Kelly O'Dwyer (Higgins, Liberal Party, Minister for Small Business) Share this | Hansard source

Firstly, I would like to thank those members who have contributed to this debate. The Superannuation Legislation Amendment (Trustee Governance) Bill 2015 will amend the Superannuation Industry (Supervision) Act 1993 to align governance and superannuation more closely with the corporate governance principles applicable to ASX-listed companies.

This will increase the level of independence in the management of superannuation funds and ensure that directors with the best experience and expertise are represented on superannuation trustee boards, enhancing decision making and producing better outcomes for members, whilst minimising the costs to the superannuation industry.

The bill fulfils an election commitment of this government. As a result of this bill, the governance of super fund boards will move from an outdated model that has applied since 1993 to an international-best-practice model whereby at least one-third of directors are independent. Our key objective is to have the best people governing the retirement savings of Australians.

Superannuation balances at over $2 trillion now represent, after the family home, the biggest part of Australian households' net assets, accounting for around 27 per cent of Australian household net wealth. This amount is only going to increase, and by 2040 the size of Australian household superannuation overall balances is estimated to reach around $9 trillion.

Superannuation is a key pillar supporting the retirement incomes of Australian workers. Superannuation represents a long-term investment and, in general, employees cannot access their funds until retirement. Apart from self-managed super funds, Australians rely on others to manage these balances. Only governance arrangements that are international best practice can be appropriate for the management of monies that are paid in a compulsory manner, concessionally taxed, greatly depended upon and invested for long periods of time.

There has been some suggestion from those opposite that there is no reason to change. However, international-best-practice governance involves the presence of independent directors on boards. Independent board members bring different skills and experience, and different expertise. They hold other directors accountable for their conduct, particularly in relation to conflicts of interest. APRA, the prudential regulator of the Australian financial services industry, has a mandate to mitigate systemic risk to the financial sector. One way it does this is by requiring the boards of banking and insurance companies to have a majority of independent directors, as independence helps to ensure that decisions are made in the best interests of the depositors or policyholders.

In APRA's words—in fact, from a speech given just this morning—there is more on the reasons for change:

APRA's long-held view is that independent directors play a very important, positive role on boards … APRA's experience, over many years and across all our industries, is that having at least some independent directors on boards supports sound governance outcomes. Independent directors broaden the skills and capabilities that can be brought to the board table, and improve decision-making by bringing an objective perspective to issues the board considers. They are also well placed to hold other directors accountable for their conduct, particularly in relation to conflicts of interest.

Under ASX corporate governance principles, shareholders of listed companies benefit from governance arrangements with independent directors. For those opposite who are still looking for a reason to change, I remind them that both the Cooper Review into Superannuation in 2010, which was commissioned by the previous Labor government, and the more recent Financial System Inquiry into the financial system in 2014, which was released today with the government's response to the recommendations, concluded that superannuation fund members would benefit from having a greater number of independent directors on fund boards.

This bill will protect the interests of all members of APRA regulated superannuation funds including members of corporate, industry, public sector and retail funds. It will bring the governance arrangements in line with international best practice and require independent directors on their boards. The bill will help ensure that decisions are made in the best interests of members and not in the best interests of others. While the bill will require super fund boards to have a minimum of one-third independent directors and an independent chair on their board, boards will be able to choose to have the remaining two-thirds of their directors split between member and employer representatives if they consider it appropriate.

Despite what those opposite say, the government is in no way preventing funds from enshrining equal representation in their constitutions. Beyond a minimum of one-third independent directors, it is appropriate to leave it to boards to structure themselves in a manner they believe will best serve their members' interests. The existing definition of 'independent' is being replaced because it currently relates only to whether a person is independent of the members and the employers of the fund and does not cover any other relationship. The new definition will look at ownership or structural arrangements relating to the RSE licence as well as the relationship an RSE licencee might have in determining independence. In addition, APRA will be able to determine whether someone is independent or not based on whether they have the ability to exercise independent judgement. This will allow APRA to respond to situations where a person's circumstances and his or her capacity to exercise independent judgement are not clear; for example, where somebody does not meet the technical definition of independence but they have the ability to act independently.

APRA'S determinations are reviewable so someone affected by the decision will be able to ask APRA to reconsider as well as seek a review by the Administrative Appeals Tribunal. This type of power is consistent with other regulators' powers; for example, ASIC can make a declaration that something is not a financial product. There will be a three-year transition period for existing trustees commencing when the legislation receives royal assent.

In addition, the bill will amend the governance of Australian government superannuation schemes at 2011 to restructure the trustee board for the Australian government's main civilian and military superannuation schemes, the Commonwealth Superannuation Corporation, to comply with the new governance requirements by the end of the transition period. The CFC board will comprise a majority of independent directors and the board will be reduced from 11 to nine directors to better align with the principles of governance best practice.

I thank all of those people who have been involved in the various exhaustive consultation processes of these reforms and I commend the bill to the House.

See this speech in context