Second Reading Speech
McGauran, Peter, MP (Gippsland, Minister for Science, NATS, Government)
I move:
That this bill be now read a second time.
Today, on behalf of the Parliamentary Secretary to the Treasurer, I introduce a bill to modernise and strengthen the prudential regulation of superannuation in Australia.
For many Australians, superannuation savings are their second biggest asset after the family home. Investing in superannuation will help to reduce Australians' reliance on the age pension and significantly improve their quality of life in retirement. It is important, therefore, that the prudential framework for superannuation is robust.
The reforms to be introduced by this bill are designed to build on the strong performance of the superannuation system by further enhancing the safety of superannuation for fund members. They will help to increase already high levels of public confidence in the superannuation system, and make private savings for retirement more attractive to all Australians.
These reforms give effect to the government's response to the recommendations of the superannuation working group, announced on 28 October 2002. They build on proposals that were initially canvassed in the government's issues paper of 2 October 2001, titled Options for improving the safety of superannuation.
The superannuation working group found that the current prudential regime remains sound.
However, the superannuation working group also found there was scope for changes in certain areas to modernise and strengthen the regime-and to better equip the Australian Prudential Regulation Authority (APRA) to undertake preventive action, rather than enforcement action after a breach has occurred.
This bill contains several elements. It provides for the licensing of trustees of superannuation entities regulated by APRA and the registration of those entities. It puts in place improved disclosure requirements, including the introduction of new provisions requiring actuaries and auditors to report information to APRA in certain circumstances. It also contains appropriate enforcement powers to underpin the new framework.
The bill will be supported by regulations, including new operating standards. The operating standards will include standards on the fitness and propriety of superannuation trustees and risk management plans and strategies. The government will consult on the operating standards in the next few weeks.
There will be a two-year licensing transition period from the date of commencement for existing trustees of regulated superannuation funds, approved deposit funds and pooled superannuation trusts. The reforms concerning licensing and registration do not apply to self-managed superannuation funds and exempt public sector superannuation schemes.
These reforms have been subject to extensive consultation and public scrutiny, both through the superannuation working group and public exposure of a draft bill earlier this year. There is support within the industry for the reforms. The government believes they will make a significant contribution to raising industry standards and sustaining high levels of public confidence in the superannuation system.
Trustee Licensing
While trustees of public offer funds currently must be approved by APRA, there is no universal licensing requirement for superannuation trustees.
This bill addresses this situation by providing for the licensing of all trustees of `registrable superannuation entities', which include superannuation funds, approved deposit funds and pooled superannuation trusts that are regulated by APRA.
From the commencement of the new licensing regime, all new trustees seeking to operate registrable superannuation entities will require licences in order to operate a registrable superannuation entity. Existing trustees must obtain licences by the end of the two-year licensing transition period in order to be allowed to continue operating their entities.
The new trustee licences, to be known as RSE licences, will be subject to conditions, including requirements for trustees to meet minimum standards of fitness and propriety. Licensees will be required to maintain risk management strategies covering the licensee's operations and risk management plans for each fund under the licensee's control.
Importantly, APRA will be able to impose additional conditions on licences or issue directions to licensees. These powers will enable APRA to respond to specific prudential issues before they can become actual risks to members' benefits.
Under the bill, groups of individual trustees will be allowed to collectively hold a single RSE licence, in the same way as directors of a body corporate.
A single licence will help to reduce the compliance burden on groups of individual trustees. In most cases, any member of a licensed group will be able to discharge the duties or obligations of the group on behalf of the other members.
At the same time, the bill ensures that each member of a trustee group takes responsibility for the performance of their obligations as a trustee of a superannuation fund or as a member of a group of licensed trustees.
The RSE licensing regime is supported by the introduction of new offence provisions. The most significant provision will make it an offence for a person to be the trustee of a registrable superannuation entity unless the person is a body corporate or a member of a group that holds an RSE licence. This will apply to new trustees from the date of commencement and to existing trustees from the end of the licensing transition period.
At the end of the two-year licensing transition period, the arrangements for approving trustees of public offer superannuation funds and approved deposit funds contained in part 2 of the Superannuation Industry (Supervision) Act 1993 will be repealed. These arrangements will be superseded by the RSE licensing regime at that time.
The new licensing regime will mean that trustees must demonstrate they meet minimum standards of competence, possess adequate resourcing and have in place appropriate risk management procedures. With the introduction of this new framework, fund members can have the confidence that the people managing their retirement savings will have met these benchmarks.
Registering Entities
Under the bill, RSE licensees must also register their registrable superannuation entities with APRA. Registration, along with the associated requirements for risk management plans, will ensure APRA can gain important information about the entities it regulates, the risks they face, and the processes in place to deal with those risks.
Failure to register registrable superannuation entities may lead to the cancellation of a licensee's RSE licence. The government also intends to make regulations prohibiting registrable superannuation entities that are not registered from accepting contributions.
Risk management
As part of the licensing and registration requirements, RSE licensees will be required to develop and maintain risk management strategies governing the licensee's operations and risk management plans for each fund under the licensee's control. Risk management strategies and plans will help to ensure that trustees, and the entities that they manage, are well positioned to respond to risks to their operations.
These are significant new requirements. However, trustees operating under industry best practice are likely to already be undertaking many, if not all, of the risk management practices being formalised by the bill.
Disclosure obligations to members are also being enhanced. Under the bill, members will be able to request a copy of their fund's risk management plan. This will ensure members have access to detailed information about how the entity in which their retirement savings are held is being managed. Access to such information about their assets is important if fund members are to confidently and effectively manage their retirement savings.
Amalgamation of Funds
It may be that, for a number of reasons, some existing trustees of registrable superannuation entities will decide not to make an application for an RSE licence. Also, some trustees who do apply may not meet the requirements for an RSE licence. These trustees will not be allowed to continue to operate as trustees of registrable superannuation entities after the end of the two-year transition period.
The bill provides certainty for members of funds in these situations by providing for the amalgamation of funds if certain requirements are met.
Consequently, APRA will be given powers to approve the amalgamation of funds if all reasonable attempts to bring about the transfer under other provisions contained in the SIS Act-such as the successor fund arrangements-have failed. The minister must also agree to any amalgamation under the new provisions before it can occur.
Actuaries and Auditors
As part of the enhanced disclosure arrangements to be introduced by the bill, there will also be expanded reporting requirements for actuaries and auditors.
In particular, actuaries and auditors will be required to report to APRA as well as to the trustee of a superannuation entity where they form the opinion that it is likely that a contravention of the SIS Act or regulations has occurred in relation to that entity.
In addition, the scope of reporting by actuaries and auditors will be expanded so that it includes the activities of RSE licensees, as well as the operation of superannuation entities.
These important changes build on existing legislative requirements to strengthen the role actuaries and auditors play in ensuring best practice management of superannuation entities by trustees.
Commencement
It is the government's intention that the arrangements contained in this bill will commence from 1 July 2004.
On commencement, new trustees will be required to meet the new RSE licensing requirements before they will be able to operate registrable superannuation entities. Existing trustees will have up to two years from the date of commencement to transition to the new arrangements.
These time frames will ensure that there is no overlap with the transition period for the Australian financial services licence regime established under the Financial Services Reform Act 2001. They will also ensure that industry has sufficient time to prepare for these important improvements to the prudential regulation of superannuation.
Conclusion
The existing prudential regime for superannuation has served Australians well for a decade. The new framework to be introduced by this bill will build on that success. It will do that by helping to ensure that trustees of superannuation funds maintain best practice in the management of the superannuation assets of their fund members.
The reforms will help to give the public greater confidence in the superannuation system. They will do this by requiring trustees to have appropriate skills for managing superannuation entities, risk management procedures in place, and by requiring the disclosure of information to members about the operation of their fund. Overall, the bill establishes a framework that will help to ensure superannuation funds are managed in members' best interests.
I commend the bill to the House and present the explanatory memorandum.
Debate (on motion by Mr Cox) adjourned.