State Superannuation Amendment Bill 2011
Hon Ken Travers; Hon Max Trenorden; Hon Alison Xamon; Deputy President; Hon Simon O'Brien
Second Reading
Resumed from 18 August.
HON ALISON XAMON (East Metropolitan) [12.46 pm]: I would like to pick up on a few of the comments made by the previous speakers about the State Superannuation Amendment Bill 2011. I also want to echo the comments of Hon Ken Travers about the quality of the briefings that are coming out of the minister’s office. I concur that they are very good and are very timely, and I want to at least acknowledge that, because I am aware that some of the ministers in the other place perhaps could learn from the way those briefings are being delivered. So I thought I would make that point, because we should probably acknowledge when things are being done well.
Hon Simon O’Brien: In fairness, if I may, and I appreciate your comments, which will be relayed to the officers in question, the minister organising those briefings actually is from another place, in the form of the Treasurer; but I am sure we have polished the tome.
Hon ALISON XAMON: I was not casting aspersions on all ministers in the other place, but certainly there are a couple who would perhaps benefit from that. But I did want to acknowledge that those briefings have been timely, and quite comprehensive as well.
I also want to acknowledge the comments of Hon Max Trenorden and say that I have a lot of sympathy for the sorts of sentiments that are being expressed about what is happening with these funds over the long term and where we have gone with this. Having said that, I am rising today to indicate that the Greens (WA) will support this bill. We have some reservations. As Hon Max Trenorden pointed out, this is ultimately a bill that is about choice. Therefore, although I certainly have some questions and some comments to make, this is a bill that the Greens have decided to support.
In going through the bill, I note that the state government commenced superannuation reform in 2005. A commitment was made at that point to introduce fund choice for public sector employees by the end of 2008. The State Superannuation Act 2000 was amended by the State Superannuation Amendment Act 2007, which came into effect in September 2007. Those amendments provided for GESB to be mutualised prior to the introduction of choice; in fact, it prevented the introduction of choice unless mutualisation took place. However, I note that the process was halted at the eleventh hour, as it became clear that the costs and other difficulties associated with the mutualisation would be greater than anticipated; hence any benefits to members would be questionable. I note also that following almost two years of indecision about how to deal with this issue, in April last year, the minister at the time announced that the government had decided not to proceed with the privatisation of GESB. The minister also revealed that the privatisation would have cost $467 million. That was the earlier estimate.
In 2009, Rod Whithear, a senior federal Treasury official, was commissioned to review the public sector superannuation arrangements for the state government. The recommendations provided in his February 2010 report, “Putting Members First”, form the basis for the policy direction that is now being taken on this issue. Whithear recommended that the government return to the core business of providing access to superannuation schemes and services for its employees and noted that the cancellation of the mutualisation proposal would result in a net saving of $370 million. The State Superannuation Amendment Bill 2011 has been drafted to introduce choice while deleting those provisions associated —
The DEPUTY PRESIDENT (Hon Matt Benson-Lidholm): Order, members! The discussions around the chamber are starting to turn into little spot fires. If members wish to engage in conversation, please do so outside the chamber because I am finding it difficult to hear Hon Alison Xamon. She would understand that sometimes it is difficult anyway, but the conversations have almost made it impossible to hear.
Hon ALISON XAMON: As I was saying, this bill has been drafted to introduce choice while deleting those provisions that were associated with mutualisation. I note that under the legislation GESB will remain a statutory authority.
The objects of the bill are: to reverse the amendments introduced by the State Superannuation Amendment Bill 2007, including the GESB mutualisation provisions; to implement choice of superannuation fund for all WA public sector employees; to more clearly delineate the role of the Treasurer, which is to administer the State Superannuation Act 2000 and the role of GESB to manage the schemes and the fund; to allow for the implementation of the Whithear recommendations as decided by cabinet that are dependent on legislation such as reserving and the investments framework; to place limits and controls on the ability of GESB to employ non- public service officers; and to provide for transition arrangements for GESB employees who will be affected by the public sector superannuation reforms.
I wanted to make some comments about the decision not to mutualise, noting again that this bill reverses the GESB mutualisation provisions introduced by the State Superannuation Amendment Bill 2007. There seem to be compelling reasons not to proceed with the planned mutualisation. Obviously, the cost issues would have been enormous and significantly greater than first anticipated. There are also concerns about the tax implications for West State Super. West State Super is exempt from commonwealth tax. It is the biggest scheme in GESB. Mutualisation would have run the risk of resulting in the loss of tax exemption and there would have been questionable benefits for members. I think there were questions about the sustainability of the fund, particularly if West State Super was hived off during the mutualisation process in order to retain its tax exemption. There were also questions about competitive neutrality, given the amount of government support that would be needed in order to achieve mutualisation. On the whole, the Greens support the decision that was made not to proceed with that.
In relation to the introduction of choice, which is really the key provision in the bill, I note that the ability to choose one’s own superannuation fund is an established practice following a change in commonwealth legislation in 2005. I was one of the first people to take advantage of that very welcome change to have choice. I am quite happy with the super fund that I am with now. I was certainly very unhappy with the one that was imposed on me before. I note that WA pioneered choice in 1997, with the introduction of choice for people who were working under state industrial awards. However, public sector employees were not treated in the same way. Basically, WA had gone from leading the field to being one of the last on the course. This provision addresses that imbalance. Under this bill, employees will be able to choose whether they want their superannuation to go to GESB or to any other complying fund. I suspect that a number of our public sector employees will take advantage of that choice. Although the state is not subject to the commonwealth legislation, the changes now reflect the commonwealth legislation regarding choice. As I said, the introduction of choice is long overdue and is a welcome move for public sector employees.
I note also that only public sector employees are entitled to become members of the GESB superannuation scheme, and this bill will not change this. This is an issue that was raised by the opposition. The bill does not provide for two-way choice, as would have been the case with mutualisation. The arguments against two-way choice include the costs associated with the tax implications for changes to West State Super. I note that the commonwealth was not prepared to give any undertakings to vary this. According to Whithear and the state government, there is no clear benefit for the state government to enter into what is already a very well populated superannuation financial planning marketplace by accepting contributions from non-public sector employees. Having said that, I note that the tax status of West State Super could have been preserved by splitting GESB, with the old West State Super scheme remaining the only one-way choice and the GESB fund allowing two-way choice, but this was considered to be uneconomical and would have resulted in the government becoming a provider of superannuation to the private sector and well-established and highly competitive superannuation markets, which the government has made very clear it does not feel is its role and is not prepared to do. While I acknowledge the reasons underpinning the decision to allow only one-way choice, the Greens would certainly prefer that GESB members were not limited in this way. I am concerned that one-way choice risks undermining the viability of the fund in the long term through forcing many of those people who want to consolidate their superannuation to go elsewhere. While the current rate of funds, or churn rate, which I was told is the phrase that we use, is low, we cannot be certain that the rates will not increase, particularly given that the federal government has signalled its intention to make changes to reduce the burden and cost of switching superannuation funds. Further, the bulk of GESB funds are in the West State Super scheme, an untaxed scheme, which is now closed to new members. This environment will potentially have a detrimental impact on the long- term viability of the fund. What are the government intentions if this occurs?
I turn to the outsourcing of GESB functions. One of the reasons GESB is able to charge fees that are not high is due to economies of scale. This benefit could potentially be lost if the fund decreases in size. The Whithear report recommended that GESB investigate the potential of outsourcing administration services to a commercial provider, which it felt was a cost-effective approach common in the superannuation industry. According to the report, commercial providers that specialise in the provision of administration services to superannuation funds achieve economies of scale from administering hundreds of thousands to millions of member accounts. This bill acts on Whithear’s recommendation by providing for a commercial provider to be selected to provide administration services to GESB and to potentially move further towards the state as procurer of superannuation services rather than as a direct market participant. GESB already outsources investment management. This enables funds from a range of sources to be pooled for investment and provides the opportunity to take advantage of economies of scale.
Again, I would like to express my concern about moves towards further outsourcing—the privatisation of the delivery of government services—particularly given the fact that GESB will remain a statutory authority. We have already seen issues around the possible loss of quality control when we have outsourced other services. I acknowledge that this is a clear policy position of the government but the Greens will be keen to see how this rolls out in practice, and our concerns remain. Although the board would have to approve any outsourcing, technically the minister could direct the board to do so. There does not seem to necessarily be any real protection as to how that will be managed.
I turn to the provision for GESB employees. Around 200 people are employed by GESB.
Sitting suspended from 1.00 to 2.00 pm
Hon ALISON XAMON: Before we broke for lunch I was referring to provisions within the bill for employees of the Government Employees Superannuation Board. I understand there are currently 200 people employed by GESB. I am interested to know how many current GESB employees are permanent public service officers. I understand that in preparation for the mutualisation process, many of the positions ended up becoming contract positions. I am interested to know how many people will realistically be affected by these provisions. Given the government’s intention to outsource administration, there is an expectation that many of these positions will no longer be needed. The bill provides for transition payments to staff who are offered, and accept, employment with an external administrator, as well as right-of-return provisions for permanent public service officers within a fixed period. I know that staff within GESB, or employed by the commercial administrator, will be eligible to receive a severance payment, or, in the case of permanent public service officers, be offered redeployment. According to the government, more employees will be retained within government compared with the earlier mutualisation model. I am interested to know what sorts of numbers we are talking about there.
The bill also allows for a default fund for public sector employees. We know that the vast majority of employees will generally go with the default fund rather than actively choose another fund. The option to have a choice of default fund is actually a really important one, and again goes back to the ongoing viability of GESB. According to the briefing that I received from Treasury, the current status quo is that GESB is likely to be retained as the default fund for most public sector agencies and will be maintained in the regulations. I note that some agencies, including Western Power and other state government trading entities, already have a different default fund. I am seeking the government’s assurance that it does not intend to change GESB as the default fund, at least in the short term. However, over the longer term, of course, there still remains a provision to appoint a new external default fund. I note that the government believes there are benefits to employees and employers in a model with contestability for a default fund.
Whithear recommended that government assess the market for the provision of a default fund in conjunction with the search for outsourcing administrative services. Under this scenario, the state government would also be removed of responsibility to regulate the fund; instead, it would be regulated under the commonwealth act. Again, these provisions do not bode particularly well for the future of GESB. I believe the government needs to be very clear about its intention for the future of the fund.
The bill also makes reference to the Treasurer’s guidelines. The bill provides additional guideline functions to the Treasurer, giving the office of the Treasurer the ability to issue guidelines on the investment strategy to reflect whatever the government of the day regards as the appropriate risk return level of toleration. According to the government, the board will have greater flexibility on operational matters, but the government will have greater control over the investment functions by setting general parameters on the appropriate way to invest rather than simply having the ability to supervise or veto the choice of fund manager. Guidelines under the act have been in use for several decades. However, these new provisions provide a much greater role for the Treasurer. According to the briefing, these are to facilitate the implementation of the Whithear reforms and the cabinet decision around reserving, investment framework, and ensuring GESB procurement processes are consistent with the State Supply Commission Act.
I note the Treasurer is required to consult with the board in relation to the guidelines and any additions or amendments, and that the guidelines will be gazetted and put on the department’s website. The bill also removes administration of the relevant part of the act as a function of the board, and all responsibility for matters relating to administration of the act is to be restricted to the Treasurer. This change is a result of the decision that the Departments of Treasury and Finance will be the designated agencies primarily advising the Treasurer on the administration of the act. GESB will still have the functions of administering the schemes as provided for in existing sections within the act.
According to the government, the intent is that these amendments will increase the transparency and accountability of this process and will allow less arms-length decision making than has been the case. However, I ask whether one of the reasons for these amendments is to make it easier for the Treasurer to outsource all of GESB to a commercial provider without worrying about the board’s views.
I conclude my remarks by saying: of course we know that issues of superannuation are very important. When debating this bill we must not lose sight of the fact we are talking about responsibility for the retirement savings of more than 320 000 Western Australian public servants. How their super performs will have a significant impact on the quality of their post-working life. At the very least the government owes its employees a very clear, positive view of what will happen to their future savings. I argue that it is vital that we support GESB to remain an active and stable superannuation fund. Allowing choice is an important and welcome reform that has suffered many delays.
As I said earlier, as a state we were at the forefront of choice, but we have effectively allowed ourselves to become the last state to deal with choice of fund. Because of that, I am certainly pleased to support these moves, but, as I have indicated, the Greens (WA) retain quite strong reservations about the potential impact of this legislation on the scale and sustainability of the GESB fund in the long term, and the future direction of the fund over the longer term. I invite the government to offer its advice as to what it sees as the long-term options and viability for GESB.
HON SIMON O’BRIEN (South Metropolitan — Minister for Finance) [2.09 pm] — in reply: I thank members for their contributions and what I believe was support for the second reading of the State Superannuation Amendment Bill 2011, though it was qualified in some cases, or at least accompanied by some qualifying remarks, about matters of state employee superannuation generally. One of the recurring themes in member’s contributions was the future direction of GESB as an entity and what we can anticipate will be the scale of GESB. Hon Ken Travers asked us to contemplate a likely reduction in GESB membership, which might flow from the course we are taking. All the data and advice that are available to me show that consumer- switching activity is low and declining in this sector. When options of moving around funds became available to people, there may have been some initial encouragement for people to seek different funds or superannuation providers, but the general experience over the years, certainly currently, is that there are not very large percentages of people exercising options to switch superannuation funds; indeed, when that occurs, it is mostly due to job changes or to fund closures, not a personal initiative to decide they want to go to another fund.
Hon Alison Xamon: Of course, reforms are being proposed federally that will deal with the issue of fees when people leave. At the moment, as I am sure you will agree, they are quite prohibitive for some people to switch. It may be that in the future we will see a greater number of people leaving superannuation accounts as a result of that reform.
Hon SIMON O’BRIEN: Based on all we have observed, I do not know that is the case or is likely to be the case. I think the Australian experience has been that perhaps, regrettably, many Australian employees do not give much consideration to their superannuation provider and tend to accept the default fund. Whether that indicates they are generally happy or the importance of it is not uppermost in their mind, I do not know. In any case, I do not believe we will see a radical reduction in GESB membership. Just before we broke for lunch I was told that the experience in Tasmania, which has had choice since 1999, is that the membership has grown. I do not know; perhaps the government is the only employer left in Tasmania! Either way, that might give some comfort to those who are concerned about a reduction in GESB membership and its viability.
If I am interpreting accurately the nub of his contribution, Hon Max Trenorden generally supports choice. That is one of the elements that will be provided to state government employees who are part of GESB. However, he spent some considerable time indicating some other forms that he would like to see superannuation take in Western Australia. I am not sure whether I am capable of responding to that now because it is not part of the bill and I think the point he was making was that he would like to see other changes to legislation in due course. I think a lot of that is a matter for another day, but I thank him for making his pertinent and experienced observations. A specific question asked by Hon Alison Xamon was: how many people are likely to be affected by the changes to GESB contemplated in the bill? I think she was talking about staff.
Hon Alison Xamon: Yes.
Hon SIMON O’BRIEN: I understand about 220 or 230 staff are part of the GESB machine. That surprised me; it sounds like a very large number. I think part of that workforce is in place in preparation for possible mutualisation which, of course, has not eventuated, so there may be a little bit of excess there. I do not know; I am not being judgemental about that. If all the administration functions were outsourced, which is not guaranteed by this bill—it is an extreme scenario—there would be about 60 remaining. That is a guesstimate that I got from my advisers.
Hon Alison Xamon: That answers my question.
Hon SIMON O’BRIEN: Okay, thank you for that.
Question put and passed. Bill read a second time.
As to Committee
The DEPUTY PRESIDENT (Hon Jon Ford): We now go into committee.
Hon Ken Travers: No. I am not asking for it, but if the government wants to, it can.
Hon Alison Xamon: You answered my questions.
Hon Ken Travers: You covered the issues I raised in the second reading debate.
Hon SIMON O’BRIEN: There has been some informal indication that members are satisfied with the debate as it has proceeded, including the briefings that have been provided.
Hon Ken Travers: During my contribution to the second reading debate I made the point that your officers had given me the advice that your government had, and whilst we still disagreed with that advice, I accept that that is your view. We have our view, and only time will tell who is right.
Hon SIMON O’BRIEN: Mr Deputy President, with the indications that I have just received, and before anybody changes their mind, I seek leave to proceed forthwith to the third reading.
Leave granted. Bill read a third time, on motion by Hon Simon O’Brien (Minister for Finance), and passed.