Super fund governance bill introduced to House of Reps

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The Assistant Treasurer Josh Frydenberg has introduced to Parliament changes to the governance requirements of large superannuation funds. The changes have split the superannuation industry, with support from the Financial Services Council but calls from Industry Super Australia and AIST for the bill to be rejected.

The Superannuation Legislation Amendment (Trustee Governance) Bill 2015 was introduced to the House of Representatives yesterday. The bill, if passed, would require large superannuation funds to have at least one-third independent directors and an independent chair, among other governance changes.

The bill would require large superannuation funds (excluding SMSFs and some other funds in limited circumstances) to have at least one-third independent directors or trustees and an independent chair.

The Financial System Inquiry, which the Government was expected to officially respond to this week, recommended a majority of independent directors and an independent chair. The Super System Review (Cooper Review) recommended at least one-third of independent directors

The bill provides for a transition period for existing superannuation funds for three years from the date of Royal Assent.

“Originating from the Government’s 2013 election commitment, this reform is important because independent directors bring different skills and expertise and they hold other directors accountable for their conduct, particularly in relation to conflicts of interest.” says the Explanatory Memorandum to the bill.

“The existing representative board composition requirements in the SIS Act are outdated and no longer reflect the size and complexity of the superannuation industry. In particular, equal representation is out-of-step with other corporate sectors, including listed companies, banks, and general insurers, who all, at a minimum, recommend a majority of independent directors with an independent chair.”

“Already superannuation funds are recognising the need for greater independence on their boards, with many having moved or moving this way — including retail funds that are members of the Financial Services Council (FSC) as well as a number of industry funds.”

“The presence of a greater number of independent directors will enable the decision making processes of superannuation boards to be tested and challenged in a way that achieves beneficial member outcomes. A requirement for a minimum number of independent directors will also provide greater diversity of skills and experience by ensuring that trustee directors are drawn from a wider pool.”

“A greater number of independent directors will therefore increase the accountability of management and strengthen oversight of the fund—helping to ensure that related party interests are not put ahead of member interests.”

The bill may pass the House of Representatives as early as today, after which the next sitting is on the 12th of October.

Unnecessary governance changes puts retirement savings “at risk,” says Industry Super Australia

Industry Super Australia has called on Parliamentarians to focus on other changes to superannuation, saying “the governance changes will force industry super funds and other not-for-profit funds to adopt the board structure of underperforming funds run by the banks in the ‘for-profit’ sector.”

“It is inconceivable that changing the governance of industry super funds is a priority for the government or the country. The proposed changes introduced into Parliament today could leave 5 million super fund members in the not-for-profit sector worse off,” said Industry Super Australia Chief Executive, David Whiteley.

“These changes – long promoted by the banks – would impose a radical and unnecessary disruption to funds without a shred of evidence of improved member returns,” he said.

“Changing the trustee system to effectively mimic the bank funds will inevitably and over time change the culture, investment philosophy and asset allocation of not-for-profit funds, resulting in poorer returns on retirement savings for millions of people.”

“Industry Super Australia urges the all parliamentarians to reject these bank-designed laws and protect the interests of super fund members.”

AIST calls for bill to be rejected

The Australian Institute of Superannuation Trustees (AIST) has also called for the bill to be rejected.

AIST Executive Manager for Governance, Eva Scheerlinck, said the bill was “unwarranted, not supported by evidence and would dilute the voice of member representation on the boards of the top-performing super funds.”

“Not-for-profit super funds are uniquely different from corporate entities. Superannuation monies are held in trust for members, over the long term. This is a trust-based structure so a comparison with corporate governance is a flawed argument.”

Ms Scheerlinck said removing equal representation, between employers and employee representatives, from the SIS legislation is “an overreach by Government that won’t deliver better outcomes for members.”

Changes bring greater consumer protections, says FSC

The Financial Services Council (FSC) says consumers will have more protections under the new super fund governance arrangements.

“The Financial Services Council welcomes the first instalment of a package of reforms that are in the best interest of consumers and will deliver lower fees to working Australians,” said FSC CEO Sally Loane.

“Every working Australian – 11.5 million people – who entrusts a super fund to manage a large proportion of their salary over their entire lifetime should welcome these reforms. They are sensible consumer protections which exist throughout corporate Australia, and which are supported by a broad range of consumer groups.”

“There is no downside for consumers for their super funds to include a proportion of independent directors with diverse skills on their boards.”

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