The Federal Government is on a collision course with industry superannuation funds after it tabled legislation that has been labelled misguided and unnecessary.

The reforms would require not-for-profit, low fee industry super funds to adopt the same governance models as retail funds, despite the retail funds consistently delivering inferior returns to members.

Under the proposed laws, super funds will be required to have an independent chairman, and independent directors will need to comprise at least a third of a fund’s board. The changes will also apply to retail, corporate and public sector funds.

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Robbie Campo, deputy chief executive of Industry Super Australia, said successful industry funds were being targeted despite current scandals in the wealth management industry.

“The watchful eyes and questioning minds of industry super fund directors have not only delivered the best performing funds, they have avoided the widespread consumer losses and scandals which have engulfed the major banks and wealth managers over recent years,” said Ms Campo.

“We would caution against a ‘one size fits all’ approach which would impose costly obligations on not-for-profit super funds in the absence of evidence to demonstrate the benefits to our members.

“Tackling governance problems in other parts of the finance sector should be the priority.”

The majority of sector groups including the Financial Services Council and Association of Superannuation Funds of Australia, as well as consumer advocacy group CHOICE, back the proposed rules.

“As superannuation grows from $2 trillion today to $7 trillion by 2035, good governance will be imperative for protecting consumers from potential conflicts of interest that may arise on boards of superannuation funds,” Financial Services Council chief executive Sally Loane said.

Assistant Treasurer Josh Frydenberg. Photo: AAP

Frydenberg: ‘improving the system’

Unveiling the proposed changes, Assistant Treasurer Josh Frydenberg said the Federal Government was delivering on a commitment to improve the governance of superannuation funds.

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

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

“If you’re a teacher, or if you’re a nurse, and you’ve got $100,000 of your hard earned savings in superannuation, you want the people on the board to have the best experience, and the best diversity of views in order to get the best possible outcomes for you.”

Labor and the Greens are expected to oppose the changes, meaning the support of crossbenchers will be needed.

Opposition leader Bill Shorten said Labor would consider the proposal but accused the government of putting politics ahead of a case for changing a system already working well.

How super governance works now

Industry super funds are currently run on an ‘equal representation’ model. That means half of all board members are appointed by employers (normally via industry groups), and the other half by employees (normally via trade unions).

This means all stakeholder’s interests are equally represented. If the board wants, it can decide to include independent directors – as many funds like MTAA Super, HESTA, HOSTPLUS and REST have – but there is no obligation to do so. The chair can be employer-nominated, employee-nominated or independent.

Under the new rules, there would be a legal obligation to appoint one third independent directors, including an independent chair.

Paul Bastian, national secretary of the Australian Manufacturing Workers’ Union, rejects the government’s plan.

“There has been no evidence put up about what independent directors will do, other than to say some glib, ideological statement that it’s to bring it in line with the corporate sector of banks.”

He said the “proof is in the pudding”: industry funds have historically outperformed bank-owned retail funds.

A business view

Kate Carnell, chief executive of the Australian Chamber of Commerce and Industry, told The New Daily the government’s plan was a “good compromise”, balancing equal representation with general best practice governance principles.

“The issue is that, regularly employees have no choice which fund their money goes into. Because they have no choice … the government has an obligation to ensure that these funds are run to best practice.”

But given industry funds have consistently performed well, is this just a solution in search of a problem? Her response: “Who’s to say it [their performance] couldn’t be better?”

“Yes, industry based super funds have performed reasonably well – some not as well, others better – generally the current environment is becoming more complex by the minute and more challenging by the minute to get decent returns.”

An independent view

Andrew Boal, managing director of Towers Watson Australia, make his living as an independent problem solver (aka consultant) for superannuation funds.

He says that while independence is a good thing in principle, there is a lot that needs to be carefully thought through before taking the plunge.

“Independent directors are already starting to appear on trustee boards, and I think funds are doing that because they’re seeing where they have skill gaps, and they’re adding those skills to the board,” he said.

“And I think that’s a great development.”

However, he said a convincing case for mandating independence had not yet been made.

-with AAP, ABC