September 2017, the Senate referred the Treasury Laws Amendment (Improving
Accountability and Member Outcomes in Superannuation Measures
No. 1) Bill 2017 (Measures No. 1 bill) and the Superannuation Laws Amendment (Strengthening
Trustee Arrangements) Bill 2017 (STA bill) to the Senate Economics Legislation Committee
(committee) for inquiry and report by 23 October 2017.
form part of a broader package of government reforms designed to strengthen the
Australian superannuation system by 'protecting members' money and members'
The Treasury Laws Amendment (Improving Accountability and Member Outcomes in
Superannuation Measures No. 2) Bill 2017, which forms part of the package, was
also separately referred to the committee for inquiry and report by
23 October 2017.
In his second
reading speech, the Assistant Minister to the Prime Minister, Senator the Hon James
McGrath, explained that in implementing these reforms, the government will
...strong and modern superannuation system with a stronger
prudential regulator that is solely focused on delivering outcomes for all
Australians who rely on these funds to secure their retirement.
No. 1 bill contains eight schedules, which propose to amend the Superannuation
Industry (Supervision) Act 1993 (SIS Act), the Corporations Act 2001
(Corporations Act) and the Financial Sector (Collection of Data) Act 2001
(FSCODA) in order to 'modernise and increase confidence within the superannuation
The details of each schedule are set out below.
bill seeks to introduce a
definition of independence as it relates to directors and to legislate a
requirement that all superannuation funds regulated by the Australian Prudential
Regulation Authority (APRA) have a minimum of one-third independent directors;
as well as an independent Chair.
The details of the STA bill are set out below.
Conduct of the inquiry
advertised the inquiry on its website and wrote to relevant stakeholders and
interested parties inviting submissions by 29 September 2017. The committee received
37 submissions, which are listed at Appendix 1.
held two public hearings in Canberra on 9 October 2017 and in Sydney on 10
October 2017. The witnesses who appeared at the hearings are listed at Appendix
thanks all individuals and organisations who assisted with the inquiry,
especially those who took the time to make written submissions and appear at
Superannuation is an important part of Australia's retirement income
system and will be an increasingly significant contributor to the retirement
incomes of many Australians.
This year marks 25 years since the introduction of compulsory
superannuation in Australia. Over this time, the superannuation system has
grown from $136 billion to over $2.3 trillion with APRA regulated funds
managing approximately $1.4 trillion of this total. The reforms in the two
bills are designed to ensure that the superannuation system has a strong
foundation into the future.
In recent years, two reviews have considered the governance arrangements
of the Australian superannuation industry: the Super System Review and the Financial
System Inquiry. The
Measures No. 1 bill and STA bill put recommendations of these past reviews and
the practices of high performing superannuation funds into effect.
Super System Review
The Super System Review (the Cooper Review) was led by Mr Jeremy Cooper
and was finalised in June 2010. It explored in detail, the governance,
efficiency, structure and operation of Australia's superannuation system.
A majority of the issues examined in the Cooper Review were linked back
to issues of trustee governance. In particular, the review noted the need for
changes to the structure of trustee boards, including their size, and
recommended the creation of a new office of 'trustee–director', which would be
subject to tenure.
The Cooper Review highlighted that:
Contemporary best practice in corporate governance for listed
companies includes the presence of independent directors on the board. The
Panel believes that a minimum number of ‘non‐associated’ trustee‐directors (such that
they can genuinely influence the decisions of those boards) should be required
on all superannuation trustee boards.
The Cooper Review also made several recommendations in relation to
trustee governance including:
Recommendation 2.6: The SIS Act should be amended so that if
a trustee board does not have equal representation, the trustee must have a
majority of ‘non‐associated’ trustee‐directors.
Recommendation 2.7: For those boards that have equal
representation because their company constitutions or other binding
arrangements so require, the SIS Act should be amended so that no less than one‐third of the total
number of member representative trustee‐directors
must be non‐associated
and no less than one‐third
of employer representative trustee‐directors
must be non‐associated.
These recommendations are reflected in the schedules of the STA Bill.
Financial System Inquiry
The Financial System
Inquiry (FSI) was led by Mr David Murray AO and finalised in
November 2014. The FSI examined how the financial system could be positioned to
best meet Australia's evolving needs and support its economic growth. The FSI noted
...superannuation is now the second largest asset for many
Australians. Its growing importance underlines the need for a regulatory
approach that puts individual members at the very centre of the system —
benefiting both individual Australians and the economy as a whole.
The FSI raised concerns in relation to 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. The
FSI suggested that the government introduce civil and criminal penalties for
directors who do not fulfil their responsibilities.
This suggestion has been captured in schedule 3 of the Measures No. 1 Bill.
Recommendation 13 of the FSI report, recommended changes to governance
of superannuation funds, which in effect, summarises the principal objective of
the STA Bill:
Mandate a majority of independent directors on the board of
corporate trustees of public offer superannuation funds, including an
independent chair; align the director penalty regime with managed investment
schemes; and strengthen the conflict of interest requirements.
Amendment (Trustee Governance) Bill 2015
The committee notes that it has previously inquired into the
Superannuation Legislation Amendment (Trustee Governance) Bill 2015. That bill
contained measures which would have had the same effect as those set out in the
The committee reported on the provisions of that bill in November 2015
and recommended that the bill be passed. However, the bill lapsed when the
Parliament was prorogued in April 2016.
Overview of the Bills
Treasury Laws Amendment (Improving
Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017
above, the Measures No. 1 Bill contains eight measures, which propose to amend
the SIS Act, the Corporations Act and the FSCODA in order to 'modernise
and increase confidence within the superannuation system'.
The eight schedules that make up the bill are set out below.
Schedule 1: Annual MySuper outcomes
Schedule 1 amends
the SIS Act to strengthen the obligation on superannuation trustees to consider
the appropriateness of their MySuper product offering annually including how
that product continues to deliver appropriate outcomes to MySuper members.
Schedule 2: Authority to offer a
Schedule 2 amends the SIS Act to give APRA an enhanced capacity to
refuse a registerable superannuation entity (RSE) licensee a new authority to
offer a MySuper product or to cancel an existing authority.
Schedule 3: Director penalties
amends the SIS Act to impose civil and criminal penalties on directors of RSE
licensees who fail to execute their responsibilities to act in the best
interests of members, or who use their position to further their own interests
to the detriment of members.
Schedule 4: Approval to own or
control an RSE licensee
Schedule 4 amends the SIS Act to strengthen APRA’s supervision and
enforcement powers when a change of ownership or control of an RSE licensee
Schedule 5: APRA directions power
Schedule 5 amends the SIS Act to strengthen APRA’s supervision and
enforcement powers to include the power to issue a direction to an RSE licensee
where APRA has prudential concerns.
Schedule 6: Portfolio holdings
Schedule 6 amends the Corporations Act to refine the requirements for
RSE licensees to make publically available their portfolio holdings.
Schedule 7: Annual members'
Schedule 7 amends the SIS Act to require RSE licensees to hold annual
members' meetings (AMMs). The meetings are to discuss the key aspects of the
fund and provide members with a forum to ask questions about all areas of the
fund’s performance and operations.
Schedule 8: Reporting standards
Schedule 8 amends the FSCODA to provide APRA with the ability to obtain
information on expenses incurred by RSE and RSE licensees in managing or
operating the RSE.
Superannuation Laws Amendment (Strengthening
Trustee Arrangements) Bill 2017
The STA bill seeks to introduce a 'strong and consistent definition of
independence' and a legal requirement that APRA regulated funds must have an
independent Chair and a minimum of one-third independent directors on their
Schedule 1: RSE licensees
Schedule 1 amends the SIS Act to introduce new trustee
arrangements RSEs to have at least one third independent directors and for the
Chair of the Board of directors to be one of these independent directors.
Schedule 2: Board of CSC
Schedule 2 amends the Governance of Australian Government
Superannuation Schemes Act 2011 (Governance Act), to enable the trustee
board of the Commonwealth Superannuation Corporation to comply with the independence
requirements set out in schedule 1.
Financial impact and regulatory impact statement
explanatory memorandums to the Measures No. 1 bill and the STA bill state that
the bills do not have any financial impact. However, the regulation impact
statement for schedule 7, which introduces a requirement to hold AMMs,
indicates that the amendments have a start-up cost of $8.5 million and ongoing
costs of $13.7 million, which will result in an estimated compliance cost
impact, averaged over 10 years of $14.6 million.
The explanatory memorandums to the Measures No. 1 bill and the STA bill
state that the bills do not engage any of the applicable rights or freedoms
under the Human Rights (Parliamentary Scrutiny) Act 2011, and, as such,
are compatible with human rights. The Parliamentary Joint Committee on Human Rights
considered the bills in its Report 10 of 2017 and made no comment.
The Measures No. 1 bill and the STA bill were also considered by the
Senate Standing Committee for the Scrutiny of Bills in its Scrutiny Digest 12
of 2017. In relation to the Measures No. 1 bill, the Scrutiny of Bills
committee has sought information from the Treasurer regarding the proposed
penalties, and for a broadly framed offence that reverses the evidential burden
of proof and allows exceptions to be prescribed in regulations.
Structure of this
The report is
structured in two chapters—this introductory chapter, which provides a brief
overview of the bills and the context; and chapter two which discusses the bills
in more detail, and the related issues raised in submissions and by participants
in the inquiry.
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