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Second Reading: Superannuation Legislation Amendment (Trustee Governance) Bill 2015
It is wonderful to be able to speak in favour of the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 tonight. We have heard a lot of contributions from those opposite and it is quite embarrassing, really, that what should be an uncontroversial change to our superannuation arrangements is being vehemently opposed by those opposite because it does not accord with the wishes of their union paymasters. All we want to do is improve the governance arrangements for super fund boards to ensure that they meet the highest standards of governance. With $2 trillion under management, rising to $9 trillion under management, why wouldn’t we want the highest governance arrangements applying to those funds?
The amendments in this bill, as highlighted by previous speakers, are not about singling out any one sector. The changes apply equally to corporate, industry, public sector and retail funds. The changes will not apply, though, to self-managed super funds. As I said, superannuation represents $2 trillion and is the largest asset held by Australian households. In our view, the appropriate provision of independent directors on trustee boards is a vital step towards strengthening the super system. In our view, independent directors bring to a board a dispassionate perspective, enabling the board to benefit from a diversity of views and of course providing a check on management recommendations and conflicts of interest. Therefore, the presence of a greater number of independents on super fund boards will increase the accountability of management and strengthen the oversight of funds, helping to ensure that related party interests are not put ahead of members’ interests.
The new governance arrangements in schedule 1 will replace the existing requirements in part 9 of the SI(S) Act that require equal representation of employer representatives and member representatives on the boards of standard employer sponsored superannuation funds of five or more members. In this respect, the previous government’s 2010 super system review, the Cooper review, recommended that the SI(S) Act be amended so that equal representation should no longer be mandatory. In addition, the Cooper review noted that the presence of independent directors on boards is best practice in corporate governance. The Cooper review examined equal representation and found that:
… changes in the industry over time and certain implementation practices mean that equal representation no longer seems to achieve its original … objective.
The 2014 financial system inquiry’s final report concluded that independent directors on all superannuation trustee boards promote good governance by bringing an objective perspective to issues the board considers and holding other directors accountable for their conduct. In addition, independent directors allow for an increased accountability of decisions made by other directors who may have conflicting interests.
This bill delivers, therefore, on the government’s superannuation governance election commitment to align governance in superannuation more closely with the corporate governance principles that we all accept and that are applicable to ASX listed companies, for example. The bill does not restrict the composition of the remaining two thirds of board members. The government considers that it is appropriate to leave its boards to structure themselves in a manner they believe will serve their members’ best interests. Relevantly, to support the reforms, the bill provides APRA with the power to make determinations as to whether a person is independent or not. This will enable APRA to respond to situations in which a person’s circumstances and his or her capacity to exercise independent judgement is clear but, for reasons of perhaps timing, restructures and mergers and acquisitions, that has changed.
The amendments will take effect from the date of this bill receiving royal assent, with a three-year transition period to allow existing super fund boards to comply with the new requirements. Any new fund licensed by APRA after the date of royal assent will need to comply with the new requirements from the time they are licensed.
A number of stakeholder groups support these proposed changes. As I said at the beginning, these should be uncontroversial, and I would think they should receive support on both sides of the House. For example, the Association of Superannuation Funds of Australia said:
The government’s release of draft legislation, which will require boards of superannuation funds to be comprised of at least one-third independent directors … is a positive outcome for superannuation.
That is the Association of Superannuation Funds of Australia. They also said:
As a minimum, there must be the flexibility to appoint directors who have the right skills, experience and knowledge, as well as cultural fit.
Also, the Council of Small Business Australia said:
The fact that the directors are, in the great majority, chosen firstly on where they work rather than what skills and experience they have creates question marks around whether the best model of governance is in place. This proposed change creates improved transparency and an opportunity for the boards to improve their approach to collecting funds and dealing with people in the supply chain.
It is therefore our view that these changes, if they are good enough for governance arrangements for our top ASX listed companies and good enough governance arrangements for all listed companies around the world, then they should be good enough for our superannuation industry. It does not stop any fund from appointing directors with relevant experience who are the best people to be entrusted with the decisions to properly invest Australians’ superannuation savings.
I repeat: with our superannuation savings pool reaching $9 trillion, there is no room for errors. The government has to take an abundance of caution in ensuring that the composition of all our boards has the best interests of their members at heart but, more importantly—because I am sure they do have the best interests of their members at heart—that there is the requisite balance of skills on those boards to make the best investment decisions. With a pool of savings that large, it is incumbent on government to ensure that Australians are getting the best return for their retirement. I therefore will not repeat the contributions of those who have gone before me, and I commend the bill to the House.
Click here to access a PDF copy of the Hansard transcript of this speech.
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