A Federal Government attempt to regulate the composition of industry super fund boards has been scuttled by crossbench senators in a spectacular dismissal of the Abbott-era legislation.

Independent senators Glenn Lazarus, Jacqui Lambie, John Madigan and Nick Xenophon – along with the Labor and the Greens – announced on Wednesday that they could not support the government’s plan because industry funds were not involved in recent financial scandals that had eroded the retirement savings of thousands of Australian workers.

The reform legislation, which would have forced industry funds to have one-third of their boards comprised of independent directors, was not put to a vote in the upper house after the government realised it was doomed.

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Under longstanding arrangements the boards of most industry super funds are comprised mostly of employee and employer representatives.

Senator Madigan said the government’s move to restructure industry funds was misdirected and would have imposed unjustified administrative costs on fund members.

“While, like any institution, industry super funds are far from perfect, it seems the government has the wrong target in its sights,” he said.

John Madigan says the government has the wrong target in its sights. Photo: AAP

“We have recently seen numerous scandals involving trusted financial services institutions, some involving financial planning advice proffered by our biggest banks.

“Yet the government has shown no appetite for addressing issues like these, or for undertaking reform to prevent them being repeated.”

Senator Lazarus said industry super funds had a history of delivering strong returns and called on the Turnbull government to focus reform on retail funds.

He also called on the industry super sector to undertake a review of governance arrangements and to develop a new code of conduct.

“I would like to ensure this review includes a focus on how industry funds can increase their investment in Australia, thereby supporting the local economy,” he said.

“As a result, I have advised the government I will not be supporting their proposal to change the structure of superannuation boards.”

Senator Lazarus: “If it ain’t broke, don’t fix it.” Photo: AAP

Senator Lazarus later told reporters: “I sort of lean towards that if it ain’t broken, don’t fix it.”

Former Reserve Bank Governor Bernie Fraser will conduct the governance review, and is expected to report back in April 2016.

Mr Fraser headed the central bank between 1989 and 1996 and is a former director of the nation’s largest industry fund, AustralianSuper.

Industry Super Australia chief executive David Whiteley said the decisions of crossbench senators to oppose the reforms was a victory for common sense over ideology.

“I think it’s now incumbent on not-for-profit industry super funds to develop a code of conduct to ensure they continue to improve governance,” he said.

“I think Mr Fraser’s record is such that he will provide frank and fearless advice to the sector.

“In our view this draws a line on the matter.”

However, the lobby group representing retail super funds, the Financial Services Council, signalled that it would continue the push to get the governance reforms passed by parliament next year.

“The governance of superannuation funds was established in the early 1990s and has failed to keep pace with community expectations for higher governance standards,” the FSC said in a statement.

“It is time for reforms that will ensure the ongoing sustainability of the superannuation industry into the future.”

The former Abbott government drafted the proposed changes to industry fund governance in August.

Former Assistant Treasurer Josh Frydenberg said at the time that the government’s proposals were reflected recommendations made by David Murray’s Financial System Inquiry.

Greens politician Peter Whish-Wilson revealed on Wednesday that senators had received confidential evidence in recent months from the Australian Securities and Investments Commission that suggested reform of industry fund boards was unnecessary.