29 May 2018
Transcript - #2018032, 2018

In the role of: Minister for Revenue and Financial Services [19 July 2016 - 28 August 2018]

Interview with David Speers, Sky News

Subjects: Superannuation, Productivity Commission interim report, Barnaby Joyce

DAVID SPEERS:

Kelly O'Dwyer joins me now. Thank you for your time this afternoon.

KELLY O'DWYER:

Great pleasure David.

DAVID SPEERS:

Now this Productivity Commission does make a number of really interesting points and highlights a number of really interesting problems in the super system. It also says quote "not-for-profit funds as a group have systematically outperformed for-profit funds" and that it's the retail funds, a lot of them bank owned, that dominate the tale of underperformance. Do you agree with that finding that industry funds are on average outperforming retail funds?

KELLY O'DWYER:

Certainly there have been many very strong performing industry funds. There is no question about that. That's not in dispute.

DAVID SPEERS:

The point was whether they're outperforming the retail funds?

KELLY O'DWYER:

What the Productivity Commission also finds in its report is that the bottom 26 funds consist of both retail funds and also industry funds, I think there were 12 retail funds and there were 10 industry funds. So what they have found as their overall finding is that it really is a bit of a lottery, depending on exactly which fund you find yourself and you can find yourself in.....

DAVID SPEERS:

But the Productivity Commission says, and I am just wondering whether you agree, that industry funds systematically outperformed for-profit funds.

KELLY O'DWYER:

And the Productivity Commission, I mean I think it's also important to note, that the Productivity Commission has also found that there are across-the-board high fees and charges that can apply to individuals...

DAVID SPEERS:

Absolutely.

KELLY O'DWYER:

...who might be part of those funds including...

DAVID SPEERS:

Sorry to dwell on this but there is a fundamental point at the centre of this report. Are they right about industry funds outperforming retail funds?

KELLY O'DWYER:

They have said that industry funds on the whole have performed very well and I agree with that.

DAVID SPEERS:

They said systematically outperform.

KELLY O'DWYER:

I agree that there are many very well performing industry funds but they also...

DAVID SPEERS:

Systematically outperformed though is what the Productivity Commission says.

KELLY O'DWYER:

Well David you can interview the Productivity Commission about their statement.

DAVID SPEERS:

I am interviewing you as Minister whether you agree with them on this?

KELLY O'DWYER:

And I'm saying to you that there are also issues that the Productivity Commission has raised in relation to their funds and particularly in relation to whether it's retail or industry the high insurance premium.

DAVID SPEERS:

I want to get to these issues but this seems like a pretty important point and I'm still unclear whether you agree with the Productivity Commission that industry funds as a group systematically outperform for-profit funds.

KELLY O'DWYER:

I absolutely take on face value what the Productivity Commission have recommended.

DAVID SPEERS:

And found?

KELLY O'DWYER:

I take on face value what they have recommended but I think it is important David to note that there are lots of elements to their recommendations. I know that there are some within the sector who want to focus on one chapter, of I think it's a 13 chapter report, and I think it's actually quite important for us to actually go through all of the elements...

DAVID SPEERS:

Getting to those elements though - it's important to recognise and it also says underperformance appears to be more pronounced for the 11 million members who have chosen their own products. Are they right about that?

KELLY O'DWYER:

They also point out that there are people who been defaulted into poor performing funds and it's a lottery that's their overall finding though David.

DAVID SPEERS:

But more pronounced amongst those who've chosen their own products, underperformance was more pronounced amongst those who have chosen their own product.

KELLY O'DWYER:

No, what I think you will find if you actually read the report…

DAVID SPEERS:

I am reading from the report.

KELLY O'DWYER:

... in its entirety, I think you will find that what the Productivity Commission have said as their major finding is that whether you are defaulted into a particular fund or you have chosen a particular fund it can be a bit of a lottery because we don't have a system in place where we're looking at the best in show...

DAVID SPEERS:

And I want to get to that because that is absolutely something – the Commission wants to fix that but it is also saying that underperformance appears to be more pronounced for the 11 million members who have chosen their own products not being defaulted.

KELLY O'DWYER:

What the Government wants David...

DAVID SPEERS:

Is that right?

KELLY O'DWYER:

I said to you I've taken on face value what the Productivity Commission have recommended...

DAVID SPEERS:

And what they found.

KELLY O'DWYER:

...but if you just let me finish...

DAVID SPEERS:

Sorry.

KELLY O'DWYER:

...my sentence which I am really keen to do, what I would also say to you is that what the Government wants for the millions of Australians who are forced in to superannuation as a result of earning wages every day, they have to pay 9.5% of their wages right now, by compulsion, in to their retirement savings, and what the Government wants to ensure is that the system works the very best it can for them. Now the Productivity Commission have found there are a whole range of factors that can impact that. That's high fees and charges that can apply and the Government already is taking initiatives announced in the Budget to actually cap the high administration and investment fees and charges that currently apply which were uncapped by the Leader of the Opposition, Bill Shorten, when he was Financial Services Minister.

DAVID SPEERS:

Indeed. I want to come to some of the Government's other proposals but let's get to this main recommendation so it's saying there should be for default funds, and sadly too many are ending up in an underperforming fund they've been defaulted in to – you're right, it's saying have a best in show top 10, an expert panel decides the top 10 funds, and you would be defaulted into one of those. What is it? Over 60% of new members end up in a default fund?

KELLY O'DWYER:

That is correct.

DAVID SPEERS:

Young workers don't want to spend the time choosing between different funds...

KELLY O'DWYER:

No, I'm going to pick you up on that because it's not just that they don't want to choose, and this is what a lot of people in superannuation sector say, they say young people aren't interested, they don't want to choose, the truth is about a million Australians can't choose because right now enterprise bargaining agreements dictate that someone must be a member of a particular fund. They may already have a fund and this is the point that the Productivity Commission made. They said somebody who already has a fund that they're pretty happy with, who might start four different employers, covered by an enterprise bargaining agreement, might be forced to put their money in to what could be quite a poor performing fund and they're often paying two sets of fees, or it could be more if they have got more funds, two sets of insurance premiums, they could have zombie insurance because they can only in fact claim on one and of course it can mean hundreds and thousands of dollars to individuals.

DAVID SPEERS:

Exactly. So the main recommendation there is that you can just have one fund that you can carry that with you, you take on a new job you'd still be able to use that same account.

KELLY O'DWYER:

It's not forcing people to do that.

DAVID SPEERS:

No, but giving them the option to do that.

KELLY O'DWYER:

What it's suggesting is that you get defaulted in to a good fund upfront, you make a decision after people with expertise go through and work out what is the right fund in terms of fees and charges, governance arrangements, making sure that it's got good insurance arrangements potentially within the fund, looking at a lot of metrics to work out what is in fact the best in show. This is what they're proposing the Government hasn't yet said because we have to go through...

DAVID SPEERS:

Do you like the idea though?

KELLY O'DWYER:

I think it's a really interesting idea but I've got to go through my own processes within Government in order to give you a definitive Government response on it.

DAVID SPEERS:

Fair enough. I was just talking to the industry association of super funds a little, earlier they made the point if you have this top 10 list if a fund came in at 15 or 20, didn't make that top ten list, they're not going to get any default funds directed their way, they're simply not going to be able to survive. We need a lot of funds to have a competitive sector. Do you share that concern that if you didn't make the top 10 you would really struggle to survive?

KELLY O'DWYER:

So this is for people who aren't proactively choosing something else, when we would still obviously allow for people to proactively choose another fund. This is the fundamental point here, which is that superannuation money belongs to the member who has worked hard for it and this is a criticism that I have consistently made to the superannuation sector and I have been completely agnostic on this - I've criticised retail funds, I've criticised industry funds, I've actually said irrespective of whether you're a corporate, retail or industry fund you need to act in the best interests of your members and that is why the Government has announced such a strong package of changes in the Budget. That's why the Government already has got legislation in the Senate.

DAVID SPEERS:

Just on that question do you accept that if you're not in that top 10 list, if you had such a list, you're really going to be hurt. If you're not getting default funds coming your way which presumably you wouldn't...

KELLY O'DWYER:

That's the case right now for many people who aren't part of the select list that receives default funds, that's true today.

DAVID SPEERS:

Does there need to be a lot more consolidation in the sector amongst underperforming funds?

KELLY O'DWYER:

Well certainly the Productivity Commission think so. Certainly that is the view of APRA the regulator who believes that there needs to be more consolidation because it will provide better size and scale for those people who are part of those funds, but that's not the only issue. I mean scale is not the only issue, and that's one of the reasons why the Government has actually got measures in the Senate that looks at the outcomes that are going to be delivered for members, as well as strengthening the powers of the regulator which, sadly, the Labor Party seem to oppose, just as they oppose the fundamental principle of allowing people to actually choose their own fund and not force them into a particular fund as a result of an enterprise bargaining agreement and unfortunately they don't support stronger governance measures either.

In fact, the Labor Party have been consistent in their approach, which has said 'we sort of like the principle, we're just not going to vote for it' and I think they are dudding and ripping off millions of Australians as a result.

DAVID SPEERS:

Well they're certainly looking at your Budget announcements and today's Productivity Commission report, but they are making it clear that they don't like another announcement that you've made just last week. This amnesty for businesses who haven't paid workers what they're owed over the last 25 years in their superannuation. Explain to me this amnesty, you would waive the penalties for businesses who have done the wrong thing, perhaps accidentally, but have done the wrong thing.

KELLY O'DWYER:

So right now, currently, about 95% of people actually get paid their superannuation guarantee entitlement. About 5% don't and that amounts to around $2.8 billion, huge number and that isn't an annual number. Now the Australian Taxation Office is responsible for trying to collect that money on behalf of individual workers, but we need to turbo-charge that, and one way that we can do that is by saying to people who might not come forward now as a result of the fact that there are penalties that would apply that would go to Government, in addition to obviously the money that goes to workers.

We're saying to them 'you've got 12 months. Fess up, come forward. If you've not done the right thing by your workers you must pay them every single dollar that you owe with interest,' so the worker gets every single dollar owed to them. In terms of what is not being paid, it's simply the penalty that would apply to Government.

DAVID SPEERS:

Those penalties can be at the moment up to 200% of the unpaid money so the Government is forgoing a pretty significant penalty.

KELLY O'DWYER:

So let me just explain that because that's not quite right. So firstly what it will mean when we turbo-charge this is that we estimate there are about 50,000 people who will receive their money much quicker. As a result of this amnesty, around about $230 million worth of money that they otherwise wouldn't receive, which apparently Labor doesn't want them to receive. They seem to be arguing against it.

DAVID SPEERS:

I think it does, I think that's unfair. I think it wants workers to receive what they're owed.

KELLY O'DWYER:

They seem to be arguing against it. But at the same time the Australian Taxation Office is still going to go after those people who are doing the wrong thing and they are going to charge those additional penalties that will be paid to the Government. Now, according to our costings and it's part of schedule one that's actually in our Bill, the Government will in fact be slightly up as a result of this, around about $100 million over the forward estimates period because despite the fact that there will be penalties forgone, we will also receive tax paid on the amount that should have in fact been paid. So at the end of the day, it is good news for the Government and good news for workers.

DAVID SPEERS:

Let's hope so. I just wonder though, if a business hasn't paid for 25 years the superannuation they should and they're aware of that, they know they've underpaid their workers, they are going to come forward and pay that without any penalty.

KELLY O'DWYER:

They are going to pay interest payments to the worker in terms of how much money is owed to the worker, so the worker, I think this is a really fundamentally important point David...

DAVID SPEERS:

It's a tax deductible payment for them, whereas at the moment it wouldn't be.

KELLY O'DWYER:

...the worker is no worse off, no worse off, but as I've just said to you the Government is also no worse off as a result, and we think it is right. Much as you would have a gun amnesty where you would ask everyone to come forward voluntarily. Yes, we can catch you if you own something that you are not meant to own, for sure.

DAVID SPEERS:

But having granddad's gun in the cupboard is a little bit different to underpaying workers for 25 years.

KELLY O'DWYER:

And this is the point. We say it is very serious, which is why we actually think it's important to do something like this to turbo-charge those payments to workers.

DAVID SPEERS:

Look, superannuation, should we have compulsory contributions?

KELLY O'DWYER:

Yes, we've got a compulsory superannuation system and that does provide important retirement savings. Certainly not the only savings that people rely on in retirement. It's one of three pillars that people rely on in retirement. People of course have got voluntary, sorry can I just finish that, people have got voluntary savings as well and obviously people in our community who are more vulnerable do rely on the social security pension payments that are made…

DAVID SPEERS:

Should those compulsory contributions be increased to 12%?

KELLY O'DWYER:

Well under the existing law, that will occur as a matter of course.

DAVID SPEERS:

You think it should?

KELLY O'DWYER:

Well that is going to occur, it's legislated now, that will occur.

DAVID SPEERS:

You were also, Kelly O'Dwyer, quite outspoken about Barnaby Joyce today. I just want to read you something that he said, we've got the quote here I think, where he seems to be blaming Vicki Campion, his partner, for the decision to take money for this interview. He says they wanted an interview obviously to get Vicki's side of the story and like most mothers, she said, 'seeing as I'm being screwed over and there are drones and everything over my house in the last fortnight, paparazzi waiting for me, if everybody else is making money then I'm going to make money out of it'.

He says if it was just him doing the interview he wouldn't take money but it's Vicki who has decided that they're being harassed by the media and therefore should make some money out of it. What do you make of that?

KELLY O'DWYER:

Well I'll let your viewers judge that.

DAVID SPEERS:

You're not willing to pass judgement?

KELLY O'DWYER:

I've made very strong statements on this. I don't resile from them at all.

DAVID SPEERS:

For those who haven't caught your views on this, you don't think either of them should be taking money for this?

KELLY O'DWYER:

I don't think a parliamentarian should take money for an interview. I don't think their spouse should either.

DAVID SPEERS:

Kelly O'Dwyer, thanks for joining us this afternoon.