Superannuation Public Policy Update

Outside of what the prudential regulator has been doing in Superannuation, there has been a fair bit of other movement on issues relating to the policy position on Superannuation.

On March 16 last year, the Productivity Commission (PC) opened a consultation process on Superannuation Competitiveness and Efficiency. After seeking submissions and considering them it released its final report on November 25. The report identifies how the Competitiveness and Efficiency of the system will be assessed. The report identifies five system level objectives (set out below), along with 22 assessment criteria, supported by 89 unique indicators.

Objective 1 – The superannuation system contributes to retirement incomes by maximising the long-term net returns on contributions and balances over the member’s lifetime, taking risk into account. This objective has 5 assessment criteria.

Objective 2 – The superannuation system meets member needs in relation to information, products and risk management, over the member’s lifetime. This objective has 3 assessment criteria.

Objective 3 – The efficiency of the superannuation system improves over time. This has 2 assessment criteria.

Objective 4 – The superannuation system provides value-for-money insurance cover without unduly eroding member balances. This has 2 assessment criteria.

Objective 5 – Competition in the superannuation system should drive efficient outcomes for members. The assessment of this objective is in two areas, Market Structure and Conduct and Outcomes, each of which have 5 assessment criteria.

The full report can be found here:

The second important study being conducted by the PC relates to alternate models for allocating default superannuation funds for employees or groups of employees. The current method of listing eligible default in modern awards for some workers and letting the employer choose in other cases is anachronistic and flawed. The PC opened this consultation on 20 September and expects draft and final reports will be issues in March and August of next year.

The other area where I expect to see more attention directed in 2017 is to the area of Trustee Board structure, most especially in the not-for-profit sector. The Financial System Inquiry recommended that all public-offer funds be required to maintain a majority of independent directors and an independent chair in December 2014. In October last year the government issued a response that reiterated its middle ground position of mandating a one-third minimum of independent directors. Late last year a bill was introduced to parliament to give effect to that requirement, but it failed to pass the Senate last December.

Post that failure to pass, the not-for-profit sector has continued to run an energetic campaign to oppose these changes, and launched their own review of governance on industry fund boards, led by Bernie Fraser. He was to have reported by 30 April, but the review was suspended after the calling of the mid-year election, and it seems not to have restarted. Now ISA and the AIST are saying they are anticipating a draft report early this year.

Since the election the government has reaffirmed its commitment to the one-third minimum requirement and announced its intention to reintroduce the Bill. How this plays out will be fascinating.