The Financial System Inquiry’s recommendation that APRA-regulated superannuation funds should have a majority of independent trustees has been branded “unenthusiastic” by Industry Super Australia.
Notably the section of the report containing the recommendation, which also calls for all chairs to be independents and for an arm’s length definition of independence to apply, starts out with the following statement:
“Although there is little empirical evidence about the relationship between quality of governance in Australian superannuation funds and their performance, high-quality governance is essential to organisational performance.”
David Whiteley, chief executive of Industry Super Australia, said: “I would describe that recommendataion as pretty unenthusiastic,” adding that most industry super fund trustees would meet ASX guidelines on independence.
He added: “My instinct is the government will leave this one alone as its priorities will be increasing benefits to members and they would be loathe to disrupt the governance of funds that deliver the best returns to members.”
In the press conference following the release of the report, David Murray said the Inquiry had recommended no time line for this change of governance to occur.
“The issue is for us is the principle and not the time line,” he said, adding that once the system moved to an open offer basis, employer or industry representative trustees would lose their relevance.
“Once you go to an individual accumulation system with choice, the bulk of employee and employers are somewhat distant in reality as they are open offer funds,” he said. “So to be consistent you would need a majority of independents.”
The treasurer Joe Hockey confirmed it would be the government’s responsibility to set a time frame for such a change.
The Australian Institute of Superannuation Trustees opposed the move to a majority of independents on the grounds of the outperformance of industry funds with a representative employer and employee model.
Tom Garcia, chief executive of AIST, supported funds having the flexibility around the appointment of independent directors rather than a fixed quota system, which ran counter to international best practice.
Pauline Vamos, chief executive of ASFA, noted the appetite of professionals in the financial services industry to become independent trustees of APRA regulated funds.
She supported a clear and workable definition of independence and suggested it be a hybrid of the ASX guidelines and the SIS Act requirements.
The Financial System Inquiry also called for the introduction of civil and criminal penalties for directors who fail to execute their responsibility to act in the best interests of members, or who use their position to further their or others’ interests to the detriment of members. This would bring superannuation into line with the regulation on managed investment schemes.