Hi. I'm Kelly O'Dwyer, Minister for Revenue and Financial Services.
I'd like to thank the Financial Services Council for the opportunity to address the Summit – one of the most important events on the financial services calendar.
2018 is a landmark year for financial services in Australia.
One reason is, of course, the Financial Services Royal Commission. Another is the significant reforms under way and there is also the Productivity Commission's comprehensive work on superannuation.
Let me start with super.
The significance of Australia's $2.6 trillion dollar superannuation industry for the wellbeing of all Australians cannot be overstated.
In a mandatory system, it's absolutely critical that we have the settings right and that trustees are making decisions and providing outcomes that are in members' best interests – especially when we know that a large proportion of members are not actively choosing a fund.
The Productivity Commission's draft report well and truly bells the cat on some of the system-wide issues that have existed for far too long and recommends some very significant changes, particularly regarding default super. Indeed, it's clear that this is one area of the superannuation system that is not operating in favour of the most important participants – the members themselves.
Pleasingly, the PC's draft findings and recommendations support a number of initiatives that the Government has already undertaken, including the Protecting Your Superannuation package.
The PC also identified shortcomings in the system when it comes to powers for the regulator, fund transparency, trustee governance and information gathering. Tellingly, the PC revealed that even it had experienced issues getting the data it needed trustees in order to properly assess the system.
It is frustrating to see the very same people in the industry who are championing the need for more granular data and regulatory oversight refuse to cooperate with the PC and to argue against the introduction of such measures in Parliament.
I'd like to take this opportunity to reiterate the Government's continued commitment to the Superannuation Accountability and Member Outcomes reform Package, which remains before the Senate.
These sensible reforms will:
- lift the bar for superannuation fund performance;
- strengthen supervision and enforcement by the industry regulator, APRA; and
- empower members to be more engaged with how their contributions are being managed.
The Government is also looking to improve outcomes in retirement. Despite its undoubted importance, it must be said that the retirement phase of superannuation has not enjoyed the same level of focus as the accumulation stage.
We are working to address this discrepancy through a new retirement income framework. The framework will include a covenant which will give retirees greater choice and flexibility when it comes to their income in retirement.
I thank the industry for its engagement on this work to date and look forward to us progressing down the path toward a more balanced system in the future.
Last year, as you would all know, the industry released the Insurance in Superannuation Working Group (ISWG) - Voluntary Code of Conduct for Trustees.
When it was released, I expressed strong concern that the industry had walked away from a commitment to a robust and mandatory code of practice to address the many issues in group insurance in super.
I made it clear that where industry would not take action, the Government would.
That's why we introduced the Protecting Your Super package.
The Protecting Your Super reforms will mean that trustees can only provide insurance on an opt in basis to new members under 25, members with balances below $6,000 and members with inactive accounts.
These reforms will better target default insurance cover and will address the inappropriate erosion of retirement savings by insurance premiums for cover that members either don't need, do not know they have, or which they cannot even claim on.
Importantly, young, inactive and low balance account holders will still be able to opt in to insurance through superannuation if they want to.
These changes are going to preserve the retirement savings of millions of young Australians and those Australians with multiple or low balance superannuation accounts.
While the Government has taken action in the areas where the ISWG Code did not go far enough, I am pleased to hear that the FSC will continue their important work in the life insurance space, by taking the other elements of the ISWG Code forward – and making them binding on the industry.
I believe the ISWG Code can achieve meaningful change in areas such as claims handling and member disclosure, provided it is a mandatory Code and is applied consistently across the whole industry.
I commend the FSC on its action to date and encourage the Council to continue its journey towards ASIC approval of a binding and holistic Code for the entire life insurance and superannuation sector.
The comprehensive package of reforms the Government introduced into Parliament earlier this year will give the ATO the visibility it needs to crack down on non-compliance as and when it occurs. The reforms will also institute tough new penalties, including, for the first time ever, jail time for employers who repeatedly fail to meet their superannuation guarantee obligations.
As part of the transition to this new compliance regime, the Government will provide a one-off amnesty to encourage employers to correct historical underpayment.
The amnesty is expected to provide $230 million of superannuation and interest to around 50,000 employees who would otherwise miss out on these vital retirement savings.
Pleasingly, the FSC, the Australian Small Business and Family Enterprise Ombudsman and various other organisations representing small business, commerce, accounting and the superannuation industry more broadly have all lent their support to the amnesty.
They know that a pragmatic approach will help to secure worker's outstanding entitlements.
It is fair to say that many Australians have been shocked by some of the case studies examined so far by the Royal Commission. And I'm sure it will be no different when the Commission turns its attention to the superannuation sector.
The Royal Commission presents an unprecedented opportunity for the industry to reflect on the practices and actions which have resulted in the Commission – and so too for regulators.
Reflect and reform is an appropriate motto.
The Government is already pursuing a comprehensive reform agenda to improve the fairness of Australia's financial system and we will continue to do so as the Royal Commission progresses its inquiry.
And it goes without saying that we will closely study any recommendations the Royal Commission makes in its final report.
Independent of Government action, the financial services industry has a duty to repair trust with Australian customers.
Key to this is for firms to have effective leadership, good governance and appropriate cultures.
These are matters that companies need to tackle head on, and the Government will be looking to firms to ensure they take all necessary action and play their part in restoring that trust.
From an industry perspective, I urge you, as its leaders, to use the Royal Commission as an opportunity to draw a line in the sand.
Use it to separate the behaviours which should not have occurred in the first place, and a new post-Commission era where trust is regained and maintained.
Finally, I'd also like to update you on the Asia Region Funds Passport.
On 28 June 2018, legislation to establish the Asia Region Funds Passport in Australia passed the Senate.
The Passport is a common framework of coordinated regulatory oversight to facilitate cross border issuing of managed investment funds.
The Bill gives effect to the Passport's Memorandum of Cooperation signed in 2016 by Australia, Japan, New Zealand, South Korea and Thailand.
The Bill is the culmination of years of development, and is a milestone in improving the scope and efficiency of our financial services sector.
The Passport will open the gateway for Australia's funds management industry to the Asia region's financial services market.
The formal commencement of the Passport framework is expected to occur in September 2018, once the Passport's Joint Committee has considered the results of a piloting process that is currently under way.
I know the industry has worked hard behind the scenes to bring this about, and I thank the FSC for its leadership on, and its support of this initiative.
Like I said, this is a big year for your industry. Maybe the biggest.
Most importantly, on many fronts, it presents great opportunities that should not be missed.