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Government goes fishin’
When the Federal Government announced in early July that there would be yet another Parliamentary inquiry into superannuation, it generated some considerable, if private, unease among the executives running Australia’s industry superannuation funds.
To understand the unease felt by those working in the industry funds sector there are two things you need to be aware of — the broad scope of the terms of reference and the fact that the Government’s majority in the Senate means it can now more strongly influence the tenor of inquiry outcomes.
There is, too, a third factor to be aware of — the man the Government has appointed to head up the committee is South Australian Liberal Senator Grant Chapman — a politician with ‘form’ when it comes to being critical of industry superannuation funds and, more particularly, Industry Fund Services (IFS).
How broad are the terms of reference for the Parliamentary inquiry? Very broad.
According to the relevant Parliamentary documentation, the committee will inquire into the structure and operation of the Superannuation Industry (Supervision) Act 1993 and the superannuation industry to ensure that it provides an efficient, effective and safe regulatory structure for the management of superannuation funds, with particular reference to:
1. Whether uniform capital requirements should apply to trustees.
2. Whether all trustees should be required to be public companies.
3. The relevance of Australian Prudential Regulation Authority standards.
4. The role of advice in superannuation.
5. The meaning of member investment choice.
6. The responsibility of the trustee in a member investment choice situation.
7. The reasons for the growth in self-managed superannuation funds.
8. The demise of defined benefit funds and the use of accumulation funds as the industry standard fund.
9. Cost of compliance.
10. The appropriateness of the funding arrangements for prudential regulation.
11. Whether promotional advertising should be a cost to a fund and, therefore, its members.
12. The meaning of the concepts ‘not for profit’ and ‘all profits go to members’.
13. Benchmarking Australia against international practice and experience.
14. Level of compensation in the event of theft, fraud and employer insolvency.
15. Any other relevant matters.
At first glance, these terms of reference might seem broad-ranging but nonetheless relatively benign. However, if you understand the differences in structure between most retail master trusts and industry superannuation funds, then you will see that a number of hooks have been baited and that any industry fund choosing to make a submission to the inquiry will need to frame their response extremely carefully.
The baited hooks within the terms of reference can be found in terms one, two, four, six, 11, 12 and 15.
Terms of reference numbers one and two, for instance, go to the very heart of the not for profit nature of industry funds, while numbers four and six go to the manner in which industry funds have traditionally chosen to operate.
But what is clearly most irksome to all the parties in the superannuation industry is the fact that the inquiry clearly intends dealing with issues already covered by previous Parliamentary inquiries — something noted by the chief executive of the Association of Superannuation Funds of Australia (ASFA) Philippa Smith.
Smith told Super Review she found the calling of the inquiry puzzling in circumstances where most of the issues had already been extensively reviewed by other inquiries.
“The terms of reference for the inquiry seem somewhat odd when most of the issues have been dealt with elsewhere,” she said. “It represents a distraction when you consider that most funds are trying to bed down the changes announced in the Budget.”
Notwithstanding the distracting nature of the inquiry, Smith said ASFA would be filing a submission.
Whether a great number of industry superannuation funds choose to file submissions with the inquiry seems open to debate in circumstances where a number of fund executives have privately expressed concern at the Government’s intentions.
Of particular concern to these executives was the appointment of Senator Chapman to chair the Parliamentary committee in circumstances where he had used Parliamentary privilege to launch an attack on IFS and, in particular, its executive chair Garry Weaven.
Chapman used the last day before Parliament rose for its winter recess in 2004 to have a copy of a speech incorporated into Hansard accusing IFS of lacking transparency with respect to fees and questioning the level of income derived by the IFS Staff Equity Trust.
They were accusations strongly denied by Weaven, who challenged the Senator to make them outside the house.
Little wonder, then, that industry fund executives have taken one look at the chairman of the committee and the terms of reference of the inquiry and expressed concern that a particular agenda is being pursued.
AUTHOR
Mike Taylor
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