ELECTRICITY INDUSTRY SUPERANNUATION SCHEME

Adjourned debate on motion of Hon. R.I. Lucas:

That this council:

1. notes general community concern regarding the Electricity Industry Superannuation Scheme (EISS) and the set of documents providing the basis of that concern provided to Members of Parliament by the organisation S.A. Superannuants and Mr Richard Vear, a pensioner of EISS;

2. refers the following matters to the Ombudsman, pursuant to Section 14 of the Ombudsman Act 1972 for investigation and report:

(a) determine whether or not the method used to calculate 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

(b) if it is a method designed to reduce employer costs, determine:

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

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

(iii) whether or not it is a method that complies with the Electricity Corporations Act 1994 (as modified by the Electricity Corporation (Restructuring and Disposal) Act 1999) and the Heads of Government Agreement on Superannuation;

(c) if the method does not comply with the Electricity Corporations Act 1994 (as modified by the Electricity Corporation (Restructuring and Disposal) Act 1999) recommend a method for calculating taxed-source pensions that does comply with that Act and with the Heads of Government Agreement on Superannuation;

(d) review the Mercer Strategy reports (Review of Taxation Status of the SA Government Superannuation Funds) of 1998 and 2004, commissioned by the Department of Treasury and Finance and determine whether or not these strategy reports underpin the method of reducing EISS pension benefits to its members, as it has been applied since July 2002:

(i) in this matter include a review of the decision to provide the Crown Solicitor with a copy of the 2002 Mercer Explanatory Memorandum on EISS rule changes, but not copies of the 1998 and 2004 Mercer Reports on Taxation Status of SA Government Superannuation Funds. This advice was sought on the legality of the EISS pension reduction method, due to a request from the EISS Trustees, to the Treasurer Hon K. Foley.

(ii) in this matter, review also the advice given to the Minister for Finance that the 1998 and 2004 Mercer reports were only relevant to the State Pension Scheme and its possible transfer to the taxed superannuation environment but not to the transfer of the EISS pensions, from the untaxed arrangements that applied to the ETSA Superannuation Schemes, prior to privatisation.

(e) review the EISS submission, dated 4th August 2006, made as part of the 2006 public consultation process conducted by the Federal Government on its 'Plan to simplify and streamline superannuation' to determine if:

(i) this submission shows that the EISS Trustee was aware, or should have been aware, that its pension reduction method had been designed to reduce employer costs for taxed-source pensions below that for untaxed-source pensions and deliver an advantage to employers.

(ii) the EISS Trustees' changes to its 'Taxation Rules' 29 to 31 that became effective in July 2007 were made to ensure that employers continued to receive an advantage at the expense of EISS pension division members.

(f) review the appropriateness of allowing the organisation, Mercer, to continue for so long as the sole provider of actuarial advice to EISS and the Department of Treasury and Finance on the matter of transferring untaxed funds into the taxed superannuation environment, when Mercer had compared the rights of fund members and employers in such a transfer by saying, on page 63 of its 1998 report:

'The Government may need to cope with 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'; and

(g) any other relevant matter.

(Continued from 5 September 2012.)

The Hon. D.W. RIDGWAY (Leader of the Opposition) (17:18): I move:

Paragraph 1—Leave out the words 'notes general community concern' and insert the words 'notes the concerns of pension scheme members'.

Paragraph 2(b)(ii)—Leave out the word 'honestly' and insert the word 'appropriately'.

The Liberal Party has consulted with stakeholders who are affected by this particular motion and would like to have the wording slightly changed.

The Hon. G.A. KANDELAARS (17:19): I rise to indicate that the government will be supporting the amended motion. Members are aware that this amended motion relates to long-held concerns of SA Superannuants and EISS pensioners with regard to the calculations used to reduce gross benefits of EISS members, following the scheme's loss of constitutional protection at the time of the ETSA sale and its subsequent move into a taxed environment. On moving into the taxed environment, all employer-funded assets were immediately taxed at 15 per cent, and all future investment earnings accrued in the scheme were also subject to a 15 per cent tax.

This issue is being driven by the SA Superannuants and a small number of EISS pensioners. These groups had a long-held view that the benefits reduction formula was incorrect, thereby reducing the superannuation costs of employers at the expense of EISS pensioners and contravening the intent of its provision in the Electricity Corporations Act 1994, which was to go no further than to avoid an increase in the employer's costs. SA Superannuants has been calling for a review of the formula for some time, and the motion by the Hon. Mr Lucas sets out proposed terms of reference for the review.

As the issues surrounding the formula are very complex, the government has agreed to an independent review of the formula by an actuary with technical expertise in superannuation matters, but the SA Superannuants are not satisfied with this and believe that it is more appropriate for the Ombudsman to conduct the review. In order to put the superannuants concerns and this saga to rest once and for all, and to remove any doubt about the independence of the review, the government agrees to the proposal to appoint the Ombudsman.

As I have said, while the government supports the amended motion to expedite the review and to put this saga to rest once and for all, an aspect of this motion the government rejects most strongly is the suggestion that, for some reason, the benefit reduction formula was incorrect and that it was somehow designed that way to reduce employer superannuation costs and there was inappropriateness in this matter by either the EISS board, the EISS trustee, the Department of Treasury and Finance, the former treasurer the Hon. Kevin Foley, or the Mercer organisation. Pitching the terms of reference for an independent review along these lines is far from necessary.

Further, the proposed terms of reference make reference to what information was given to the Crown Solicitor's Office when the former treasurer sought advice on the legality of the EISS pension reduction. Of course, it will be up to the Ombudsman to determine whether this needs to be part of the review.

As the government agrees to this independent review by the Ombudsman, it should be pointed out that the criticism and complaints of the SA Superannuants have been previously thoroughly investigated by the Crown Solicitor and a QC engaged by the EISS board, who have advised that the reduction to the gross pensions were determined and applied strictly in accordance with the requirements of the Electricity Corporations (Restructuring and Disposal) Act 1999.

Finally, there is one more issue I would like to address. The Hon. Mr Lucas makes reference to correspondence received by members that makes specific criticism of a senior government officer who provided superannuation advice to the government over a long period of time until his recent retirement. I concur with the Hon. Rob Lucas that this government holds that particular individual in very high regard, and any criticism of his advice and esteemed service to the government over many years is unwarranted

The Hon. M. PARNELL (17:24): It seems that this referral to the Ombudsman is going to go through, with the support of both of the major parties. So, I want to put on the record that the Greens also support this referral going through. I acknowledge that we have received considerable correspondence from SA Superannuants. Much of the correspondence is highly technical and it does deserve a thorough investigation, and the Ombudsman is an appropriate office to conduct that investigation.

I am pleased that, on behalf of the members of SA Superannuants, there is going to be a thorough review of this particular electricity industry superannuation scheme. I look forward to seeing the results of the Ombudsman's inquiry, but, for now, the Greens are pleased to be supporting the motion.

The Hon. R.I. LUCAS (17:24): I thank honourable members for their indication of support for the motion. In concluding, I congratulate the members of SA Superannuants for the assiduous way in which they have pursued this issue over a long period of time. It is a good indication of democracy at work. They have worked hard over a long period of time and, hopefully, after an appropriate period of time for the Ombudsman, there will be a satisfactory resolution to this issue, and the SA Superannuants have indicated their willingness to accept the decision of the Ombudsman, whatever that might be.

In concluding, having congratulated SA Superannuants for their persistence and assiduousness in pursuing this issue, can I also congratulate my colleague, the member for Davenport in another place, who has carriage for this issue within the Liberal Party. He has met with stakeholders and he has negotiated with the government, and it is as a result of his hard work that there is, I would imagine, unanimous support for this resolution and hopefully a satisfactory resolution for what has been a longstanding and complicated issue.

Amendments carried; motion as amended carried.