a month at least because of higher operational expenses. Clearly, the claim in Victoria is that the merger is going to lead to savings of between $300,000 and $400,000 a month, or somewhere between $3½ million and $5 million a year in lower operational expenses.

Clearly, if that is the case, one would hope that most, if not all, of those savings would flow through in terms of higher investment returns for members of the merged entity. If indeed that is the case, that would be of benefit, all other things being equal—let me put that proviso in there—to members of the merged scheme. In the Victorian case, we are aware of what the claimed savings will be. That is why it is important that we know what the proponents of this merger are claiming will be the potential savings as a result of merging the two schemes.

If the proponents come back and say, 'We don't know what the savings will be,' that would undermine completely their claimed benefits from this scheme. So, I cannot imagine they would be foolish enough to come and say, 'We've got no idea.' But if they were to come back and say that the savings would be only $20,000 or $50,000 a month or something, clearly, in the scheme of things, they are not anywhere near as significant as the sort of savings that are being mooted in the merger of the local super scheme in Victoria. The article in the Financial Review talking about the potential stumbling block in relation to the merger there says:

The latest stumbling block highlights the often fraught process of merging industry retirement schemes which lack outspoken shareholders and where it is possible for trustees representing employer groups and unions to vote in a bloc.

I think that is important, because often in these superannuation funds, as this article points out, you do not have outspoken shareholders or advocates. That might be because it is a wonderful thing and everyone is going to benefit and everyone is in agreement. But it is also possible that, as in many cases, there is no-one actively engaged in looking at the detail of the proposal, other than the trustees or the board members and those who are advocating the change, and that any potential dissidents or opponents are not fully armed with the information that would assist them in questioning the proposed merger.

All that you receive are the claims from the board and the trustees which outline the benefits which, on the surface of it, will sound attractive. I hasten to say that it may well be that it is attractive. I am not challenging the fact. I have no detailed information in relation to this, other than discussions with various people and seeing one of the potential problems in an equivalent merger just across the border in Victoria to say, 'Well, at least some of this information should be placed on the record.' This article in the Financial Review goes on to say:

It is the second time the planned tie-up between two of the oldest super funds in Victoria has teetered. The merger nearly fell apart a year ago when three Vision Super trustees refused to sign the first of the official documents after allegations that due process had not been followed. It is understood trustees of Vision Super are now concerned about Equipsuper's $1.8 billion pool of defined benefit schemes. Defined benefit schemes remove investment risk from members by promising to pay a certain level of retirement benefits according to a saver's salary and length of service.

I interpose here a question. I am assuming that in relation to Local Super there will be some elements of defined benefit arrangements for some of the older employees within Local Super. I do not know whether or not that is the case. I ask the government and its advisers to indicate whether or not amongst Local Super members, there are those within defined benefit schemes that might have been closed off.

If that is the case, what are the number of members or employees within Local Super who are covered by defined benefit schemes? As this article says, defined benefit schemes remove investment risk from members by promising to pay a certain level of benefits according to a saver's salary and length of service. The article goes on to say:

Equipsuper operates nearly 50 defined benefit schemes, of which about 40 are guaranteed by private companies rather than the government or public bodies. Although under super legislation, there would be no requirement for Equipsuper, or the enlarged fund, to pay out the benefits for a defined benefit scheme if one of the companies collapsed with unfunded liabilities, Vision Super trustees have raised the potential for brand damage if the fund refused to make up any shortfall.

What is being flagged in Victoria in relation to this merger and one of the concerns—and let's be quite clear here—is that there is no requirement for the merged fund or the enlarged fund to pay out the benefits for a defined benefit scheme if one of the companies collapsed with unfunded liabilities. If that is the case, that is certainly contrary, I would assume, to most members' expectation of being a member of a defined benefit scheme in Victoria. The comfort that they have is that, as a member of a defined benefit scheme, they are going to get their retirement benefits and the investment risk has been removed from them as an employee.

Again, this is the Victorian case, and I am just asking the question in relation to this merger: does that description (clearly by people within the two companies in Victoria who are talking to the Financial Review journalist) apply in relation to this? Are there circumstances where, with the merged fund, there is no requirement to pay out the benefits for defined benefit schemes if one of the companies collapses with unfunded liabilities?

It may well be the case that this is of no relevance to the merger we have before us but, again, because members in this chamber do not have the detail, we need to ask the questions. I note, to be fair to the Chief Executive of Equipsuper, Danielle Press, that she is quoted as saying:

Ms Press dismissed the concern as a 'red herring'. She said there might be a 'small reputational' issue if the enlarged fund refused to make up any shortfall in benefits, but added: 'I would have thought the reputational issue was more at the company level.'

She seems, by way of that quote, to at least indicate that, if there is a circumstance where the merged fund might refuse to make up a shortfall in benefits, she is not denying that that is a potential risk in certain circumstances, but she is arguing as to where the reputational risk might reside. She thinks it would reside more, as she says, at the company level rather than for the merged fund.

Ms Press's comments were backed by a leading industry consultant (unnamed), who pointed out that APRA (Australian Prudential Regulation Authority) monitors defined benefits schemes' funding positions extremely closely. I think, to be fair, that some industry observers would agree with that, but I am sure there would be just as many industry observers who would take a different view in relation to the activity of APRA in relation to that particular issue; but I put that to the side.

There are also some merger-specific issues in relation to potential conflict of interest provisions in relation to both of those schemes and the involvement of an individual. Interestingly, in relation to an investment in Flinders Ports, which is the owner and operator of seven commercial ports in South Australia, on the knowledge that I have, that has nothing to do with the proposed merger in South Australia. I do not propose to place those aspects of the Financial Review article on the public record.

With that, I indicate that, as I said, the Liberal Party's position has been, on the basis of the evidence given to us, that no one as yet has mounted any case or evidence as to why the merger should be opposed. We are supporting the legislation, but what we are saying at this stage is that we are prepared to see the second reading go through—today if need be—but that we are intent on delaying the committee stages until we can receive information from the government, its advisers and in particular, through its advisers, the proponents of this merger.

In relation to Local Super it is clear who the proponents are, but in relation to Statewide Super the proponents, as I understand it, are Business SA and SA Unions, or some equivalent bodies representing unions and business in South Australia. My understanding is that those proponents have put the position to the government and its advisers, and that the government has seen this evidence and on the basis of the evidence is convinced that there will be benefit to members from a merged entity.

We believe this parliament and this chamber should be armed and equipped with that same information in relation to the investment performance in particular of the two funds at the moment and the performance in relation to management costs of both the funds and what the claimed benefits and savings will be from a merged entity which we are assured will flow on to members of any merged fund.

The Hon. A. BRESSINGTON (15:58): I rise to indicate my support for the Local Government (Superannuation Scheme) (Merger) Amendment Bill. Given the brevity of the bill, I shall also be brief. Essentially, the bill proposes to amend subclause (2)(ii) of schedule 1 of the Local Government Superannuation Scheme Amendment Act 2008 to enable Local Super to merge with another superannuation scheme. This follows the Cooper Review encouraging schemes to pursue merger and acquisition opportunities, to impart reduced administrative and other cost burdens duplicated across funds.

As other members have noted, I am pleased that that the bill expressly provides that the rights and benefits of existing members of Local Super must be maintained in any merger that occurs. It is obviously important that members' entitlements are not compromised in the pursuit of reducing costs.

I have met with the Chief Executive of Local Super, Mr Nic Szuster, who provided me with the background to the local government superannuation scheme bill and the intention to merger with StatewideSuper and the benefits this will bring, in particular to the lower-cost structure to the funds' memberships, and, of course, the necessity of this bill, and for this I thank him. Having no concerns raised with me, the bill has my support.

The Hon. R.P. WORTLEY (Minister for Industrial Relations, Minister for State/Local Government Relations) (16:00): This bill has gone through the lower house with the support of all parties. It was done in a bipartisan/all parties' position. A number of questions were asked by Mr Griffiths, the answers to which I have here. In his contribution, Mr Goldsworthy said:

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 period of time. However, as I have stated, the opposition is happy to support the bill.

A number of questions have been asked by the Hon. Mr Lucas. First, he asked about the investment performance. I must say that if the Hon. Mr Lucas was that concerned about the investment performance he only had to go to the website of both supers and I am sure that they would tell him the performance over one, three, maybe even 10 years; so why we have to hold up a bill, which no-one opposes, is just beyond me.

With respect to management costs, it does not take someone to be a Rhodes scholar to know that if you have two schemes merging that there will savings on management costs. The more they have to invest for the investment managers, the cheaper the costs. Synergies realised over a period of time all naturally take a part in reducing the management costs. Both schemes have trustees—they would be employers and unions—and both of them look after the interests of their particular members.

I am sure that, if there were any problems with any of the provisions regarding salary sacrifice, or whatever, those members would have sorted them out before it got to this stage. To have the honourable member opposite read a paper about a merger with respect to Equipsuper in Victoria and then try to relate it to something here, I think, is just a tactic to obstruct to a certain extent this bill going through parliament. What I would seek—

The Hon. J.S.L. Dawkins interjecting:

The Hon. R.P. WORTLEY: Thank you. That was about the most productive contribution you have had in this parliament for quite a while, the Hon. Mr Dawkins.

The PRESIDENT: The honourable minister should stick to the bill.

The Hon. R.P. WORTLEY: I will be seeking to have this bill go into committee. There is a line: it needs to be done by the end of June. I think that it is important that we debate the bill now, taking into consideration that everyone seems to support the bill. There are trustees who look after the interests of their members, and these trustees represent the interests of businesses and unions. Everyone seems to be in favour of this bill. It is a good move forward for the two funds. I think that their expectation would be to pass this bill today.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The CHAIR: The minister indicated he had some answers to questions.

The Hon. R.P. WORTLEY: Yes, Mr Steven Griffiths MP (member for Goyder) asked a couple of questions, and I have the answers here. The first question was: how many members will be on the new amalgamated board of trustees? The answer is: it will comprise 11 trustees. All of the six local super directors will be on the new board. The chair of the new board will be the local super chair, Juliet Brown.

The second question: as a consequence of the proposed merger, is there going to be staff lost from the administration point of view or will staff be fitted into roles within the new group? The answer is that the local super group has advised that there will be no redundancies as a consequence of the new merger. The third question: is there any intention to review the management costs as part of the merger? The response: local super has advised me that the costs of the business are under constant review. The due diligence of the merger identified savings for both funds.

The Hon. R.I. LUCAS: As I had indicated, I am seeking answers to questions. The minister would appear to be indicating that he is refusing to provide those answers, so the opposition would need to pursue that with the chief executive officer and others who have briefed the opposition independently of the minister, if that is going to be the minister's approach to the committee stage. I think that is unfortunate.

The opposition asked some questions in the House of Assembly; two weeks later those answers have just been provided to the house. What the minister is essentially saying is that the members of this chamber cannot ask questions and have answers provided, unlike the House of Assembly. The government has indicated that this was a priority for this week, not for today. Ultimately that is a decision for this chamber. So, on that basis, if the minister is refusing to provide the answers, as one member of this chamber I will need to seek that information from individuals within the scheme and place it on the record during the committee stage of the debate when we debate it later in the week. If the chamber agrees, I move:

That the committee report progress.

The committee divided on the motion:

Majority of 6 for the ayes.

Motion thus carried.

Progress reported; committee to sit again.