Government re-opens the door to further superannuation reform

The governance of superannuation entities has been brought to the fore with the release by the Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, of a discussion paper examining the regulation, transparency and competition in the superannuation sector.

The discussion paper, Better Regulation and Governance, Enhanced Transparency and Improved Competition in Superannuation, seeks specific feedback on proposed policy changes and measures, including:

  • reducing the regulatory compliance costs of the sector, including administrative, compliance and delay costs
  • examining the governance structures of superannuation entities, including:
    • the definitions and proportions of independence on the board of trustees
    • the processes for the appointment of directors
    • the regular performance appraisal of directors
    • the measures for managing conflicts of interest on the board of trustees, and
    • the tenure of directors on the board of trustees
  • regulating the minimum content of the product dashboard, and delaying the imposition of the product dashboard reporting requirements beyond 1 July 2014
  • introducing portfolio holdings disclosure requirements and a materiality threshold, whereby superannuation entities would be required to disclose details of their portfolio holdings to investors once their holdings reach a still to be determined level, and
  • whether the review process of default superannuation funds should be reformed in line with recommendations from the Productivity Commission to increase competition within the sector.

Governance Institute of Australia is pleased to see that the Federal Government is continuing the discussion of governance in the sector, with several proposals put forward to improve the governance structures currently in place. We have previously expressed our concerns that the current superannuation model does not provide the vast number of Australians who have become indirect shareholders of these entities with enough information about the governance of the funds in which they have indirectly become stakeholders through the investment of their superannuation savings and contributions. With the inquiry into the financial system underway, it is a good opportunity to review the governance arrangements in superannuation entities.

To this end, we have also indicated support for the introduction disclosure regime applicable to superannuation entities that mirrors the reporting requirements for listed entities under the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations (the Principles and Recommendations). This framework is one which offers a good model for governance disclosure. The Principles and Recommendations offer a flexible framework for the corporate governance of listed companies, irrespective of their size or industry —‘if a listed entity considers a Recommendation is inappropriate to its particular circumstances, it has the flexibility not to adopt it —- a flexibility tempered by the requirement to explain why.

We believe that this approach can provide a foundation for an approach to governance disclosures for superannuation entities which will best serve the interests of members. There is no ‘one-size-fits-all’ approach to governance, and we recognise that it may be necessary to establish a set of guidelines which reflect the most common approaches to the very specific governance issues associated with the superannuation industry. However, given the wide diversity of circumstances facing superannuation funds and given different sized funds and member profiles, it is essential that funds have the flexibility to select a governance approach most suitable to their circumstances.

Any change to the existing governance framework, however, will also take time and place an initial compliance burden on the superannuation industry. Governance Institute of Australia notes that the discussion paper also asks participants for feedback on the time required for transitioning for any new measures to be put in place.

The consultation will remain open until 12 February 2014 and further information on the discussion paper can be found on the Treasury website.

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