Published in the Australian Financial Review, Page: 63
Thursday, 16 February 2012
Superannuation will be the second-greatest source of wealth for most Australians after their home, but usually we do not know the people we’ve entrusted to look after this important asset.
As participants in a compulsory super system, Australians are entitled to be confident that governance across the industry is of a high standard and that their superannuation is being managed efficiently, prudently and in their best interests.
But the Cooper review found that superannuation governance standards have not kept up with developments in the industry. It suggested it was difficult for trustees and directors on trustee boards to understand what was expected of them. Further, it found that, as the industry consolidated, more conflicts of interest arose.
The Cooper review also found a need for "a more finely calibrated capacity for [the Australian Prudential Regulation Authority] to supervise and regulate the superannuation industry".
Consequently, a critically important part of the government’s Stronger Super package is reforming the governance and supervision of our superannuation system. This is the objective of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012, which I will introduce into Parliament today.
A key element of the bill is to close a regulatory gap by providing APRA with the ability to make prudential standards, as it does in banking and insurance. As Ross Jones of APRA put it recently: "That is something we have been after for a long time 10 years to try to ensure that the quality of supervision in superannuation is what you get in other industries." Prudential standards will provide APRA with greater flexibility to adapt effectively to developments in the superannuation industry and the ability to provide regulated entities with clearer and more tailored legal requirements.
However, they are disallowable legislative instruments. Therefore, APRA must comply with the Legislative Instruments Act 2003 in making any prudential standard, including conducting appropriate consultation with the industry.
There will be new, enhanced obligations for trustees and individual directors of super funds to act honestly, operate in the best interests of members and give priority to members’ interests.
Trustees will be required to maintain financial resources, either as trustee capital or as fund reserves, to cover the operational risks of the funds they manage.
Improved governance and supervision is critical, given the government’s plan to increase the super guarantee to 12 per cent. Bill Shorten is Minister for Financial Services and Superannuation.
By Bill Shorten