The Commonwealth Assistant Treasurer today released a discussion paper entitled Better regulation and governance, enhanced transparency and improved competition in superannuation for public consultation. The paper seeks responses to 31 questions about superannuation trustee boards, choice product dashboards, portfolio holdings disclosure and the default superannuation market.
The paper squarely raises the dilemma that will face the Government in its broader financial system inquiry – how do you regulate an industry when you’re ideologically and politically bound to deregulation. Superannuation may well be the testing ground and this consultation process will be round 1.
Superannuation trustee boards
The Government considers having independent directors on superannuation trustee boards to be “a vital step towards strengthening the superannuation system”. (Equal representation boards beware.) To that end, the paper asks a series of questions about:
- the definition of “independence” - the paper notes that the definition of independence used in the ASX Corporate Governance Principles is more stringent than the existing definition in the SIS Act and that the definition of “non-associated trustee-director” considered by the Cooper Review was even more stringent than either of the other two concepts;
- the proportion of a board that should be required to be independent - the paper suggests the Government has in mind either a one-third of the board independence requirement or a majority of the board independence requirement;
- the ongoing effectiveness of superannuation trustee boards - the paper asks whether there should be maximum appointment terms for director, while also acknowledging that the benefits of refreshing boards need to be weighed against the loss of experience involved;
- implementation issues – the paper asks questions about the method of implementation (by amending Act or regulation, APRA prudential standard, industry self-regulation or a combination), timeframe and transition.
Choice product dashboards
MySuper product dashboards are required from 1 January 2014 and choice product dashboards are currently required from 1 July 2014. However, the paper asks whether the commencement date for choice product dashboards should be delayed.
The paper says that, in relation to choice product dashboards, consideration should be given to:
- allowing trustees to set their own return target as an alternative to benchmarking against the consumer price index (the benchmark used for MySuper products); and
- including a net investment return measure (in addition to net return), a longer term inflation risk measure and a liquidity measure.
The paper asks whether an exception to the choice product dashboard requirements should be made for circumstances where they “would place an unnecessary burden on trustees with little or no benefit to members”, with certain legacy products cited as a potential example. A provocative response would be to ask whether any circumstances would fall outside such an exception.
Finally, the paper indicates that the questions asked about choice product dashboards arose from consultation on the MySuper product dashboard regulations. However, there is no suggestion in the paper that the MySuper product dashboard requirements might also change, if a different approach is considered necessary for choice product dashboards.
Portfolio holdings disclosure
Few aspects of the Stronger Super legislative package have been more hotly opposed and debated than portfolio holdings. The Corporations Act requires a superannuation trustee to disclose the portfolio holdings of a fund on its website from 1 July 2014. The information must identify each of the financial products or other property in which assets, or assets derived from assets, are invested and the value of the asset, or assets derived from assets. It must be disclosed in accordance with the regulations. The Corporations Act also requires custodians and investment managers to provide relevant information to trustees. Draft regulations were released and abandoned, now the Government is inviting comments on 2 alternatives:
- disclosure of direct investments only (trustees would not need to disclose “assets derived from assets” – this would be linked to an obligation for responsible entities of collective investment vehicles to comply with the same disclosure obligation); and
- disclosure of direct investments and investments held by associated entities (this is the same as the APRA reporting obligation).
Both would reduce costs and complexity and avoid an obligation to disclose confidential information. However, both would reduce transparency and provide room for manipulation.
The Government also invites submissions on whether the commencement date should be extended. Given the likely postponement of commencement and given that the Government’s commitment to “enhancing transparency” is tempered by its enthusiasm for reducing regulation and compliance costs, it might be that portfolio holdings disclosure on websites may never eventuate, despite the existing requirements of the Corporations Act.
Default superannuation market
The paper asks whether the existing model governing the selection of default superannuation funds in industrial awards (designed by the previous Government and commencing on 1 January 2014) meets “the objectives for a fully transparent and contestable default superannuation fund system for awards, with a minimum of red tape?” This might be thought to be something of a loaded question and the Government’s own answer to it is well-known.
The paper goes on to ask whether the model presented by the Productivity Commission in its October 2012 report is more appropriate than the existing model. Under the Productivity Commission’s model there would be two “filters” applied followed by a selection and ongoing assessment process. The first filter would be the MySuper product criteria and the second filter would be a set of non-prescriptive factors applied as a “quality filter”.
The paper also asks whether, as an alternative to the existing model and the Productivity Commission’s model, a MySuper authorisation alone should be sufficient and, if so, whether an advisory list of “high quality funds” should be published to assist employers in making their choice.
In this way, the default superannuation market continues to be a major policy focus, as it has been since award modernisation first got underway.
A copy of the discussion paper is available here.
The closing date for submissions is 12 February 2014.