Super fund governance changes breach rule of law, says AIST

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The Australian Institute of Superannuation Trustees says the proposed changes to superannuation fund governance are unclear, unworkable and breach the rule of law.

In June the Government released draft legislation for a minimum one-third independent directors and an independent chair for public-offer superannuation funds. An Australian Institute of Superannuation Trustees (AIST) submission in response to the governance reforms says the changes are unworkable, aspects breach the rule of law, and will cost $20 million per fund to implement in the first year.

AIST CEO Tom Garcia said the “one-size fits all approach to super fund governance carried risks to not-for-profit super funds without any demonstrable benefits to members.”

“The proposed changes will be a significant disruption and cost to the boards and members of not-for-profit super funds without the Government having produced any evidence that they will lead to better outcomes for members,” he said.

The submission says the changes are estimated to cost each industry fund $20 million to implement in the first year.

AIST says “many of the proposed changes are unworkable as they fail to recognise that not-for-profit funds – which have consistently provided the best returns – operate under very different ownership structures to the for-profit (bank and insurance-owned) super funds.”

AIST is particularly concerned with the powers given to APRA under the draft legislation, saying the regulator is to act as “law maker and a judge as well as jury.”

Mr Garcia said APRA would have the power to determine if a director had the capacity for independent judgement and “this is a serious breach of the rule of the law and gives APRA far greater powers than it currently has in other APRA-regulated industries, such as banking and insurance.”

Mr Garcia also said the proposed definition of independence would reduce the pool of skilled and experienced talent able to serve on super fund boards.

“AIST disputes the need for change in light of the existing prudential framework and the powers available to the regulators to rectify or address any issues that arise,” said the submission.

“The proposed changes do nothing to address the real and demonstrated conflicts associated with board structures in the retail superannuation sector where it will still be possible for the staff of a bank (dedicated to the profitability of their employer) to form the majority of the bank superannuation fund board, and for the ‘independent’ directors to be the same ‘independent’ directors that sit on other boards of the same banking institution, where again they are responsible for maximising profits for the bank’s shareholders.”

“There is no evidence to support the need for changes to board composition and AIST opposes the disruption, unnecessary cost and potential harm that the government’s proposed governance changes may have on the best interests of super fund members,” said the AIST submission.

Industry Super Australia has said the continued outperformance of industry funds compared to retail funds justifies not changing superannuation fund governance arrangements.

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