26 June 2015
Media Release - #2015034, 2015

In the role of: Assistant Treasurer [23 December 2014 - 21 September 2015]

Improving superannuation governance

The Government has released exposure draft legislation delivering on its commitment to improve governance in superannuation.

Australia’s superannuation system now has more than $2 trillion in assets – a figure that represents more than 120 per cent of Australia’s GDP. Based on current projections, this is expected to grow to $9 trillion by 2040, while the number of Australians aged 65 and over is expected to more than double by 2054-55.

Not only does superannuation represent the hard-earned retirement savings of Australians, it is already the second largest asset held by Australian households.

Given the size of the superannuation system, and its importance in funding the retirement of Australians, good governance is absolutely critical.

With this in mind, the Government is committed to ensuring strong governance standards apply to superannuation trustee boards. Independent directors bring additional experience and expertise to boards making a valuable contribution to their decision making.

The exposure draft legislation released today proposes that all Australian Prudential Regulation Authority (APRA) regulated superannuation funds, including corporate, industry, public sector, and retail funds, have a minimum of one third independent directors on their trustee board and an independent chair. The new governance rules will not apply to self-managed superannuation funds.

Further, and consistent with rules that apply to ASX listed companies, trustees of APRA-regulated super funds will be required to report on whether they have a majority of independent directors, on an ‘if not, why not’ basis, in their annual report.

The Government’s proposal for a minimum one third independent directors and an independent chair is in-line with several recent independent reviews of the superannuation system that recommended that superannuation trustee boards include a higher number of independent directors.

For example, the 2010 Cooper Review, commissioned by the previous Labor government, recommended that boards have a minimum of one third independent directors. 

Further, the Financial System Inquiry (FSI) recommended that boards have a majority of independent directors, including an independent chair.

While the Government has carefully considered this FSI recommendation, we consider that the proposal for one third independent directors and an independent chair, will substantially strengthen governance arrangements for the benefit of fund members.  

Recognising that a number of existing funds will need to reconstitute their boards as a result of these reforms, the Government proposes a three year transition period will apply from the date of Royal Assent to the legislation. However, where an APRA-regulated super fund is established after 1 July 2016 it will have to adhere to the new governance measures from the time it is established.

Interested stakeholders are invited to comment on the exposure draft legislation and explanatory material, which along with details on how to lodge a submission, is now available on the Treasury website. Submissions close on 23 July 2015.

In addition, APRA will shortly invite all fund trustees to comment on proposed changes to APRA’s Prudential Standards. These changes are aimed at supporting the Government’s proposed reforms.