The battle between government and industry superannuation funds over super fund governance is set to continue, with the release of the Fraser review and an AIST governance code.
After a long delay the Fraser review, Board Governance of Not for Profit Superannuation Funds, has been released.
The Review was announced in late 2015 by Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST), soon after the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 was debated in the Senate. One of the changes the Bill would have made, had it passed, would have been to require large superannuation funds to have at least one-third independent directors and an independent chair.
Announcing the review ISA and AIST said it would “lead the development of a best practice governance code of conduct for not-for-profit super funds by 30 April 2016”. The review report says the consultation process and finalisation of the report was delayed by the 2016 Federal Election, given the uncertainty around the in-coming government and make-up of the Senate.
However the Fraser review makes little mention of a governance code, instead focusing primarily on the Government’s proposed changes. Though the review does make a number of recommendations.
“It was generally understood that the central focus of the report would be to review the Bill’s mandatory requirements for independent directors (and chairs), particularly as they might impact on members of NFP funds,” says the review report.
AIST has developed a new governance code, a draft of which has apparently been circulated to AIST members for feedback and consultation. The code, which has a proposed start date of 1 July 2017, “reinforces the importance of member representation on the boards of superannuation funds and aims to keep profit-to-member funds positioned at the leading edge of governance practices,” according to AIST.
AIST also says the code was developed “separately but in tandem” with the Fraser review.
“Despite the overwhelming legal and regulatory requirements that already apply to super funds, AIST believes more can be done to safeguard members’ compulsory retirement savings,” AIST CEO Tom Garcia said.
The Fraser review report says: “It is far from self-evident, however, that simply mandating minimum numbers of ‘independent’ directors will deliver quality or ‘best practice’ Board governance for all super funds: that case has to be made, not inferred or asserted.”
The report says that many of the arguments in favour of mandated minimum proportion of independent directors “rely heavily upon assertion, rather than reason and evidence”.
“Whether driven by ideology, pressures from lobbyists, or something else, the assertion card is increasingly and shamelessly played to trump sound reasoning and solid evidence – even on a matter as far under the radar as Board governance of superannuation funds.”
Minister for Revenue and Financial Services, Kelly O’Dwyer, says that super fund members have been let down by “industry self interest”.
“After almost 15 months of waiting for the arrival of the industry-fund sponsored report into Government legislation on the governance of superannuation funds, its key recommendation is that the status quo must be protected at any cost.”
“It is important to recall the initiative for improved governance and accountability of super funds began with the Cooper Review which was commissioned, delivered and ignored under a Labor Government.”
Since the Cooper Review there has also been the Financial System Inquiry, which recommended a majority of independent directors for public offer super funds. However this recommendation was rejected by the Liberal Government shortly after the leadership spill in favour of one-third independent directors.
“I am pleased that ISA and AIST have finally conceded to the release of Mr Fraser’s report, but it is a shame it has been exposed for what it always was, a lobbying document to kill off legislation that applies equally across the entire sector in December, 2015,” said Minister O’Dwyer.
“There is nothing in this report that negates the need for legislation to lift the standard of accountability, transparency and choice across the entire superannuation sector.”
Minister O’Dwyer said the Government remains committed to the super fund governance legislation, which has yet be reintroduced to Parliament – it lapsed ahead of the double dissolution election.