GESB privatisation over

State Treasurer Troy Buswell has killed off the privatisation of government employees' superannuation administrator GESB, ending almost two years of doubt about its future.

Mr Buswell has acted on the recommendation of an internal review and, for the first time, revealed the $467 million price tag for the proposed venture - a figure above any previous estimates.

The cost to government was one of the key obstacles to the demutualisation, which was halted at the 11th hour after concerns were raised by state Treasury.

The other big concern was the change in tax status of the $5 billion West State Superannuation Fund, which would have required a 15 per cent tax on funds to be paid when privatisation took place, rather than when the members exited the fund at retirement.

This change in tax status left a multi-million dollar cost to be met either by the state or the members.

While the mutualisation will not take place, Mr Buswell has committed the government to allowing public servants to choose their own superannuation funds within 12 to 18 months, a move that will be welcomed by many public servants and financial planners.

In some ways this decision brings the mutualisation process full circle because choice for government employees was the original objectives when the option of GESB's privatisation was first mooted. The planned 2008 privatisation would have made GESB, then a $9 billion fund manager, the 13th biggest in the country.

At the time, the option to simply allow members the choice to leave without GESB being able to recruit new members from outside the bureaucracy was viewed as detrimental to the fund manager's long-term future and cost efficiency because the cost of administration would have become too burdensome as expected outflows reduced its scale.

GESB insiders and some former directors of GESB Mutual, the proposed privatisation entity, still hold to that view, believing the fund manager will wither on the vine under what the state government is now planning.

Mr Buswell said the cost to government - outlined as a $467 million cost which includes a significant element of some $515 million in reserves that GESB sought to bolster its business - was too high and would have delivered no additional tangible benefits to members beyond choice.

"Giving members this choice of fund was the primary reason for bipartisan support for GESB reform in parliament in 2007," Mr Buswell said in a statement released to WA Business News.

"Mutualisation itself was one of the many ways in which choice could have been delivered.

"The (Whithear) review reveals that if GESB had mutualised, GESB members would have been exposed to higher fees and a risk of greater tax liabilities, while mutualisation would have cost taxpayers up to $467 million.

"The Whithear Review validates the concerns of the then treasurer, Eric Ripper, who deferred mutualisation in June 2008 when it became clear that there were unresolved issues of concern.

"At various times between 2005 and 2009, GESB has argued that to be viable after mutualisation, it required reserves of up to $515million to be gifted to it as seed capital.

"This raised the question why taxpayers should be asked to fund the privatisation of a state asset."

Treasurer Troy Buswell's announcement is below:

The State Government has accepted the recommendations of a recent review into public sector superannuation to not proceed with the mutualisation of GESB, Treasurer Troy Buswell announced today.

The Government will instead deliver choice of superannuation funds to State public servants by retaining GESB within government and allowing public servants to opt out of GESB as they wish.

Choice for public servants is expected to be available within 12 to 18 months following the passage of relevant legislation through State Parliament.

"This decision to reverse the mutualisation of GESB will protect in full the retirement savings of existing and retired public servants," Mr Buswell said.

"Members who choose to remain with GESB will benefit from an efficient and focused low cost superannuation fund, without the financial risk that mutualisation would have presented.

"Members will be free to make their own judgement as to whether another superannuation fund is more appropriate to their needs.

"Giving members this choice of fund was the primary reason for bipartisan support for GESB reform in State Parliament in 2007.

"Most workers in Australia can choose their fund and West Australian public servants should have the same choice.

"Mutualisation itself was one of the many ways in which choice could have been delivered. However, the Whithear review has reported that:

'The mutualisation of GESB would not deliver an identifiable or tangible benefit to members.'

"The review reveals that if GESB had mutualised, GESB members would have been exposed to higher fees and a risk of greater tax liabilities, while mutualisation would have cost taxpayers up to $467million.

"The Whithear Review validates the concerns of the then treasurer, Eric Ripper, who deferred mutualisation in June 2008 when it became clear that there were unresolved issues of concern.

"At various times between 2005 and 2009, GESB has argued that to be viable after mutualisation, it required reserves of up to $515million to be gifted to it as seed capital.
This raised the question why taxpayers should be asked to fund the privatisation of a State asset.

"Whithear also reported that despite four years of negotiation between the State and the Commonwealth, thousands of West State members would have been at risk of paying Commonwealth superannuation taxes earlier as a result of a mutualised GESB losing its special protection under the Commonwealth Constitution."

The State Government has also decided to bring senior executive remuneration at GESB back within the jurisdiction of a Salaries and Allowances Tribunal.

The review has made a number of other recommendations relating to the internal operations of GESB.

The Government will now be working with GESB to continue its focus on the delivery of low cost, quality superannuation management services to public sector employees.

It is not intended that the Whithear Review will be released publicly at this stage as it contains significant commercial-in-confidence data. However, a copy of the review has been provided in confidence to the Leader of the Opposition.