Assistant Treasurer Josh Frydenberg has defended the Government’s superannuation fund governance reforms and said the Government is considering an ‘alternative’ to the Fair Work Commission process for selecting default super funds.
Mr Frydenberg, speaking at the Financial Services Council Annual Conference, said “the Government is committed to ensuring that the retirement savings of Australians are managed with the highest standards of governance, in line with best practice.”
The Government is planning to put a bill before the Parliament in the Spring session that would, among other changes, require at least one-third independent directors and an independent chair for public-offer superannuation funds.
“The proposed measures will modernise board requirements to help ensure that directors with the best experience and expertise are represented on superannuation trustee boards; enhancing decision making and producing better outcomes for fund members.”
Mr Frydenberg rejected claims the Government was targeting industry super funds, saying “the proposal is not about any single sector. It is about improving governance across all APRA-regulated funds.”
The Government is not ending equal representation on trustee boards, according to Mr Frydenberg.
“The Government is in no way preventing trustees from enshrining equal representation in their constitutions. The draft legislation does not refer to the composition of the remaining two-thirds of board members; leaving capacity for boards to split these directors between member and employer representatives; if they consider this to be appropriate.”
He also rejected concerns about the cost of the changes, saying the figures will be disclosed in a “fully compliant Regulatory Impact Statement,” once the legislation is submitted to Parliament.
“In putting forward these proposals, the regulatory burden on industry was firmly on the Government’s mind, while at the same time focusing on the best outcome for fund members. Our reforms have sought to minimise compliance costs by only requiring one-third independent directors, rather than a majority as recommended by the FSI.”
Mr Frydenberg accused the former Government, including the then Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, of ignoring the recommendation of the Cooper Review to require at least one-third independent directors for super funds. The Government has yet to officially respond to the Financial System Inquiry recommendation of a majority of independent directors.
“I encourage you to stay tuned for the Government’s forthcoming response to the FSI,” said Mr Frydenberg.
“One of the most significant reform opportunities in superannuation remains the process by which default funds are selected,” he said.
The Financial Services Council (FSC), which represents large financial institutions, has repeatedly called for the default super fund process to be opened to more retail funds, a view which appears to have found favour with the Assistant Treasurer.
“Opening the superannuation market to competition will require consideration of an alternative to the current, poorly-conceived Fair Work Commission process for the selection of default funds in modern awards. This is a process which, just last year, the Federal Court described elements of as ‘confusing to say the least’,” he told the FSC Conference.
“The Government is committed to increasing competition in the default superannuation market. Competitive forces are as fundamental to the economy as they are in the superannuation industry. Competition remains the most effective way to put downward pressure on fees, increase the quality of products, drive greater efficiency and better services for members.”
“Ultimately, my objective will be to put in place a framework that will generate the strongest possible competitive forces for the benefit of every superannuation fund member.”
“The Government is also focused on creating a more informed superannuation market, delivering increased value to consumers by enhancing the quality and transparency of information available.”
The Government is working on draft legislation for portfolio holdings disclosure and choice product dashboards. Mr Frydenberg said the Government had “listened to industry concerns about the significant regulatory cost involved in implementing these two measures,” and come up with a revised model.
“Our aim will be to strike the right balance between minimising the compliance burden on superannuation funds, and enhancing transparency and comparability of information for consumers so they can make informed decisions and drive greater competition and accountability in the superannuation sector,” said Mr Frydenberg.
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