Policy challenges mounting for superannuation funds

It will not be lost on many of those attending this month’s Conference of Major Superannuation Funds (CMSF) on the Gold Coast that they are doing so for the first time in seven years with a Coalition Government sitting on the Treasury benches in Canberra. 

Nor will it be lost on the CMSF 2014 delegates that the Abbott Coalition Government is committed to changing a number of the superannuation policy and regulatory settings which have been integral to the unquestioned success of industry superannuation funds over the past two decades.

Therefore, the primary questions to be posed and debated at the conference ought to be around how the funds deal with that change. 

Because the Abbott Government is not confronting industry superannuation funds on just one front in terms of policy change.

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Rather, it has flagged a broad-ranging approach over at least a three-year time-frame with much of it likely to be delivered as a result of the Financial Systems Review. 

But what the CMSF delegates already know is that the Federal Government has a fairly well-defined view on superannuation fund governance and the workings of the default funds under modern awards regime. 

Where fund governance is concerned, the Government is largely supportive of the position developed by the Financial Services Council (FSC) which argues that, in similar terms to those which apply to companies listed on the Australian Securities Exchange, all superannuation fund boards should have a majority of independent directors. 

The degree to which the Government has picked up on this theme is reflected in a statement by the Assistant Treasurer, Senator Arthur Sinodinos, attaching to the Government’s discussion paper on superannuation fund governance, submissions for which closed in mid-February.

In that statement, Sinodinos listed the opening issue for discussion as being “How best to ensure an appropriate provision for independent directors on superannuation trustee boards. Issues canvassed include how ‘independence’ could be defined and what could constitute optimal board composition”. 

In the array of submissions made in response to the Government’s discussion paper, the Australian Institute of Superannuation Trustees made the point that the governance arrangements common to industry superannuation funds had served the sector well.

It did, however, give a passing nod the concept of one-third employer-nominated directors, one-third employee-nominated directors and one-third independent directors. 

However it is on the question of default funds under modern awards that the industry funds will find themselves confronted by an aggressive Government policy line – something made abundantly clear during Senate Estimates Committee hearings during which Coalition Senators raised serious questions about the default fund regime and its oversight by the Fair Work Commission. 

The chairman of the Senate Legislation and Economics Committee, Tasmanian Liberal Senator, David Bushby, reflected broad Coalition sentiment towards the default funds regime when he suggested that the process being followed by the Fair Work Commission stood to be highly disruptive and might act to the detriment of retail players such as BT Group. 

Again, the Government seems more enamoured of the position being pursued by the FSC involving all approved MySuper funds being treated as eligible default funds and with the industrial judiciary having no role in the process. 

It is too early to know the degree to which the Government’s Financial Systems Review will impact industry superannuation funds, but it seems likely the process will traverse the issues of governance and regulation. 

Given the number of regulatory and policy balls now in play, while CMSF 2014 will have plenty of talking points, the 2015 conference seems likely to have even more challenges to consider.