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Monday, 19 October 2015
Page: 11639

Mr JOHN COBB (Calare) (20:05): I rise to support the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 and the bringing in of measures to improve the governance of the superannuation industry. Obviously superannuation has become one of the biggest money funds in Australia—probably is the biggest by far. It does need improving, it does need modernising and it does need to be more efficient. We just heard the shadow Treasurer say it was so perfect but it quite obviously was not. What the government is doing is meeting a need to improve the governance, to improve the efficiency and to make it a competitive industry. We have a responsibility to ensure that superannuation boards have the most experienced members and those with the right expertise to get the best outcomes for fund members. I must stress this amendment is not singling out any one sector; in fact, the changes equally apply to corporate industry public sector and retail funds. The modernisation of superannuation is necessary considering superannuation is already the second-largest asset held in Australian households. There is currently $2 trillion in super and this is projected to grow to $9 trillion by 2040. This increase is no surprise, with Australia's ageing population; in fact, it would be a worry if there were not this increase. By 2055 the number of Australians aged 65 and over is expected to double. It does require the government to ensure that the industry is going to be capable of meeting these needs and be well run in the meantime. In this case, action has been well overdue, as the current requirements are outdated and no longer reflect the size and the structure of that industry.

The changes come in response to independent reviews of the superannuation system. The Cooper review and the Financial System Inquiry recommended that superannuation trustee boards include a higher number of independent directors. The proposed changes will require all superannuation funds to have a minimum of one-third independent directors on their trustee board and an independent chair. An independent director is a person who is not a substantial shareholder of the super funds trustee or who does not have a material business relationship with the licensee and has not had one for the past three years. This definition has been broadened to take into account a person's wider personal circumstances. APRA will enforce the changes and hold the ability to determine if a person is independent. This will enable APRA to respond to situations where a person's circumstances or their capacity to exercise independent judgement is clear, but for reasons such as timing, restructures, mergers and acquisitions. This gives trustees a three-year period to make the necessary changes from the time the legislation receives royal assent.

The purpose of these changes is to ensure that Australians have the best people governing their retirement savings. The current system does not mean independent directors will provide boards with an external perspective, and it is quite obvious to all advisors that this needs to happen. Independent directors will be able to provide a check on management and conflicts of interest, and will act as a safeguard to related party interests being put ahead of member interests.

The new governance arrangements will replace existing requirements of equal representation of employer representatives and member representatives on the boards of standard employer-sponsored superannuation funds of five or more members. The 2014 Financial System Inquiry final report recommended these changes to ensure efficiency and best practice. Given the diversity of fund membership—and I think this is the whole point of this—it is more important for directors to be skilled, to be independent and to be accountable than to be representative. Their job is to make the members money, not to be representatives of the members. I think there is a not-so-subtle difference there. These changes will promote strong governance through the power of an objective source. The bill does not restrict the composition of the remaining two-thirds of board members. Boards can continue to structure themselves in a manner they believe will serve the best interests of their members.

After a lot of consultation—I know they came to see me—these proposed changes have been welcomed by various members of the industry. CHOICE echoes the government's sentiment—that having higher standards of governance will mean consumers have a secure retirement. Suncorp believes it will ultimately benefit customers as it supports competition, while the Association of Superannuation Funds says it reflects community expectations and is a positive outcome for the whole industry.

I will stress that at the moment the current system is lagging behind, and industry realignment is necessary. It is important that superannuation boards are not exempt—I stress: not exempt—from standards reflected in corporate governance principles that apply to all successful companies. It brings it into line with domestic and international best practice. The current system is largely out of step—it is based on history rather than need, and that is: the need and the interests of those who have funds within the funds system—with other corporate sectors including listed companies, banks and general insurers. All of these at a very minimum recommend a majority of independent directors with an independent chair.

There is no intention for this to be and nor is it an attack on industry funds. In actual fact, quite a number have already moved to a model that is similar to what is being proposed here today, while others have taken a constructive approach towards the changes—unlike the opposition, who seem to think that what they do cannot be fixed. Well, it can certainly be improved, and that is what is happening.

The bill delivers on the government's superannuation election commitment to align governance in superannuation more closely with corporate governance principles applicable to ASX-listed companies. The current model does not allow for accountability or transparency—in fact, it prohibits this and allows for decisions to be made that may not be in the best interests of members. The changes will ensure a stronger superannuation system to support the future retirement of Australians.