Superannuation
funds face a major shakeup in their corporate governance under controversial
reforms announced by the federal government today.
Under draft
legislation to be released, superannuation funds will be required to have an
independent chairman and independent directors will need to comprise at least a
third of a fund’s board.
While the
government’s key target is known to be union-backed industry superannuation
funds, the proposed changes will also apply to retail, corporate and public
sector funds now worth $2 trillion in retirement nest eggs.
Funds will
also be required to detail in their annual reports whether they have a majority
of independent directors on an “if not, why not” basis under similar rules that
apply to ASX-listed companies.
The
government’s pursuit of industry superannuation funds in particular comes amid
concerns about a lack of transparency and links between the union movement and
the boards controlling the industry superannuation sector.
The draft
legislation is also timely for the government as the Royal Commission into
Trade Union Governance and Corruption highlights incidents of alleged
misconduct and conflicts of interest between trade unions and employers.
Unveiling
the proposed changes, the Assistant Treasurer Josh Frydenberg said the federal
government was delivering on a commitment to improve the governance of
superannuation funds.
“Not only does superannuation represent the hard-earned retirement
savings of Australians, it is already the second largest asset held by
Australian households,” Mr Frydenberg said.
“Given the size of the superannuation system, and its importance
in funding the retirement of Australians, good governance is absolutely
critical.
“Independent directors bring additional experience and expertise
to boards making a valuable contribution to their decision making.”
The proposed
governance shakeup has been cautiously welcomed by Industry Super Australia
which represents union backed not-profit superannuation funds.
But ISA’s
deputy chief executive Robbie Campo said successful industry funds were being
targeted despite current scandals in the wealth management industry.
The
superannuation system now comprises more than 120 percent of Australia’s gross
domestic product (GDP) and is anticipated to grow to from $2 trillion to $9
trillion by 2040.
The number of
Australians over 65 and seeking to access their retirement savings is expected
to double by 2054-2055.
The proposed
reforms will apply to all superannuation funds regulated by the Australian
Prudential Regulation Authority (APRA) with the exception of self managed
funds.
The
government’s proposal for majority independent directors and an independent
chairman mirrors the Labor government Cooper Review commissioned in 2010.
The
legislation if passed allows for a three year transition period to allow funds
to reconstitute their boards under the new governance rules.