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.
Listen to my report from this morning's edition of AM where I speak with Assistant Treasurer Josh Frydenberg
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.