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2013-2014-2015
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SUPERANNUATION LEGISLATION AMENDMENT (TRUSTEE
GOVERNANCE) BILL 2015
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon J. B. Hockey MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Amendments to the Superannuation Industry
(Supervision) Act 1993.................................................. 7
Chapter 2 Regulation impact statement: Schedule 1:
Governance arrangements for registrable
superannuation entities ............................................... 31
Chapter 3 Governance arrangements for the Board of the
Commonwealth Superannuation Corporation ............. 59
Index ..................................................................................................... 65
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
APRA Australian Prudential Regulation Authority
AIST Australian Institute of Superannuation
Trustees
ASFA Association of Superannuation Funds of
Australia
ASIC Australian Securities and Investments
Commission
Bill Superannuation Legislation Amendment
(Trustee Governance) Bill 2015
Corporations Regulations Corporations Regulations 2001
Cooper Review Review of the Governance, Efficiency,
Structure and Operation of Australia's
Superannuation System
ISA Industry Super Australia
IGC Independent Governance Committee
FSC Financial Services Council
FSI Financial System Inquiry Final Report
Governance Act Government Superannuation Schemes
Act 2011
RIS regulation impact statement
RSE registrable superannuation entity
SIS Act Superannuation Industry (Supervision)
Act 1993
SMSF self managed superannuation fund
1
General outline and financial impact
Overview
Schedule 1 to the Superannuation Legislation Amendment (Trustee
Governance) Bill 2015 (Bill) makes amendments to the Superannuation
Industry (Supervision) Act 1993 (SIS Act) to require trustees of registrable
superannuation entities (RSEs) (commonly referred to as RSE licensees)
to have a minimum of one-third independent directors and an independent
Chair on their boards.
Originating from the Government's 2013 election commitment, this
reform is important because independent directors bring different skills
and expertise and they hold other directors accountable for their conduct,
particularly in relation to conflicts of interest.
The existing representative board composition requirements in the SIS
Act are outdated and no longer reflect the size and complexity of the
superannuation industry. In particular, equal representation is out-of-step
with other corporate sectors, including listed companies, banks, and
general insurers, who all, at a minimum, recommend a majority of
independent directors with an independent chair.
Already superannuation funds are recognising the need for greater
independence on their boards, with many having moved or moving this
way -- including retail funds that are members of the Financial Services
Council (FSC) as well as a number of industry funds.
The movement towards greater independence on RSE licensees is
consistent with the conclusions in two of the major independent reviews
of Australia's financial and superannuation systems (FSI Report and the
Cooper Review). For example, the FSI Report said 'given ... diversity of
fund membership, it is more important for directors to be independent,
skilled and accountable than representative'. (FSI Report, page 135).
Schedule 2 to this Bill amends Finance portfolio legislation entitled the
Governance of Australian Government Superannuation Schemes
Act 2011. Schedule 2 restructures the trustee board for the Australian
Government's main civilian and military superannuation schemes, the
Commonwealth Superannuation Corporation (CSC Board), to comply
with the new governance requirements. The CSC Board will comprise a
majority of independent directors and the Board will be reduced from
eleven to nine directors to better align with the best practice principles of
governance.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Date of effect: The amendments in Schedule 1 will take effect from the
day the Bill receives Royal Assent. The amendments in Schedule 2 take
effect from 1 July 2016.
Proposal announced: For Schedule 1, the Government committed (in
September 2013) to improving governance in superannuation by aligning
corporate governance in superannuation more closely with the corporate
governance principles applicable to ASX listed companies. In progressing
this commitment, the Government released a discussion paper Better
regulation and governance, enhanced transparency and improved
competition in superannuation on 28 November 2013. On 26 June 2015,
the Government released exposure draft legislation to improve governance
in superannuation. For Schedule 2 no announcement was made.
Financial impact: This Bill has a nil financial impact.
Human rights implications: Schedules 1 and 2 do not raise any human
rights issue. See Statement of Compatibility with Human Rights --
Chapter 1, paragraphs 1.26 to 1.29 and Chapter 3, paragraphs 3.17 to 3.20.
Compliance cost impact: For Schedule 1 there is $8.5 million in start-up
costs and a further $12.3 million in ongoing costs annually. For
Schedule 2 there are no compliance costs, note the Office of Best Practice
Regulation advised that a regulation impact statement was not required.
Summary of regulation impact statement
Regulation impact on business: Schedule 1: Governance arrangements
for registrable superannuation entities
Impact: The amendments will result in $8.5 million in start-up costs and a
further $12.3 million in ongoing costs annually.
Main points:
• Legislation to require a minimum of one-third of directors to
be 'independent' with an independent Chair to commence on
date of Royal Assent, with a three year transition period.
• The primary costs that will be incurred relate to increased
remuneration costs associated with the new governance
requirements. Other significant costs include search and
engagement costs and legal costs (such as changes to
constitutions and trust deeds).
4
General outline and financial impact
• The impact on industry is expected to be $8.5 million for
start-up costs and a further $12.3 million annually for the
ongoing costs.
• Success will be measured by how quickly superannuation
trustee boards move to a minimum one-third independent
directors. However, the ultimate yardstick will be at the end
of the three-year transition period to assess how many
trustees are compliant with the requirements.
5
Chapter 1
Amendments to the Superannuation
Industry (Supervision) Act 1993
Outline of chapter
1.1 Schedule 1 to the Superannuation Legislation Amendment
(Trustee Governance) Bill 2015 (Bill) will amend the Superannuation
Industry (Supervision) Act 1993 (SIS Act) to introduce new governance
arrangements requiring corporate trustees of registrable superannuation
entities (RSEs) (commonly referred to as RSE licensees) to have at least
one-third independent directors and for the Chair to be one of these
independent directors.
1.2 The new governance arrangements will replace the existing
requirements in Part 9 of the SIS Act that require equal representation of
employer representatives and member representatives on the boards of
standard employer-sponsored superannuation funds of five or more
members.
1.3 The Bill provides a revised definition of independent in the SIS
Act. Under the definition, persons who would not be considered to be
independent include those who are substantial shareholders of the RSE
licensee or who have or have had, within the last three years, a material
business relationship with the RSE licensee.
1.4 RSE licensees must comply with APRA's prudential standards
relating to the appointment and removal of independent directors.
1.5 If a person fails to meet the new definition of independent, an
RSE licensee can apply to APRA for a determination that the person is
independent based on the circumstances relating to that person. APRA can
also determine that a person is not independent.
1.6 To facilitate an orderly transition to the new arrangements, the
Bill provides for a three-year transition period from the date of Royal
Assent.
1.7 All references in this chapter are to the SIS Act unless otherwise
specified.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Context of amendments
1.8 The size of the superannuation savings pool in Australia is
currently over $2 trillion and is expected to grow to approximately
$9 trillion by 2040. While compulsory superannuation has been in
existence since 1992, its significance in Australia's financial system has
increased rapidly in recent years as the pool of savings continues to grow
and the importance of strengthening the superannuation system is widely
acknowledged in broader economic discussions.
1.9 Appropriate provision of independent directors on
superannuation trustee boards is a vital step towards strengthening the
superannuation system.
1.10 Independent directors bring to the board an external,
dispassionate perspective, enabling boards to benefit from a diversity of
views and providing a check on management recommendations. In
contrast to directors who may be executives of the RSE licensee's
business or who represent employers or employees, independent directors
are more likely to be free of the types of conflicts that may cause them to
(either intentionally or unintentionally) serve the interests of the employer
sponsors, a related party or a subset of members, rather than the fund's
entire membership.
1.11 The presence of a greater number of independent directors will
enable the decision making processes of superannuation boards to be
tested and challenged in a way that achieves beneficial member outcomes.
A requirement for a minimum number of independent directors will also
provide greater diversity of skills and experience by ensuring that trustee
directors are drawn from a wider pool.
1.12 A greater number of independent directors will therefore
increase the accountability of management and strengthen oversight of the
fund--helping to ensure that related party interests are not put ahead of
member interests.
1.13 Increasing the level of independence on RSE licensee boards is
therefore a key to improving governance in the superannuation system,
thus improving member outcomes. In this vein, the 2014 Financial System
Inquiry Final Report (FSI) suggested that good governance can increase
returns to members (FSI, page 133).
1.14 Further, both the 2010 Review of the Governance, Efficiency,
Structure and Operation of Australia's Superannuation System (Cooper
Review) and the FSI said that including independent directors on boards is
consistent with international best practice on corporate governance.
8
Amendments to the Superannuation Industry (Supervision) Act 1993
1.15 The equal representation model in the SIS Act hinders natural
refreshing of boards because of the restrictions on the number of
independent directors that can be appointed to certain RSE licensee
boards. Under the SIS Act, RSE licensees operating under the equal
representation model are permitted to only appoint one independent
director unless they seek approval from APRA to appoint more than one
independent director. Further, whether a person will appropriately
represent the interests of employers or employees is often the first
consideration when appointing new directors to the board, with ensuring
fresh thinking and appropriate skills being a secondary consideration.
1.16 The FSI indicated that the equal representation model is less
relevant in the current superannuation system, which predominantly
consists of public offer accumulation funds and funds less focused on
single employers.
1.17 A similar conclusion was reached earlier by the Cooper Review,
which examined the equal representation model and found that although it
was an important part of the governance structure back in 1993, 'changes
in the industry over time and certain implementation practices mean that
equal representation no longer seems to achieve its original ... objective'
(Cooper Review, page 53).
1.18 Additionally, until recently, a large proportion of retail funds
comprised boards made up of a majority of executives. While in 2012 the
FSC introduced a binding standard on its members requiring them to
appoint a majority of independent directors and an independent Chair
(with mandatory compliance from 1 July 2014), not all retail funds are
FSC members; nor is APRA empowered to force FSC member funds to
comply with the FSC standard. These legislative changes will therefore
ensure that irrespective of whether they are FSC members, all retail funds
will have at a minimum an independent Chair and one-third independent
directors.
1.19 RSEs licensees are generally regulated by both the SIS Act and
the Corporations Act 2001 (and related regulations, along with APRA's
prudential standards).
1.20 APRA has prudential oversight of the superannuation system
and the SIS Act allows it to issue prudential standards relating to
superannuation. Prudential standards are designed to provide additional
detail on prudential matters set out in the enabling legislation. Prudential
standards are legislative instruments, disallowable in the Senate, and
require extensive industry consultation as part of their development and
ongoing revision.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.21 The Australian Securities and Investments Commission (ASIC)
regulates the conduct and disclosure obligations of financial services
providers (including superannuation trustees that hold an Australian
financial services licence).
1.22 The Australian Taxation Office has responsibility for the
oversight of self managed superannuation funds (SMSFs).
Summary of new law
1.23 APRA-regulated superannuation funds are required to operate
under trustee arrangements. Under this framework, a corporate trustee
overseen by a number of individual directors, or a group of individual
trustees, is responsible for managing a superannuation fund's assets on
behalf of the fund's members and beneficiaries. The trustee is known as
an RSE licensee as it operates under an RSE licence issued by APRA.
1.24 A feature of the current governance framework is the
requirement for some trustee boards to have equal representation. The
SIS Act requires that the board of a corporate trustee for a standard
employer-sponsored fund of five or more members must consist of equal
numbers of employer representatives and member representatives. This
reflects that originally the vast majority of funds were single employer
sponsor corporate funds and equal representation ensured both stakeholder
groups had oversight and responsibility for the fund's operations.
1.25 The Bill requires RSE licensees to have a minimum of one-third
independent directors and an independent Chair on their boards. Where
the trustee is a group of individual trustees, one-third of these individuals
must be independent.
1.26 The Bill provides a revised definition of independent. It
includes, among others, persons who are not substantial shareholders of
the RSE licensee or who do not have or have not had within the last three
years a material business relationship with the licensee.
1.27 Where a person does not meet the definition of independent but
the RSE licensee considers that the person has the ability to exercise
independent judgement in performing the role of a director of an RSE
licensee, the RSE licensee may apply to APRA for a determination that
the person is independent. APRA can also determine that a person is not
independent if APRA is reasonably satisfied that the person is unlikely to
be able to exercise independent judgement in the role.
10
Amendments to the Superannuation Industry (Supervision) Act 1993
1.28 Existing RSE licensees that comply with transition requirements
set out in APRA's prudential standards will not have to comply with the
new arrangements until the end of a three-year transition period, which
will commence from Royal Assent. The purpose of the transition period
and APRA's prudential standards relating to transition is to facilitate an
orderly transition to the new arrangements.
1.29 RSE licensees that notify APRA that they intend to cease
operating by the end of the transition period and meet the applicable
requirements of APRA's prudential standards will not have to comply
with the new requirements.
1.30 Trustees licensed by APRA after Royal Assent will need to
comply with the new requirements from the time they are licensed.
1.31 The new governance rules will not apply to self managed
superannuation funds. They will also not apply to a fund that has an acting
trustee appointed under section 134 of Part 17 of the SIS Act.
1.32 All RSE licensees will be required to publicly report (on an 'if
not, why not' basis) in the annual report of each of their RSEs whether
they have a majority of independent directors or not.
1.33 This reporting obligation provides RSE trustees with the
opportunity to provide a clear indication of the rationale underlying their
composition. In particular, it allows the board to explain how it believes
that its chosen composition will best serve the interests of fund members.
1.34 This reporting obligation will take effect for financial years
beginning from 1 July 2019 (the first reporting period would take place in
September 2020 for the financial year 2019-20). This requirement will be
implemented through changes to the reporting requirements in the
Corporations Regulations 2001.
Comparison of key features of new law and current law
New law Current law
RSE licensees are required to have a Boards of standard
minimum of one-third independent employer-sponsored superannuation
directors and an independent chair on funds with five or more members
their boards. Where the RSE licensee must maintain either equal
is a group of individual trustees, representation of employer
one-third of these individuals must be representatives and member
independent. representatives or an independent
trustee.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
New law Current law
New section 86 provides APRA with Under section 107 of the SIS Act a
the power to make prudential trustee of an employer-sponsored
standards relating to the appointment fund has a duty to establish
and removal of independent directors. procedures for appointing and
removing member representatives.
Under section 108 of the SIS Act a
trustee of an employer-sponsored
fund has a duty to establish
procedures for appointing and
removing an independent trustee or
independent member of the board of
directors of the corporate trustee.
New section 87 provides two sets of The definition of independent director
conditions that if present would result in section 10 of the SIS Act is
in a person not being considered to be concerned with whether a person is
independent. The first set (87(1)(a) -- independent of the members and the
(c)) relates to ownership (or employers of the fund, and does not
structural) arrangements relating to cover any other relationships with the
the RSE licensee. The second set RSE licensee that might affect a
(87(1)(d) -- (f)) relates to the person's ability to exercise
relationships an RSE licensee might independent judgement.
have.
APRA has the capacity to determine
if a person is, or is not, independent.
APRA's prudential standards will set
out details on how existing RSE
licensees are required to transition to
the new governance regime.
Detailed explanation of new law
1.35 Existing Part 9 of the SIS Act, which contains the equal
representation provisions, will be repealed. The new independent director
governance provisions for registrable superannuation entities (RSEs) (new
Part 9) will be inserted to give effect to the Government's superannuation
election governance commitment. [Schedule 1, Part 1, item 1]
1.36 Replacing existing Part 9 with the new Part 9 establishes a
uniform set of requirements governing board composition in legislation
(that is, the minimum one-third independent director requirement). While
RSE licensees will be required to have one-third independent directors on
their boards they will be free to set the composition of the remainder of
the board to best serve the interests of fund members.
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Amendments to the Superannuation Industry (Supervision) Act 1993
1.37 The appointment of directors, including independent directors,
to RSE licensees is subject to APRA's prudential standards relating to
appointments. This includes compliance with the fit and proper test as
well as the requirement for directors, collectively, to have the necessary
skills, knowledge and experience to understand the risks of the institution,
including its legal and prudential obligations, and to ensure that the
institution is managed in an appropriate way taking into account these
risks.
Requirement to have independent directors
1.38 New section 86 establishes the governance provisions that
require all RSE licensees with a corporate structure to have a minimum of
one-third independent directors and an independent Chair. [Schedule 1,
Part 1, item 1, paragraphs 86(1)(a) and (b)]
1.39 RSE licensees that adopt a corporate structure must have at least
one-third independent directors and an independent Chair. [Schedule 1,
Part 1, item 1, paragraphs 86(1)(a) and (b)]
1.40 The requirement to have an independent Chair for RSE licensees
that have a corporate structure, reflects the pivotal role that a Chair has in
the establishing the direction and oversight of the decision making process
of a board.
1.41 When satisfying the one third independent requirement the
independent Chair is considered to be one of the independent directors.
[Schedule 1, Part 1, item 1, subsection 86(2)]
Example 1.1
An RSE licensee has a nine person board. The Chair and two other
directors are independent. This will satisfy the new requirements
because one-third of the directors, including the Chair are independent.
1.42 The transition requirements make it clear that an RSE licensee
has until the end of the transition period to achieve full compliance with
all the new requirements, including deciding which of the independent
directors is to be appointed as Chair.
1.43 This will allow time for any new independent directors
appointed to the RSE licensee board to become sufficiently experienced
before potentially having to take on the role of Chair.
1.44 When making appointments to meet the new Part 9 requirements
for one-third independent directors, RSE licensees must comply with
APRA's prudential standards relating to the appointment and removal of
independent directors. [Schedule 1, Part 1, item 1, paragraph 86(1)(c)]
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.45 In the small number of cases where an RSE licensee is made up
of individual trustees (the RSE licensee does not have a corporate
structure), at least one-third of those trustees must be independent.
[Schedule 1, Part 1, item 1, paragraph 86(3)(a)]
1.46 Where the RSE licensee comprises individual trustees and those
trustees customarily appoint a nominal Chair, they will not be required to
have an independent Chair.
1.47 RSE licensees that are groups of individual trustees must
comply with APRA's prudential standards relating to the appointment and
removal of independent trustees. [Schedule 1, Part 1, item 1, paragraph 86(3)(b)]
Definition of independent
1.48 New section 87 sets out the definition of independent for the
purpose of satisfying the one-third independent director requirement. The
definition provides that a person is 'independent' from an RSE licensee
unless certain conditions are present.
1.49 New section 87 provides two sets of conditions that, if present,
would result in a person not being considered to be independent.
• The first set (87(1)(a) to (c)) relates to ownership (or
structural) arrangements relating to the RSE licensee.
• The second set (87(1)(d) to (f)) relates to relationships an
RSE licensee might have.
1.50 New section 87 also allows APRA, under sections 88 and 90, to
take into consideration whether or not a person has the ability to exercise
independent judgement in performing the role of a director of an RSE
licensee.
1.51 To ensure flexibility to address future developments in the
superannuation industry, new section 87 provides for regulations to be
made that will specify circumstances that would result in a person being
either independent or not independent.
1.52 The definition of independent in this Schedule replaces the
existing definition of an independent director in section 10 of the SIS Act
to ensure a broader range of circumstances are taken into account when
considering a person's ability to exercise independent judgement.
1.53 In particular the current definition of independent director in the
SIS Act is designed to achieve independence from stakeholders (that is,
employers and members and their representative organisations), whereas
14
Amendments to the Superannuation Industry (Supervision) Act 1993
the new definition looks at ownership (or structural) arrangements relating
to the RSE licensee as well as the relationships an RSE licensee might
have. Under the revised definition, a person's independence is not affected
by that person's membership of the fund.
Ownership arrangements that prevent independence
1.54 A person cannot be considered to be an independent director of
an RSE licensee if they hold an interest of 5 per cent or more of the share
capital of the RSE licensee or another body corporate that is related to the
RSE licensee. [Schedule 1, Part 1, item 1, paragraphs 87(1)(a) and (b)]
1.55 For the purposes of new Part 9, the question of whether bodies
corporate are related to each other is to be determined in the same way as
that question would be determined under the Corporations Act 2001.
1.56 An exception is provided for a director who holds a
shareholding interest that does not confer a right to profit or give rise to
the expectation of a profit, if that director holds the interest as a result of
holding office as a director of the RSE licensee. [Schedule 1, Part 1, item 1,
subsection 87(2)]
Example 1.2
A director on the board of a 'not for profit' super fund was asked to
hold a parcel of shares (which constituted more than a five per cent
holding) in the super fund's RSE licensee for the period of his
directorship. The parcel of shares was held by the director by virtue of
his/her office and did not create or impose any right for the director to
profit in any way. As such, the nominal holding will not be in itself
taken to compromise the director's ability to be considered to be
independent.
1.57 A person will not be considered independent if they are, or they
have been in the preceding three years, an executive officer or employee
of the RSE licensee. Similarly a person will not be considered to be
independent if they are currently, or in the previous three years, have been
a director or executive officer of a related body corporate of the RSE
licensee. [Schedule 1, Part 1, item 1, paragraph 87(1)(c)]
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Example 1.3
A director on an RSE licensee board is also an executive officer of a
financial services company operating in the same financial
conglomerate group. As the RSE licensee and the life company are
related bodies corporate, this director cannot sit on the RSE licensee
board as an independent director.
Relationships that prevent independence
1.58 Where there is a business relationship between the RSE licensee
and a person in their capacity as an employer, a director or executive
officer of a corporate entity, that person will not be independent if the
corporate entity has, or has had in the preceding three years, a business
relationship that was material to either the RSE licensee or the other
person. An employee of such a corporate entity will also not be
independent if they are currently, or were in the preceding three years,
involved in the business relationship that was material. [Schedule 1, Part 1,
item 1, paragraph 87(1)(e)]
1.59 An individual person (for example, in the capacity as a sole
trader) will not be independent if they have, or had in the preceding three
years, a business relationship with the RSE licensee or any of the trustees
within a RSE licensee that comprises individual trustees, which is
considered to be material to either the RSE licensee or the person.
[Schedule 1, Part 1, item 1, paragraph 87(1)(d)]
1.60 When determining circumstances that may be considered to be
'material', the RSE licensee would be expected to consider the effect on
the other person if the business relationship was to cease for example,
they would lose a significant portion of their revenue. APRA's prudential
standards in respect to the operation of new Part 9 are expected to set out
requirements for RSE licensees in this respect.
Example 1.4
Bubbles Stationery Ltd provides services to the RSE licensee of LW&J
Super with all their office equipment. The value of these services to the
RSE licensee is insignificant, amounting to less than 0.01 per cent of
their operations. However, the value of the provision of office
equipment to Bubbles Stationery Ltd's ongoing business operations
represents a significant proportion of their annual turnover (amounting
to 35 per cent).
Given the business relationship between Bubbles Stationery Ltd and
the RSE licensee would be considered to be material to Bubbles
Stationery Ltd, none of the Bubbles Stationery Ltd's directors or
executive officers would be considered to be independent if they were
appointed to LW&J Super Fund's board.
16
Amendments to the Superannuation Industry (Supervision) Act 1993
1.61 In addition, APRA's outsourcing prudential framework
(currently reflected in Prudential Standard SPS 231 Outsourcing and
Prudential Practice Guide SPG 231 Outsourcing) includes a concept of
materiality in the context of the business activities of the RSE licensee.
Given that RSE licensees have been required to give consideration to
questions of materiality for an extended period of time under the current
prudential framework and the previous operating standard, RSE licensees
should have a working knowledge of the concept of materiality in this
context already.
1.62 Whether a business relationship is 'material' or not will depend
on the circumstances of each case. However, the types of business
activities that the RSE licensee may consider form the basis of a material
relationship include administration, investment management functions
under a formal agreement, internal audit, insurance, business continuity
planning arrangements and arrangements with financial planners,
particularly where the advice relates only to a member's interest in the
RSE.
Example 1.5
Where an actuary is retained to provide advice on a single, specific
funding issue in relation to defined benefit members within an RSE
licensee's business operations, it would be open to an RSE licensee to
consider this relationship to not be a material business relationship
because the engagement is for a limited time and a limited scope (in
terms of the issue and in terms of the overall impact on the fund).
Example 1.6
The administrator of the RSE licensee would generally be considered a
material service provider because administration is core to the
operations of the RSE licensee. Another example is an
externally-provided internal audit function.
1.63 The Bill also provides that a person will not be independent in
the following specific situations if they are, or have been in the preceding
three years, a director or executive officer of:
• an employer-sponsor who employs 500 or more members of
the fund); or
• an organisation representing the interests of one or more
employer-sponsors of the fund, or the members of the fund,
that has the right to appoint or nominate for appointment,
directors or trustees of the RSE licensee. [Schedule 1, Part 1,
item 1, paragraph 87(1)(f)]
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.64 This exclusion is designed to ensure that an independent director
is not closely aligned with any of the sponsoring parties who have rights
to nominate or appoint directors of the RSE licensee.
1.65 To ensure flexibility to address future developments in the
superannuation industry, the Bill provides for regulations to be made that
could specify other circumstances that would result in a person not being
independent. [Schedule 1, Part 1, item 1, paragraph 87(1)(g)]
1.66 A regulation making power has also been included to determine
circumstances in which a person is considered independent regardless of
the circumstances in new section 87(1). This provision has been included
to address possible structures or relationships that may emerge in the
superannuation industry and may mean a person could be considered
independent even though they might otherwise be captured by new section
87(1). Having a regulation making power will enable the Government to
provide certainty to the industry without having to amend the SIS Act.
[Schedule 1, Part 1, item 1, subsection 87(3)]
1.67 This will ensure that APRA is only required to exercise its
power in individual, exceptional or urgent circumstances rather than in
more common scenarios which may impact on a wider number of
participants.
APRA determinations
Determination as to whether a person is independent
1.68 To support the Government's proposed reforms, the Bill
provides APRA with the power to make determinations as to whether a
person is independent or not independent of an RSE licensee. [Schedule 1,
Part 1, item 1, subsection 87(4)]
1.69 This is intended to allow APRA to respond to situations where a
person's circumstances and his or her capacity to exercise independent
judgement is clear but for reasons such as timing, restructures and mergers
and acquisitions.
Example 1.7
A person may not be considered independent under the new section 87,
because they only ceased being employed by the RSE licensee 2 years
and 11 months ago (that is, not the full three year period required by
new section 87 to make a former employee independent). An RSE
licensee can apply to APRA under new section 89 to make a
determination that such a person is independent. In this situation if
APRA is of the view the person's capacity to exercise independent
judgement is clear, but for that person's lack of separation from the
RSE licensee for the full three years, APRA may, under new
section 88, make a determination that the person is independent.
18
Amendments to the Superannuation Industry (Supervision) Act 1993
1.70 An RSE licensee can apply to APRA under new section 89 to
make a determination that a person is independent. Where APRA is
reasonably satisfied that the person is likely to be able to exercise
independent judgement in performing the role of director (or individual
trustee) they will determine the person is independent. [Schedule 1,
Part 1, item 1, subsection 88(1)]
1.71 One situation where this power might be used is where a
person's circumstances mean that they do not meet the independence
requirements, but that they are considered to be capable of exercising
independent judgement.
Example 1.8
A director on an RSE licensee board is also a director on the board of
another RSE licensee operating within the same financial conglomerate
group. As these two RSE licensees are related bodies corporate under
sub-paragraph 87(1)(c)(ii) , the director cannot sit on either board as an
independent director. Either RSE licensee could apply to APRA under
section 89 for a determination under section 88 that the director is
capable of exercising independent judgement in these circumstances.
In this example, the RSE licensee could seek a determination from
APRA on the grounds that the two RSE licensees are not in
competition with each other.
In addition, an RSE licensee might form the view that a person could
be considered independent on the RSE licensee board, despite
section 87, where this person is a director or executive of an employer
sponsor that has 510 employee members in the fund and the fund as a
whole has 500,000 members. In this example, a decision by the
employer sponsor to change funds would not have a significant impact
on the overall number of members in the fund as employee members of
the fund represent 0.1 per cent of overall fund membership.
1.72 APRA through new section 90 can also make a determination
that a person is not independent where they are reasonably satisfied that
the person is unlikely to be able to exercise independent judgement in the
role.
1.73 One situation where this power might be used is where a director
appears to meet the independence requirements but APRA forms the view
on the basis of relevant information that there are circumstances in
relation to the director, such as the presence of a familial or other personal
relationship with a person who would not be considered independent
under new section 87, that may limit their ability to exercise the necessary
independent judgement.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.74 Determinations under new sections 88 and 90 are reviewable
decisions. This means that a person affected by such a decision can
request APRA to reconsider the decision as well as seek review by the
Administrative Appeals Tribunal under section 344 of the SIS Act.
[Schedule 1, Part 2, item 6, subsection 10(1)]
1.75 To ensure that the policy intent of new Part 9 is reflected in
APRA's determination of whether a person is independent, APRA must
take into consideration the extent to which the circumstances relating to
a person's independence in new paragraphs 87(1)(a) to (g) and
subsection 87(3) do not apply to the person. [Schedule 1, Part 1, item 1,
subsection 88(2)]
Example 1.9
It is unlikely that an RSE licensee would be able to form a view that a
person is independent where that person is a partner in the audit firm
that currently undertakes the external audit for the RSE licensee's
business operations, even if they are not directly involved in the audit
itself.
1.76 APRA is required to give written notice of any such
determinations, or, if it refuses an application, of the reasons for refusing
the application. [Schedule 1, Part 1, item 1, subsection 88(3)]
1.77 Any such determination will take effect on the day it is made,
and ceases to have effect if APRA makes a determination under new
section 90 that the person is not independent. [Schedule 1, Part 1, item 1,
subsection 88(4)]
Application for a determination under new section 89
1.78 New section 89 provides RSE licensees with the ability to apply
to APRA for a determination that a particular person is independent for
the purpose of complying with new Part 9. [Schedule 1, Part 1, item 1,
section 89(1)]
1.79 When APRA receives an application for a determination, it may
give the RSE licensee notice requesting further information required to
make the determination. [Schedule 1, Part 1, item 1, subsection 89(2)]
1.80 APRA must make its determination within 60 days, extendable
by a further period of 60 days, provided APRA informs the RSE licensee
and the extension is made within the initial 60 day period. [Schedule 1,
Part 1, item 1, paragraph 89(3)(a), subsections 89(4) and (5)]
1.81 APRA may request additional information in writing from the
RSE licensee. In that case, the initial 60 day period only starts when
APRA receives the information requested. [Schedule 1, Part 1, item 1,
subsection 89(2) and paragraph 89(3)(b)]
20
Amendments to the Superannuation Industry (Supervision) Act 1993
1.82 A failure by APRA to make a decision that a person is
independent is equivalent to a refusal of the application. [Schedule 1,
Part 1, item 1, subsection 89(6)]
1.83 The provisions in the new subsection 89(6) are similar to
ARPA's powers in the context of RSE licensing and the authorisation of
MySuper products. APRA is expected to be in regular contact with the
affected entity where it is unable to make a determination within the
required time. APRA's experience is that it is highly unusual for
applications under these other provisions in the SIS Act not to be dealt
with within the time period for dealing with applications. If the
circumstance arises where the time period expires, the affected entity will
not be prevented from reapplying.
Determination as to whether a person is not independent
1.84 New section 90 allows APRA to determine that a person is not
independent if it is reasonably satisfied that the person is unlikely to be
able to exercise independent judgement in performing the role of director
(or individual trustee). [Schedule 1, Part 1, item 1, subsection 90(1)]
1.85 To ensure that the policy intent of new Part 9 is reflected in
APRA's determination of whether a person is unlikely to be able to
exercise independent judgement, APRA must take into consideration the
extent to which the circumstances relating to a person's independence in
new paragraphs 87(1)(a) to (g) and subsection 87(3) do not apply to the
person. That is, APRA must take account of the criteria that would
prevent a person from being considered independent in making this
determination. [Schedule 1, Part 1, item 1, subsection 90(2)]
1.86 APRA has indicated that it envisages using this power rarely.
This is because the definition of independent in new section 87(1) is
expected to provide the superannuation industry with sufficient certainty
when deciding whether a person is eligible to be appointed as an
independent director on an RSE licensee's board. Further, RSE licensees
will be encouraged to consult with APRA where there is any doubt about
the independence of a potential director. This consultation can be
undertaken formally by RSE licensees under new section 89 of the SIS
Act.
1.87 APRA may specify in a determination that the person is not
considered to be independent for a particular period. In such a case, the
determination of non-independence ceases when the period ends or when
a determination under new section 88 is made that the person is
independent for the purpose of new Part 9 (refer above, example 1.7).
[Schedule 1, Part 1, item 1, subsections 90(3) and (6)]
21
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.88 In making a determination, APRA must give the RSE licensee
written notice including the reasons for making the determination.
[Schedule 1, Part 1, item 1, subsection 90(5)]
1.89 A determination made in relation to whether a person is not
independent takes effect on the day the determination is made. [Schedule 1,
part 1, item 1, subsection 90(4)]
1.90 If the determination from APRA is made for a fixed period
under new subsection 90(3), the expiry of that period does not on its own
result in the person becoming independent. [Schedule 1, Part 1, item 1,
subsection 90(7)]
Replacing independent directors
1.91 In case of a vacancy, new section 91 provides RSE licensees
with 120 days to replace an independent director. [Schedule 1, Part 1, item 1,
section 91]
1.92 The provision deems an RSE licensee to be in compliance with
the requirement to have one-third independent directors if there is a
vacancy, as long as the RSE licensee was complying with the
requirements immediately before the vacancy arose and is in compliance
with the requirements as soon as the vacancy is filled.
1.93 This also covers situations where there are multiple vacancies.
At the time of the first vacancy, new section 91 would deem an RSE
licensee to be in compliance with the requirement to have one-third
independent directors for 120 days. If a second vacancy arises within the
120 days before the vacancy is filled, the RSE licensee still meets the
requirements under new section 91 because it will be deemed to have
complied with the requirements immediately before the second vacancy
arose (as long as that first vacancy is ultimately filled within 120 days).
Example 1.10
Adam and Bev are both independent directors of an RSE licensee that
is a corporate trustee.
The RSE licensee complies with section 86. From 1 March, Adam is
no longer a director and the RSE licensee has 120 days to replace him.
During this time the RSE licensee is considered to be complying.
22
Amendments to the Superannuation Industry (Supervision) Act 1993
From 1 May, Bev is no longer a director and the RSE licensee has
120 days to replace her. The fact that the RSE licensee has two
vacancies for independent directors does not cause it to fail to comply
with section 86, provided it complies with section 86 immediately after
each of the vacancies is filled. That is, it must replace Adam with a
new independent director by 28 June, and Bev with a new independent
director by 28 August, in order to remain in compliance with
section 86.
APRA directions and compliance
1.94 New section 92 allows APRA to issue a direction to an RSE
licensee to comply with Part 9. Such a direction has to be accompanied by
a statement giving reasons for issuing the direction. The direction may be
given if the licensee contravenes a Part 9 provision, on one or more
occasions, and APRA is satisfied that the direction is warranted by the
seriousness or frequency of the contravention. [Schedule 1, Part 1, item 1,
subsections 92(1) and (2)]
1.95 In addition, APRA may revoke a direction to a trustee if it is
satisfied that the RSE licensee is substantially in compliance with Part 9.
[Schedule 1, Part 1, item 1, subsection 92(3)]
1.96 Due to the serious nature of such a contravention, a failure to
comply with such a direction without a reasonable excuse is a strict
liability offence with a penalty of 60 units. The defences for strict liability
offences are provided in section 6.1 of the Criminal Code. [Schedule 1,
Part 1, item 1, subsections 92(4) and (5)]
1.97 Strict liability is appropriate in these circumstances to ensure the
integrity of the new regulatory regime applying to the governance of RSE
licensees. The penalty provided is similar to that provided in the SIS Act
for breach of a direction from APRA to comply with a licence condition.
1.98 APRA must be able to respond swiftly where the new
governance requirements are being breached in a deliberate, sustained or
serious manner. The imposition of strict liability is therefore likely to
significantly enhance the effectiveness of APRA's oversight of the new
requirements.
1.99 The imposition of strict liability for the offence in section 92 of
the Bill satisfies the principles set out in the guidance provided by the
Attorney-General's Department. The offence is not punishable by
imprisonment, but by a fine and the level of the fine is capped at the
recommended 60 penalty units.
23
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.100 A strict liability offence is not automatically triggered by a
failure to appoint sufficient independent directors. For the strict liability
offence to be triggered APRA would first have to make a direction
requiring the RSE licensee to comply and the RSE licensee would have to
fail to comply with that direction without having a reasonable excuse for
failing to do so.
1.101 As a further safeguard, APRA must be satisfied that a direction
is warranted because of the seriousness or frequency or both of the
contraventions committed by the RSE licensee before issuing a direction.
The direction would also have to include, or be accompanied by, a
statement of reasons to ensure the RSE licensee is fully aware of APRA's
concerns.
1.102 New section 93 states that breaching a provision of Part 9 is not
an offence, other than as set out in subsection 92(4). However, any
contravention may result in a direction from APRA not to accept any
contributions made by an employer-sponsor under section 63 of the
SIS Act. This replicates the provision for a breach under the previous
Part 9. [Schedule 1, Part 1, item 1, section 93]
Acting trustees
1.103 Part 9 does not apply in circumstances where an acting trustee
has been appointed under Part 17 of the SIS Act. [Schedule 1, Part 1, item 1,
section 93A]
1.104 At times, pursuant to section 134 of the SIS Act, it is necessary
for APRA to appoint an acting trustee to a superannuation entity; for
example, where the trustee of the entity is either suspended or removed.
Subject to the conditions of appointment, the role of the acting trustee is to
exercise the functions and duties of a trustee in relation to the
superannuation entity until such time as a permanent trustee takes over
control of the entity or the entity itself is wound up.
1.105 It is appropriate that the new governance requirements do not
apply to acting trustees. This is because acting trustees are seen as an
interim measure and are not intended to act in a permanent trustee
capacity. The previous Part 9, which is being repealed, did not apply to
Part 17.
24
Amendments to the Superannuation Industry (Supervision) Act 1993
Facilitating compliance with the new governance arrangements
1.106 New section 93B provides that the requirements set out in Part 9
for independent directors override any contradictory provisions in trust
deeds and other rules governing a regulated superannuation fund,
including the constitution of a corporate trustee or any other
documentation that imposes requirements on the RSE licensee relating to
the appointment of directors or trustees. [Schedule 1, Part 1, item 1, section 93B]
1.107 It is anticipated that most RSE licensees will amend their trust
deeds or constitutions to insert provisions to enable them to comply with
the requirements for independent directors before the three year transition
period concludes.
1.108 As new section 93B will only become operative three years after
the Bill receives Royal Assent, it will not be available to RSE licensees
during the transition period. However, a similar provision has been
provided in the transitional provisions that will be applicable during the
three year transition period. [see Schedule 1, Part 3, item 25]
Consequential amendments
1.109 The entry in the table in section 4 of the SIS Act relating to
Part 9 is updated to reflect its new contents relating to governance
arrangements for regulated superannuation funds. [Schedule 1, Part 2, item 2]
1.110 The definitions of 'employer representative', 'independent
director', 'independent trustee', 'member representative' and 'policy
committee' in section 10 of the SIS Act are repealed as they relate to the
equal representation regime that is being repealed. [Schedule 1, Part 2, items 3
and 5]
1.111 A new definition of 'independent' is inserted in section 10,
referring the reader to new sections 87, 88 and 90 in Part 9 of the SIS Act.
[Schedule 1, Part 2, item 4]
1.112 In the definition of 'reviewable decision' in section 10, existing
paragraphs (m) to (nc) are removed. These are decisions made under the
former equal representation regime that is being repealed.
1.113 Two new reviewable decisions are inserted, being a decision by
APRA to refuse to make a determination under new section 88 that a
person is independent, and a decision under new section 90 that a person
is not independent. [Schedule 1, Part 2, item 6]
25
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.114 A new definition for 'shareholding interest' is inserted in
subsection 10(1) that is deemed to have the same meaning as in the
Income Tax Assessment Act 1997. [Schedule 1, Part 2, item 7]
1.115 Subsection 10(2) of the SIS Act is repealed. This subsection
relates to the definition of 'independent director' in the context of the
equal representation rules. [Schedule 1, Part 2, item 8]
1.116 The notes in section 29C of the SIS Act are amended to refer to
the new requirements in Part 9 to have at least one-third independent
directors. [Schedule 1, Part 2, items 9 and 10]
1.117 Subsection 29EA(4) is repealed as it refers to section 92 that is
being repealed. This subsection clarifies that APRA may, under
subsection 29EA(1), impose a licence condition on a fund to comply, or
class of funds, specified in the condition must comply with the alternative
agreed representation rules whenever section 92 applies to the fund.
[Schedule 1, Part 2, item 11]
1.118 Subsection 63(6) dealing with contraventions of Part 9 of the
SIS Act is amended to take account of the new regime in that Part. The
heading and the contents of the subsection now refer to the new
independence requirements imposed on trustees and directors, and not to
equal representation rules. [Schedule 1, Part 2, item 12 and 13]
1.119 The heading in subsection 63(6) is repealed and replaced with a
new title 'Contravention of rules relating to independent directors and
trustees'. [Schedule 1, Part 2, item 13]
1.120 Subsections 63(7B), (7C) and (7D) of the SIS Act dealing with
breaches of the former equal representation rules are repealed. [Schedule 1,
Part 2, item 14]
1.121 Subsection 63(8) is amended to remove the reference to
subsection 63(7B) as that provision relates to breaches of the former equal
representation rules that are being repealed. [Schedule 1, Part 2, item 15]
1.122 Section 107 is repealed as that provision relates to the equal
representation rules that are being repealed. This section applies duties to
the trustees of employer sponsored funds to establish procedures for
appointing member representatives when those trustees are required by
law to have member representatives. [Schedule 1, Part 2, item 16]
1.123 Section 108 is repealed as that provision relates to the equal
representation rules that are being repealed. Subsection 108(1) provides
that, where a standard employer sponsored fund relies on subsection 89(2)
(which is being repealed) to comply with the equal representation
26
Amendments to the Superannuation Industry (Supervision) Act 1993
provisions, then the additional duties in subsection 108(2) apply to
trustees of the fund. Subsections 108(3) and (4) are the attached offence
provisions. [Schedule 1, Part 2, item 16]
1.124 Section 117 of the SIS Act sets out circumstances in which
amounts may be paid out of an employer-sponsored fund to an
employer-sponsor. A number of changes are required to reflect the
removal of the equal representation rules in Part 9 of the SIS Act.
1.125 Subparagraphs 117(5)(b)(i) and 117(5)(b)(ii) are repealed and
replaced by new subparagraphs that reflect the changed requirements for
composition of boards. The existing subparagraphs required that a
resolution must be passed by equal numbers of employer and member
representatives on boards of trustees or among groups of individual
trustees. [Schedule 1, Part 2, item 17]
1.126 Subsection 117(9) is repealed as it makes provision for
situations where additional independent trustees or directors have been
appointed to equal representation trustee groups or boards. [Schedule 1,
Part 2, item 18]
1.127 Paragraphs 223A(1)(f) and (g) relating to breaches of repealed
sections 107 and 108 are repealed. [Schedule 1, Part 2, item 19]
1.128 Subparagraph 312(1)(a)(iv) of the SIS Act is repealed. It
incorporates an 'absence of a quorum at a meeting of members of a policy
committee' in the definition of procedural irregularity, relating to
provisions under former Part 9 that are being repealed in this Bill.
[Schedule 1, Part 2, item 20]
1.129 Paragraph 327(1)(d) of the SIS Act is repealed. It provides that
subsections 63(7B), (7C) and (7D) of the SIS Act are 'modifiable
provisions' as defined in the Act. However, these three subsections are
being repealed in this Bill. [Schedule 1, Part 2, item 21]
1.130 Subsection 327(1) is amended to include the transitional
provisions as 'modifiable provisions' under the SIS Act. [Schedule 1, Part 2,
item 22]
Transitional provisions
1.131 Part 3 of the Bill provides transitional provisions. APRA will be
making prudential standards that will prescribe transition arrangements to
compliance with the new Part 9 of the SIS Act before the end of 2015.
During the transition period, RSE licensees will need to comply with these
prudential standards.
27
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
1.132 Where an RSE licensee complies with the transitional
requirements during the transition period neither the new governance
provisions in Part 9 of the SIS Act nor the current provisions in Part 9 of
the SIS Act will apply during this period. [Schedule 1, Part 3, item 24,
subsection 24(1)]
1.133 During the transition period item 25 provides that the
transitional prudential standards override any contradictory provisions in
trust deeds and other rules governing a regulated superannuation fund,
including the constitution of a corporate trustee. [Schedule 1, Part 3, item 25]
1.134 This provision replicates the provision in the new section 93B in
schedule 1, Part 1, item 1. It is required during the transition period to
allow RSE licensees time to amend their trust deeds or constitutions
because new section 93B will not take effect until the end of the transition
period.
1.135 In addition, APRA will have the power to modify these
transitional provisions to ensure that they do not have any unintended
effects, or to provide relief to RSE licensees as required. The transitional
rules are defined as 'modifiable provisions' which can be amended by
APRA.
1.136 The transition period is defined as a period of three years from
the date of Royal Assent to the Bill. [Schedule 1, Part 3, item 23]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Schedule 1: Governance arrangements for registrable superannuation
entities
1.137 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
28
Amendments to the Superannuation Industry (Supervision) Act 1993
Overview
1.138 The Bill makes amendments to the Superannuation Industry
(Supervision) Act 1993 to require trustees of registrable superannuation
entities that are regulated superannuation funds, including standard
employer-sponsored fund to have at least one-third independent directors
and an independent chair.
Human rights implications
1.139 This Bill does not engage any of the applicable rights or
freedoms.
Conclusion
1.140 This Bill is compatible with human rights as it does not raise any
human rights issues.
29
Chapter 2
Regulation impact statement: Schedule 1:
Governance arrangements for registrable
superannuation entities
Background
2.1 The size of the superannuation savings pool in Australia is
currently $2.05 trillion1 and is expected to grow to approximately
$9 trillion by 2040.2 While compulsory superannuation has been in
existence since 1992, its significance in Australia's financial system has
increased rapidly in recent years as the pool of savings continues to grow
and questions about its efficiency are raised in broader economic
discussions.
2.2 The Australian Prudential Regulation Authority (APRA) has
prudential oversight of the superannuation system along with the
Australian Securities and Investments Commission (ASIC) which
regulates the conduct and disclosure obligations of financial services
providers (including superannuation trustees that hold an Australian
financial services licence). The Australian Taxation Office has
responsibility for the oversight of self managed superannuation funds
(SMSFs).
2.3 In its superannuation statistical data, APRA groups
superannuation funds into several categories: corporate (38 funds), retail
(147 funds), public sector (19 funds), industry (not-for-profit) (44 funds)
and small (550,706 funds).3 Superannuation funds are generally regulated
by both the Superannuation Industry (Supervision) Act 1993 (SIS Act)
and the Corporations Act 2001 (and related regulations, along with APRA
prudential standards).4
1 APRA Qu arterly Su perannu ation Perform ance March 2015.
2 The Financial System Inqu iry, p ages 2-84 Ju ly 2014.
3 Small funds include self-managed superannuation funds. APRA Quarterly Superannuation
Performance March 2015.
4 The Australian Taxation Office also plays a role in the administration of self-managed superannuation
funds.
31
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
2.4 In 2009, a review was commissioned to examine and analyse the
governance, efficiency, structure and operation of Australia's
superannuation system, which was led by Jeremy Cooper (the Cooper
Review). It specifically examined both compulsory and voluntary aspects
of superannuation and the governance, efficiency, structure and operation
of the system. The Cooper Review was aimed at boosting the retirement
savings of all Australians by increasing efficiencies, reducing costs and
fees and in turn lifting long-term rates of return.
2.5 The Cooper Review recommended that the SIS Act be amended
so that it is no longer mandatory for trustee boards to maintain equal
representation in selecting its directors. The Cooper Review also noted
that the presence of independent directors on boards is best practice in
corporate governance.5
2.6 In September 2013, the then Opposition committed to improve
governance in superannuation through the appropriate provision of
independent directors on superannuation trustee boards.6
2.7 In 2014, the FSI in its Final Report recommended mandating a
majority of independent directors on the board of corporate trustees of
public offer superannuation funds, including an independent chair.
2.8 The FSI noted that 'including independent directors on boards is
consistent with international best practice' and that independent directors
'improve decision making by bringing an objective perspective to issues'
and 'hold other directors accountable for their conduct'.
The problem
2.9 The Government is seeking to deliver on its superannuation
governance election commitment (election commitment) to align
governance in superannuation more closely with the corporate governance
principles applicable to ASX listed companies. In particular, the
Government is seeking to increase the level of independence in
superannuation funds to ensure improved member outcomes, while
minimising the costs to the superannuation industry.
5 Coop er Review , p age 55.
6 In general terms, governance refers to the system of rules, practices and processes by which a
company is directed and controlled.
32
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
2.10 The Cooper Review and the FSI into the Financial System both
concluded after their consultations with the superannuation industry
representatives that superannuation funds would benefit from having
independent directors. In particular, the FSI identified overseas research,
which suggested, 'good governance adds one percentage point to pension
fund returns'.7 The superannuation industry representatives have also
indicated that stronger board performance, which could be achieved
through increased independence, can have a direct impact on the returns
superannuation funds achieve for their members.
2.11 Currently, it is estimated that of only 49 per cent of industry,
corporate and public sector funds have one or more independent directors
(leaving 51 per cent of funds without any independent directors).
Considering the current average board size of these particular funds is
estimated to be nine members it can be concluded that independence is
lacking across these superannuation funds.
2.12 In a 2015 report by Australian Institute of Company Directors,
which considered the views of 100 Chairs covering organisations in the
publicly listed, private, not-for-profit and public sectors, consideration
was given to the factors that were required for good governance. The
report indicated that the past focus on structural aspects of governance has
not helped reduce the occurrence of corporate errors, omissions and
malfeasance. Instead it was considered that the critical factors required for
ensuring good governance were trust; independence of mind; and
diversity of worldview.
2.13 In this regard, independence of mind and responsibility are at the
core of the case for independence. Current APRA guidance references a
number of key principles underpinning a sound and effective governance
framework for superannuation boards one of which is 'responsibility --
the board of directors is ultimately responsible and accountable for the
decisions and actions taken by a registrable superannuation entity (RSE)
licensee'.
2.14 Included among the SIS Act covenants required to be included
in the governing rules of superannuation trustees, are covenants to:
• perform the trustee's duties and exercise the trustee's powers
in the best interests of the members;
7 Financial System Inqu iry Final Report, Chapter Tw o; Governance of Superannuation Fu nd s.
33
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
• exercise the same degree of care, skill and diligence as a
prudent superannuation trustee (or prudent superannuation
entity director) would exercise in relation to an entity of
which it is the trustee and on behalf of the members;
• act fairly in dealing with classes (or members in a class) of
members; and
• act honestly in all matters concerning the entity.
2.15 These covenants are aimed at ensuring superannuation boards
and directors act responsibly.
2.16 Historically, superannuation boards have generally acted in the
best interests of their members in line the above covenants, irrespective of
whether they have one or more independent directors. However, this is not
always the case. In this regard, in 2009, Trio Capital collapsed, leaving
around 6,100 investors with losses amounting to $176 million. The
majority of the loss was due to the failure to not fully investigate the
accuracy of falsified valuations and fictitious returns in overseas hedge
funds, as well as failure to adequately investigate the risks associated with
the investment. APRA reviewed governance failings within Trio Capital,
and identified a lack of independent directors in the Trio Capital funds,
which were APRA regulated superannuation funds.
2.17 The liquidator of the failed Trio Capital entities concluded that
the directors did not take reasonable steps to ensure that Trio was
complying with its obligations as responsible entity, did not exercise
appropriate duty of care as officers, did not act in the best interests of the
managed investment scheme into which the Trio Capital superannuation
funds had invested, and did not comply with statutory and fiduciary
responsibilities to avoid conflicts of interest.
2.18 It is also important to note that APRA has on occasion
disqualified directors under section 120A(2) of the SIS Act. Some of the
decisions to disqualify directors have been made because APRA formed
the view that the director failed to exercise a reasonable degree of care
and diligence in ensuring that RSE licensee carried out its duties under the
SIS Act.
34
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
2.19 On 25 August 2015, in an Australian Financial Review article
the link between improved independence and improved decision making
through the context of the FSI was clearly captured.
Financial system inquiry head David Murray said independent
directors were 'more likely to ask the right questions' if a board
needed to pit hard-nosed economic decisions against ideology ...
funds should have a majority of independent directors and an
independent chair. 'The point about independent directors is that
they can examine in a dispassionate way if policies are in the
interests of members or for other reasons,' ... 'That is very
helpful. Independent directors are more likely to ask the right
questions of where the interests of members lie, if there are
enough of them.'8
2.20 Increasing independence can also be seen to bring diversity in
worldview to a board's decision making processes. A diverse worldview
enables the decision making processes of superannuation boards to be
tested and challenged in a way that achieves beneficial member outcomes
and feeds back into the above covenants.
2.21 However, the current equal representation model, which has
existed since 1993, significantly affects the current the level of
independence of mind and diversity of worldview obtained through the
inclusion of definition of an independent director as currently defined in
section 10 of the SIS Act.
2.22 Section 10 provides that an 'independent director' in relation to
a corporate trustee of a fund, means a director of the corporate trustee
who:
• is not a member of the fund;
• is neither an employer-sponsor of the fund nor an associate of
such an employer-sponsor;
• is neither an employee of an employer-sponsor of the fund
nor an employee of an associate of such an
employer-sponsor;
• is not, in any capacity, a representative of a trade union, or
other organisation, representing the interests of one or more
members of the fund; and
8 Au stralian Financial Review , Au stralia, Joanna Mather and Sally Patten, 25 Au g ust 2015.
35
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
• is not, in any capacity, a representative of an organisation
representing the interests of one or more employer-sponsors
of the fund.
2.23 Equal representation as currently contained in the SIS Act
prevents changes to the number of independent directors on some
superannuation trustee boards.9 Under the SIS Act, funds operating under
the equal representation model are only able to appoint one independent
director. In practice however, funds have the ability to apply to APRA to
appoint more than one independent director.10 Not-for-profit funds and
corporate funds typically operate under equal representation
arrangements, although some have an independent director on the Board.
2.24 In contrast to directors representing employers or employees
under the equal representation model independent directors are free of the
types of conflicts that may cause them to deliberately or unconsciously
serve the interests of a related party or a subset of members, rather than
the fund's entire membership.
• Independent directors of superannuation funds are not
influenced by:
- parent companies, such as an insurance company or
bank;
- sponsoring organisations, such as a union or employer
organisation;
- service providers, such as an administrator; or
- subsets of the membership of the fund, such as those
fund members who are also a member of the sponsoring
union.
2.25 The FSI also indicated that the equal representation model is less
relevant in the current superannuation system, which predominantly
consists of public offer accumulation funds and funds less focused on
single employers.
9 At June 2013, 68 per cent (103 of 151) of registrable superannuation entity (RSE) licensees had an
equal representation board structure.
10 For example, the Industry Super Australia submission noted that out of a sample of 26 industry
superannuation funds, 16 of the funds already have at least one independent director on their board. Of
these, the majority of funds (11) had one independent director and the remaining five more than one
independent director.
36
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
... fund members exercise choice, directors appointed by
employer and employee groups are less likely to represent the
broader membership of public offer funds (see Recommendation
12: Choice of fund). Given the diversity of fund membership, it is
more important for directors to be independent, skilled and
accountable than representative.
2.26 Given the importance of independence of mind and diversity of
worldview as expressed by Chairs, under the SIS Act and eminent
academics, increasing independence is key to improving governance in
the superannuation system, thus improving member outcomes.
The situation the Government's election commitment is addressing
2.27 Superannuation funds regulated by APRA are structured with
trustee arrangements -- there is a separation between members and
trustees, with trustees managing funds on behalf of members.
2.28 A longstanding feature of the superannuation governance
framework is the requirement for some superannuation trustee boards to
have equal representation (typically not-for-profit and corporate funds).11
This reflects the position adopted with the commencement of occupational
superannuation, that members should have a greater voice through
representation on non-public offer funds (industry, corporate and public
sector). Equal representation allowed both stakeholder groups (employers
and employees) to have oversight and responsibility for funds' operations.
2.29 Most APRA-regulated funds are public offer funds, which also
receive contributions from standard employer sponsors; that is, some
members may choose to join the fund by direct arrangement with the
trustee, while others join because of an arrangement between their
employer and the trustee. In those cases, there may be an independent
trustee, but for certain groups of members drawn from a single employer,
the trustee must have in place advisory policy committees that must
comprise equal representation of the both the employer sponsor and that
group of members. Policy committees are not required in cases where the
trustee board has equal representation.
11 Not-for-profit funds include industry, corporate and public sector funds. These funds are generally
affiliated with either the public sector, individual corporations, trade unions or employer
representatives and have an equal number of employer and employee representatives on a trustee
board. Retail funds are generally run for profit and are affiliated with banks or other financial
institutions. Retail funds have significantly more choice investment options than non-retail funds. In
general terms, equal representation means that the board of a corporate trustee must consist of equal
numbers of employer representatives and member representatives.
37
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
2.30 The Cooper Review examined the equal representation model
and found that although it was an important part of the governance
structure twenty years ago, 'changes in the industry over time and certain
implementation practices mean that equal representation no longer seems
to achieve its original ... objective'.12 In addition, the Cooper Review
articulated the issues with governance in superannuation in these terms:
Trustee governance structures have not kept up with
developments in the industry. There have also been difficulties
for trustees and their trustee-directors in understanding what is
expected of them and, as the industry consolidates, conflicts of
interest and conflicts of duty arise regularly. Good trustee
governance is fundamental to enhancing members' retirement
incomes.13
2.31 The Cooper Review recommended that the SIS Act be amended
so that it is no longer mandatory for trustee boards to maintain equal
representation in selecting its directors. The Cooper Review also noted
that the presence of independent directors on boards is best practice in
corporate governance.14
2.32 In 2014, the FSI, in its Final Report, recommended mandating a
majority of independent directors on the board of corporate trustees of
public offer superannuation funds, including an independent chair. The
FSI noted that 'including independent directors on boards is consistent
with international best practice' and that independent directors 'improve
decision making by bringing an objective perspective to issues' and 'hold
other directors accountable for their conduct'.15
2.33 In addition, there is currently an inconsistency in the governance
frameworks (including self-governing guidelines) on the number of
independent directors and the definitions of independence between retail
and not-for-profit superannuation fund boards.
2.34 For example, Financial Services Council (FSC) member entities
(retail funds) have no restrictions in appointing independent directors and
from 1 July 2014, are required, under FSC's self-governing standard, to
have a majority of independent directors and an independent chair.
12 Coop er Review , p age 53.
13 Coop er Review , p age 43.
14 Coop er Review , p age 55.
15 Financial System Inquiry, page 134 of the Final Report, November 2014.
38
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
The case for Government action
2.35 Given superannuation funds are expected to increase in
significance and size, Australia's superannuation governance framework
must be strengthened to ensure a stable and efficient system that improves
the wellbeing of all Australians.
2.36 In this regard, strong governance arrangements ensure that fund
members' interests are paramount in the minds of trustees. The trustee
(and its directors) has fiduciary obligations to members and beneficiaries,
which require taking ultimate responsibility for the fund and an obligation
to manage the assets of the fund with competence, diligence, prudence
and honesty.
2.37 In September 2013, the then Opposition published The
Coalition's Policy for Superannuation in which it committed to improving
standards and better management of conflicts of interest by aligning
corporate governance in superannuation more closely with the corporate
governance principles applicable to ASX listed companies. The Coalition
committed to improving superannuation governance by ensuring that there
is an appropriate provision for independent directors on superannuation
fund boards. The Coalition also noted that the Cooper Review questioned
the financial expertise and professionalism of union and employer trustees
appointed to superannuation boards through the 'equal representation
model.'
2.38 The Government's election commitment seeks to build on recent
reforms, which were designed to ensure that the superannuation system is
primarily focused on operating in members' best interests.16
2.39 On 28 November 2013, the Government released the Better
regulation and governance, enhanced transparency and improved
competition in superannuation discussion paper to consult on its
superannuation election commitments. The discussion paper provided
stakeholders with an opportunity to comment on possible reforms to
governance regulations and the outcomes of that consultation are reflected
in the analysis of options in this statement.
16 'Best interests' are d efined by the sole purpose test in the Superannuation Industry (Supervision)
A ct 1993, w hich focuses on m axim ising post-retirem ent benefits. The tru stee's ability to form
a fu nd strategy that generates good long-term returns, w hile operating w ithin reasonable
risk bou nd s, is a critical elem ent in serving m em bers' best interests. In general, a tru stee is a
p erson or com p any (corporate tru stee) appointed u nd er the term s of the trust d eed to hold
the tru st property for the beneficiaries and to m ake su re that the plan is operated in
accord ance w ith the tru st d eed . Gen erally, trustees ow e a fid u ciary d u ty to the beneficiaries.
Su p erannu ation tru stees m u st also com ply w ith certain legislative d u ties.
39
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
2.40 The analysis in this statement is mindful of the need for an
appropriate regulatory framework for the superannuation system as a
whole, one that protects the interests of members, supports the efficient
allocation of savings and one that is not overly burdensome and costly to
administer.
Objectives of Government action
2.41 The Government through its election commitment is seeking to
ensure that superannuation fund boards have increased levels of
independence, as having appropriate provision of independent directors on
superannuation trustee boards is seen as a vital step towards strengthening
the superannuation system.
2.42 In particular, the Government considers that independent
directors provide an external, dispassionate perspective, enabling boards
to benefit from a diversity of views and provide a check on management
recommendations. By being free from relationships that could materially
interfere with their judgement, they can provide an objective assessment
of issues.
2.43 The objective of the Government's election commitment is to:
• set a minimum standard, in terms of the number of
independent directors on superannuation trustee boards, to
promote good governance through the broadening of a
superannuation fund board's pool of experience and
expertise. In addition, independent directors allow for an
increased accountability of decisions made by other directors
who may have conflicting interests.
- A 2010 Regnan Research Report notes that the
'empirical research from Australia and overseas lends
support to the hypothesis that board independence and
diversity ... translate into better business performance'.17
• have a common definition of 'independence' to minimise any
ambiguity for the superannuation industry by ensuring that
all APRA-regulated superannuation funds have the same
requirements for determining whether a director is
independent. The intent is for the definition of independence
to be based on ASX principles, but adapted to the
superannuation context.
17 October 2010 www.regnan.com.au/documents/Regnan%20Research%20Report.pdf.
40
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
2.44 The Government's election commitment of ensuring appropriate
provision of independent directors on superannuation trustee boards is
consistent with both the Cooper Review's and FSI's recommendations
(noting that the proposed Government action is not as far reaching as
proposed by the FSI) on corporate governance frameworks and
international best practice.
• Both the Cooper Review and the FSI have recommended
increasing independent directors on super fund boards.
APRA requires a majority of independent directors for its
other regulated entities banks and life insurance companies.
• The ASX Corporate Governance Council's Corporate
Governance Principles recommend, on an 'if not, why not'
basis, that Australian listed companies have a majority of
independent directors and an independent chair.
2.45 To progress the Government's election commitments and
provide the superannuation industry with the necessary certainty and
sufficient time to implement the new requirements, the Government is
working towards introducing legislation into Parliament in the
2015 Spring sittings.
International comparisons
2.46 In Canada, it is recommended that the board of directors of
every corporation should be constituted with a majority of individuals
who qualify as unrelated directors.18 In addition, the United Kingdom
Corporate Governance Code recommends that at least half the board
should comprise non-executive directors determined by the board to be
independent.19 As a result, 48 per cent of United Kingdom pension
schemes have at least one independent trustee.20
2.47 In addition, from 6 April 2015, firms in the UK that operate
group personal pension schemes or group stakeholder pension schemes
have been required to set up an Independent Governance Committee
(IGC) (or equivalent). It is intended that IGCs will raise an independent
challenge to the providers of schemes on value for money issues. The UK
Government sees this as a complement to its automatic enrolment policy
of employees into workplace pension schemes, which began in July 2012.
18 Toronto Stock Exchange: Corporate governance -- A guid e to good d isclosure.
19 Financial Reporting Cou ncil (Sep tem ber 2012): The UK Corporate Governance Code.
20 Pensions Governance Su rvey 2013 (Mercer).
41
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
2.48 In New Zealand, an independent trustee is a requirement for
some KiwiSaver Funds (that is, non-default KiwiSaver schemes).
Amongst other things, independence requires that the trustee is not
connected with a promoter of the scheme. The New Zealand
Superannuation Schemes Act 1989 does not have this independent trustee
requirement and, therefore, non-KiwiSaver superannuation schemes
(including complying schemes) have no qualification requirements
attached to the role of the trustee.
2.49 KiwiSaver was regulated differently from other superannuation
funds and managed funds because KiwiSaver was intended to be a
long-term savings vehicle, with funds locked in until (in most cases) the
age of eligibility for NZ superannuation.
2.50 In summary:
• In Canada, multi-employer plans established pursuant to a
collective agreement are governed by a board of trustees
composed in accordance with the plan or collective
agreement (typically equal representation -- that is, that the
board of a corporate trustee must consist of equal numbers of
employer representatives and member representatives.
• In the United States, multi-employer (Taft-Hartley) funds
must have equal representation of employers and employees.
• In the United Kingdom, at least one-third of trustees must be
member-nominated.
2.51 It is worth noting that a corollary of the Australian
Government's policy still allows representation of employer and
employee groups on superannuation boards. The composition of
superannuation trustee boards, beyond the one-third independent directors
prescribed, will remain at the discretion of the board (subject to any
requirements set out in the constitution of the trustee and to the
overarching legal requirement that board members are fit and proper and
that boards have an appropriate skill mix).
2.52 This leaves open the ability for trustees to choose to enshrine
equal representation (or voting rules in their constitutions). This outcome
is consistent with representation on superannuation boards across Canada,
the United States and the United Kingdom.
42
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
Policy Options
Summary of the recommended options
2.53 In recognition of the extensive work undertaken in the Cooper
Review and the FSI, as outlined above, the following two options were
considered to best implement the Government's election commitment to
ensure the appropriate provision of independent directors on
superannuation trustee boards:
• Option 1: Legislate for a minimum one-third of directors to
be 'independent' with an independent chair, with funds
reporting whether they have a majority of independent
directors and if they do not, disclosing why not (that is, on an
'if not, why not' reporting basis). This option includes a
three-year transitional period; or
• Option 2: Legislate for a majority of independent directors
with an independent chair, with a five-year transitional
period (consistent with the FSI).
2.54 As a result of the cost implications of legislating for a majority
of independent directors, the Government has decided that legislating
one-third independent directors, including an independent chair, strikes an
appropriate balance while still substantially strengthening governance
arrangements.
Detailed discussion of the options to deliver on the Government's
election commitment
Option 1 (Proposed): Legislate for a minimum one-third of directors to
be 'independent' with an independent chair, with funds reporting
whether they have a majority of independent directors and if they do
not, disclosing why not (that is, on an 'if not, why not' reporting basis).
This option includes a three-year transitional period.
2.55 This option involves mandating that a minimum one-third of
directors on superannuation fund boards be 'independent' with an
independent chair, with an aim for a majority independent directors on an
'if not, why not' reporting basis (funds must disclose why they do not
have a majority of independent directors). The 'if not, why not' basis is
consistent with the approach adopted in the ASX principles for listed
companies.
43
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
2.56 This option would allow the equal representation model to
continue in a modified form. Boards could have the remaining two thirds
split between member and employer representatives. This may result in
some superannuation trustee boards incurring costs and increasing in size
slightly. Costs associated with appointing at least one-third of independent
directors include search and ongoing remuneration costs, as well as
requirements to change trust deeds. There would also likely be increased
compliance costs associated with appointing and remunerating the
additional independent directors.
2.57 A transitional period of three years would minimise compliance
costs, allowing existing directors to leave and new directors be appointed
in an orderly fashion. Typical board appointments are for terms of three
years. Given that compliance costs increase with the number of
independent directors, this option is the preferred option in meeting the
Government's objective of improving superannuation governance.
2.58 Some submissions to the Government's discussion paper Better
regulation and governance, enhanced transparency and improved
competition in superannuation considered that an option that required up
to one-third of independent directors over an appropriate transition period
would meet the Government's objective of improving governance while
considering the compliance costs on superannuation funds. The
recommended governance option is estimated to cost the superannuation
industry $12.3 million per year in ongoing costs and $8.5 million in
start-up costs.
Option 2: Legislate for a majority of independent directors with an
independent chair, with a five-year transitional period.
2.59 This option involves mandating that a majority of directors be
independent, which is consistent with the requirement imposed on the
banking and insurance industries by the APRA. This option is stronger
than the ASX Corporate Governance Council's Corporate Governance
Principles and Recommendations (ASX principles), which recommend a
majority of independent directors on an 'if not, why not' basis. This
option is also consistent with, but broader than, the FSI's recommendation
mandating a majority of independent directors and an independent chair
on the board of corporate trustees of public offer superannuation funds
only.
2.60 Compared to option 1, a longer transitional period of five years
would help reduce compliance costs and allow existing directors to leave
and new directors be appointed in a more orderly manner.
44
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
2.61 The FSI recommended mandating a majority of independent
directors on the board of corporate trustees of public offer superannuation
funds, including an independent chair. This option is consistent with the
Inquiry's recommendation. The Inquiry notes in its Final Report
(page 134) that 'including independent directors on boards is consistent
with international best practice' and that independent directors 'improve
decision making by bringing an objective perspective to issues' and 'hold
other directors accountable for their conduct'.
2.62 However, this option would result in some superannuation funds
(not for profit funds) being required to change their board composition
markedly. There would be compliance costs associated with appointing a
majority of independent directors (including search and ongoing
remuneration costs, as well as requirements to change trust deeds). This
option could likely result in an overall increase in the size of boards for
many funds with increased compliance costs associated with appointing
and remunerating the additional independent directors.
2.63 Some submissions, particularly from the retail superannuation
fund sector, considered a requirement for a majority of independent
directors over an appropriate transition period would meet the
Government's objective of improving governance while considering the
compliance costs on superannuation funds. One submission noted that a
requirement for majority independent directors was inevitable for
superannuation given this is the standard for other APRA-regulated
entities in the finance and insurance sector. The ongoing costs per year for
option 2 are estimated to be around $23.3 million per year and start-up
costs are estimated to be around $ 10.5 million.
The options for improvements to superannuation governance were
formulated to consider the following issues: What is the appropriate
number of directors on superannuation trustee boards?
2.64 The provision of independent directors on superannuation
trustee boards is aimed at promoting board diversity and ensuring
members' best interests are front and centre. Increasing the number of
independent directors on superannuation trustee boards is an issue that
requires careful consideration.
2.65 Feedback from consultation (mainly from not-for-profit funds)
indicated continued support for the equal representation model and
opposed any requirement to mandate a proportion of independent
directors.
2.66 Other submissions considered that up to one-third independent
directors could be achievable with an appropriate transition period.
Finally, some submissions supported a requirement for a majority of
45
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
independent directors. However, the costs associated with a majority of
independent directors were recognised as a potential hurdle for the
superannuation industry.
2.67 The number of directors on superannuation trustee boards is not
being legislated. Allowing each trustee to determine the optimal size of its
board provides boards with the flexibility to appoint the directors needed
to ensure the right mix of skills and experience to best serve member
interests.
What should be the appropriate transition period to increase the number
of independent directors on superannuation trustee boards?
2.68 Another consideration in implementing a new governance
regime concerns transitional impacts on existing and new board
appointments.
2.69 Feedback from submissions suggested that the transition period
should differ depending on the number of independent directors required.
For instance, the greater the proportion of independent directors on
superannuation trustee boards, the longer the transition period should be
to minimise compliance costs.
What is an appropriate definition of independence?
2.70 In considering how to improve governance in the
superannuation industry through increasing the number of independent
directors on superannuation trustee boards, a key issue that needs
consideration is what is meant by 'independent directors'? This is critical
given the potential impacts the definition may have on the pool of
independent directors. For instance, a tighter definition of independence
may limit the pool of candidates, whereas a more flexible definition may
widen it.
2.71 Feedback from a number of submissions indicated that if a
member of a fund is a director, this gives them 'skin in the game' and
therefore does not result in a conflict of interest. This is consistent with
limited liability companies where directors can have a non-material
shareholding and still be independent.
2.72 Other submissions argued that in order to achieve improvements
to governance, it is important that independent directors are at arm's
length from the fund.
46
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
Impact Analysis
Impact on industry and consumers
2.73 The proposed enhancements to superannuation governance seek
to improve the superannuation system while ensuring compliance costs do
not outweigh potential benefits to the market and to consumers.
2.74 The proposed options are aimed at improving superannuation
governance, which in turn is expected to provide benefits to fund
members. In this regard, as discussed in the Problem section, the
importance of independence in the decision making process can be seen
through both the comments of Chairs, the SIS Act and eminent academics.
However, it is recognised that while the requirement for increased
independence in superannuation funds is fundamental to improving
governance, and thus improving member outcomes, the full benefit of the
proposed options will only be identified over the longer term. The
Government's election commitment is aimed at ensuring that the best
interests of superannuation fund members are front and centre in trustees'
decision making processes.
2.75 In addition, as the vast majority of trustees of APRA-regulated
superannuation funds are companies (and it is the board of trustee
directors who are responsible for the trustee's decisions and actions),
these APRA-regulated superannuation funds will benefit by having a
more diverse and skilled board.21
2.76 Community organisations and individuals more broadly are less
likely to be affected directly by the governance reforms. However, all
members of superannuation funds would benefit from improved
governance.
2.77 The main groups affected are industry, corporate and public
sector superannuation funds. These funds are the funds that will be
required to restructure their boards to comply with any new independence
requirements. The changes do not apply to SMSFs.
2.78 The overall compliance cost to the superannuation industry in
start-up costs is estimated to be $8.5 million compared to maintaining the
status quo. The overall compliance cost to the superannuation industry in
ongoing costs is estimated to be around $12.3 million per year compared
21 A regulated superannuation fund is one which: elects to comply with the SIS legislation; has either a
corporate trustee or pays retirement benefits as pensions; is a superannuation, pension, provident or
benefit fund that is indefinitely continuing.
47
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
to maintaining the status quo. This will result in a compliance cost impact
of $20.8 million in the first year and $12.3 million in subsequent years.
2.79 How superannuation funds choose to respond to the proposed
reforms will depend on the individual funds. The choice of passing on
costs to members or absorbing them will be made by each fund, taking
into account their particular business situation and strategy.
2.80 A detailed breakdown of the cost estimate inputs cannot be
publicly released as some of the data was provided on an in-confidence
basis.
48
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
Table 2.1: Governance
Governance Minimum of one-third Majority of independent directors
independent directors and an and an independent chair.
independent chair.
Start-up costs $8.5 million $10.5 million
Ongoing costs $12.3 million $23.3 million
(all funds, per
year)
Board changes Independent Director Independent Director
remuneration: $75,000 per remuneration: $75,000 per
annum. annum.
Change from current Director to Change from current Director to
Independent Director $20,000. Independent Director $20,000.
30 per cent of boards (31 RSEs) 30 per cent of boards (31 RSEs)
will likely increase in size to meet will likely increase in size to meet
the new requirements. the new requirements.
Search costs Newspaper advertisement:
$28,000 for 20 per cent of
impacted RSE licensees.
Executive search firm: $53,000
per director for 80 per cent of
impacted RSE licensees.
Constitution, $14,000 x 101 RSE licensees $14,000 x 101 RSE licensees
Governance
rules, Trust deed
and legal
document
changes
Notes:
1. A transitional period of three years would minimise compliance costs and allow existing directors to leave and new
directors be appointed in an organised fashion (potentially consistent with a fund's existing board renewal
strategy).
2. Current board size is estimated to be on average between 7 to 10.
3. Additional remuneration costs associated with a Chair (if any) are in addition to a Directors normal remuneration.
As such, having an independent chair will not increase costs as the appointment of a chair and the associated costs
are business as usual actions.
4. The development of a traditional plan will align with current obligations on RSEs as such; the costs associated with
a traditional plan are captured through business as usual practices.
5. Currently, 49 per cent of the affected categories have no independent directors. As such, it is estimated that on
average three independent directors will be required to be appointed. However, it is estimated that 40 per cent of
the affected categories will replace existing directors with new independent directors. In this regard, it is recognised
that some current directors may not be currently remunerated; as such it is estimated that 50 per cent of the existing
directors will have cost impact as hiring new directors.
6. Currently, 51 per cent of the affected categories have between one and two independent directors. As such, it is
estimated that on average one independent director will be required to be appointed. However, it is estimated that
40 per cent of the affected categories will replace existing directors with new independent directors. In this regard,
it is recognised that some current directors may not be currently remunerated; as such it is estimated that
50 per cent of the existing directors will have cost impact as hiring new directors.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Methodology
2.81 The primary costs incurred relate to increased remuneration
costs associated with complying with the proposed independent director
requirement. Other significant costs include search and engagement costs,
legal costs (changes to constitutions, trust deeds etc.).
2.82 The two proposed options were costed:
• A legislated majority of independents on superannuation
trustee boards after a five-year transition period; and
• A legislated minimum one-third of independent directors
with an independent chair on superannuation trustee boards
with a three year transition period.
2.83 Data used in the determination of the cost impact of the
proposed options was obtained from the public and private sectors and
both the retail and industry funds sector through direct consultation and
through the two public consultation processes.
2.84 The following assumptions were made:
• 101 RSE licensees with an equal representation board
structure (corporate, industry and public sector funds) will be
affected by the requirement to have independent directors.22
- In some cases this may result in a change in the
composition of boards over time (with the same board size)
and in others, it may result in an increase in board size.
- Remuneration expenses increase when boards increase
their size and/or restructure to meet the new requirements.
• The changes in board sizes are estimated using the current
average range of board sizes in the affected groups, which is
between 7 and 10. The calculation for remuneration of
directors was estimated to be $75,000 per annum for an
independent director and an increase of approximately
$20,000 when a current director is reclassified or replaced
with an independent director.
22 RSE licensee is the holder of an RSE licence. An RSE licence is the licence granted by APRA to
trustees of APRA regulated superannuation entities and with which the holder can act as the trustee of
an RSE. Trustees of self-managed superannuation funds (SMSFs) and public sector superannuation
schemes are not required to hold an RSE licence. There are two classes of RSE trustee licences: Public
offer entity licence; and non-public offer licence. To hold a public offer entity licence the trustee must
be a body corporate that is a constitutional corporation.
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Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
• The process for finding new independent directors is
normally undertaken through executive search firms or
newspaper advertising (with an additional due diligence
process).
- Based on data from the superannuation industry, it is
estimated that using an executive search firm will cost
$53,000 per director for each fund. It is estimated the
majority of funds will undertake this process (80 per cent).
- Based on data from the superannuation industry, it is
estimated that newspaper advertising will cost $28,000
(which includes costs associated with due diligence) for each
fund to fully implement the reforms. It is estimated that a
smaller proportion of funds will undertake this process
(20 per cent).
• To ensure compliance with the new requirements
superannuation funds will be required to amend their
Constitutions, Governance rules and Trust deeds to reflect
the new independent director requirements.23 Additionally,
other legal documentation including product disclosure
statements will also need to be updated to reflect the changes
to broad compositions. Based on industry data, it is estimated
these changes will have an initial cost of $14,000 per
superannuation fund.
• It is recognised that new directors may also require additional
training in order to understand and comply with the RSE's
governance structure and procedures in addition to other
legal requirements, it is superannuation funds indicted that
this training can range from $10,000 to $15,000. As such, it
is estimated that affected RSE's will face additional
compliance costs of $12,500 for all new directors.
• In the development of the costing in this Regulation Impact
Statement (RIS) consultation was undertaken with key
industry stakeholders. In this context, one submission
received through the consultation process, indicated that the
costs currently outlined in this RIS did not capture the full
23 A trust deed is a document, which sets out the rules for the establishment and operation of a fund. A
superannuation trust deed includes provisions covering such issues as: who can be appointed and the
processes involved in appointing trustees; who will be admitted as members of the fund; the process
for receiving and investing contributions; discretionary powers of trustees; and the payment of benefits
to members.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
impact of the proposed changes in Option 1. The submission
indicated that the costs outlined were significantly
understated. In particular, the submission indicated that:
- The remuneration costs associated with independent chairs
were significantly higher than normal chairs, contrary to the
assumption used in the costing in this RIS. This assumption
was tested with other stakeholders and these stakeholders
considered that the current assumption used in this RIS was
more appropriate.
- The definition adopted to determine who is considered
independent would have a significant impact on the number of
directors required to be appointed, thus compromising the
assumptions outlined in this RIS. Further, the definition of
independence adopted would also influence the pool of
potential directors from which appointments may be made,
thus resulting in increased remuneration costs for independent
appointees. These statements are considered correct in
principle. However, when tested with other stakeholders, it
was indicted that it was unlikely the definition of
independence if it was broadly in line with the current
definition in section 10 of the SIS Act would result in a
significant change in the assumptions outlined in this RIS.
Summary -- Governance
2.85 In summary, option 1 is the preferred option, as it will give
effect to the Government's election commitment while minimising the
cost impact on the superannuation industry.
52
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
Table 2.2: Regulatory burden and cost offset estimate table
Average annual regulatory costs (from business as usual)
Change in Business Community Individuals Total change in
costs organisations costs
($ million)
Total, by $13.154 $ $ $13.154
sector
Cost offset Business Community Individuals Total, by source
($ million) organisations
Treasury $13.154 $ $ $13.154
Are all new costs offset?
Yes, costs are offset No, costs are not offset Deregulatory--no offsets required
Total (Change in costs -- Cost offset) ($ million) = $0
The average annual regulatory costs (from business as usual) will be
offset by the compliance cost savings associated with the simplification of
transfer pricing records.
Specific impact on small businesses
2.86 There are 2,428 small APRA funds as at March 2015 that will
be affected by the governance regime. Small APRA funds typically
outsource their trusteeships to 'trustees for hire'.24 These trustees will
need to meet the independent director obligations.
2.87 However, as these trustees frequently act for a large number of
funds, the effect on individual funds should be minimal.
2.88 Self managed superannuation funds are regulated by the
Australian Taxation Office and not included in the new governance
regime.
24 Trustees of small APRA funds are usually professional trustee companies.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Impact on Government
2.89 The impact on Government will be relatively small and
non-ongoing. In the short-term, implementation costs will be incurred to
draft the legislation for the proposed amendments, and to make changes to
the regulations. The financial impact on APRA and ASIC of these
proposals was addressed in 2010 as part of the previous government's
superannuation reforms arising from the Cooper Review.
Consultation
2.90 Soon after the 2013 election, the Government decided to
progress its superannuation governance election commitment in a variety
of ways, including the issuing of a public discussion paper and exposure
draft legislation. To ensure the consultation process covered all relevant
persons, the Government consulted in the public domain. Due to some
more technical aspects of the Government's policy, the Government also
conducted targeted consultation with stakeholders.
2.91 On 28 November 2013, the Government released a discussion
paper seeking industry's views on the status of reforms covering
governance and transparency. The paper was entitled 'Better regulation
and governance, enhanced transparency and improved competition in
superannuation'. Amongst other things, the discussion paper canvassed
improving trustee board governance through having independent directors
on superannuation trustee boards.
2.92 A total of 90 submissions were received, including 23
confidential submissions. Consultation involved meetings, including
around 14 meetings with representatives from across the superannuation
sector. This consultation informed the assessment of compliance costs.
Stakeholders were also engaged in further direct consultation to assist
with assessment of the cost implications of the policy options.
2.93 The main themes raised by submissions were:
• both support and concern over proposed board governance
changes; and
• the need for appropriate time to implement any legislative
changes.
2.94 A number of submissions, mainly from industry funds, indicated
continued support for the equal representation model and opposed the
proposed requirement to mandate a proportion of independent directors. A
54
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
number of industry fund submissions, including Industry Super Australia
(ISA), argued that not only is Australia's representative trustee
arrangements consistent internationally, but that equal representation
helps ensure that member interests come first and at the same time has
delivered higher average returns and lower fees than retail funds.
2.95 In particular, the ISA opposed any requirement to have a
specified proportion of independent directors on boards. ISA said that
there should only be a positive obligation on boards to consider if
appointing an independent chair and/or independent directors (up to
one-third of total board membership) may be in the best interests of fund
members.
2.96 On the other hand, the Association of Superannuation Funds of
Australia (ASFA) supported some independence on boards and said that if
a requirement for independent directors is mandated, at least one-third of
the directors on superannuation boards should be independent with an
independent chair.
2.97 Another key consideration in the discussion paper was the
appropriate transition period to implement the new governance regime.
Submissions suggested that the transition period should differ depending
on the number of independent directors required. For instance, the greater
the proportion of independent directors on superannuation trustee boards,
the longer the transition period should be to minimise compliance costs. In
particular, there was a range of views ranging from three years (for
example, ASFA) to five years (for example, the Australian Institute of
Superannuation Trustees (AIST).
2.98 An early assessment stage RIS (OBPR ID 16729) was prepared
for consideration prior to the development of exposure draft the
legislation.
2.99 On 26 June 2015, the Government released draft legislation to
require one-third independent directors on superannuation trustee boards.
Consultation closed on 23 July 2015. Thirty-one written submissions were
received in response to this consultation, of which two were confidential.
2.100 In the week beginning 27 July 2015, officials from Treasury met
with a wide range of stakeholders in Melbourne and Sydney to seek views
on any technical issues and unintended consequences with the draft
legislation.
2.101 The policy issue of independent directors is a threshold issue for
some parts of the industry, with views split to some extent between retail
and industry funds. For example in their submission, the ISA said, 'the
approach adopted in this draft Bill will not strengthen the governance of
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
superannuation funds. It is misdirected, imposes rigid and inflexible
regulation, intrudes into the private affairs of a corporation without a
rational or compelling basis, and will undermine the representative trustee
system'. The AIST submitted that the changes 'will impose significant
costs and introduce risks to the industry for no good reason. The changes
also take Australia in the opposite direction to the rest of the world by
removing member representation from boards of occupational-based
retirement savings funds'.
2.102 Australian Super continued to raise strong reservations on the
benefits of moving away from the current governance requirements, 'the
prevailing governance arrangements for industry funds have produced
very strong results for fund members. The case for a mandatory
proportion of independent directors has not been made on merit grounds.
Indeed the empirically-based grounds for maintaining the currently
successful equal representation model are very strong.'
2.103 However, a number of stakeholders did support the
Government's policy of a minimum one-third independent directors. For
example, the Association of Superannuation Funds of Australia said that it
'supports increasing the number of independent directors on the boards of
superannuation funds and recognises that over the past few years many
trustee boards have already taken the opportunity to supplement their
skills and have appointed independent directors.' The Financial Services
Council said a 'requirement to have independent directors and an
independent chair on the boards of superannuation trustees is consistent
with international best practice for corporate governance and is in the best
interest of consumers. It is consistent with recommendations from the
Super System Review and the Financial System Inquiry.' Catholic Super
said the 'Government rightly considers independent directors on
superannuation trustee boards as a way of strengthening the current
superannuation system'. The consultations helped to refine the draft
legislation to superannuation governance and informed the final
assessment of compliance costs.
Conclusion
2.104 A strong and stable superannuation system is an important part
of the Government's policy program to build a stronger and more
prosperous economy.
2.105 These reforms deliver on the Government's intention to align
governance structures in the superannuation system more closely with
corporate governance principles applicable to ASX listed companies.
Consultations revealed that while stakeholders remain polarised on the
56
Regulation impact statement-Schedule 1: Governance arrangements for registrable
superannuation entities
overarching policy question of whether or not independent directors
should be mandated by law, the majority of parties consulted were able to
move beyond this point and provide very useful views on ways to improve
the robustness of the draft legislation.
2.106 The main issues arising from consultation on the draft
legislation were:
• a preference for realigning the split between the law and the
powers given to the Regulator (APRA) by including more
provisions in the Bill to provide greater certainty to
stakeholders;
• certainty that the length of the transition period will be three
years;
• a preference for retaining the equal representation rules
contained in the current Part 9 of the SIS Act and the
two-thirds voting rule; and
• a number of technical drafting issues that will clarify the
intent of the law.
2.107 These issues have been taken into account in redrafting the final
Bill.
2.108 We confirm our view that option 1 is the best policy option. In
contrast to option 2, that a board should have a majority of independent
directors, we believe that proceeding now with one-third independent
directors, including an independent chair, strikes an appropriate balance
while still substantially strengthening governance arrangements. The
Government is also mindful of the scale of change that would be required
if a majority of independent directors was mandated.
Implementation and Review
2.109 The Government intends to implement option 1 by introducing
legislation into Parliament in the Spring Sittings with a commencement
date of Royal Assent.
2.110 Success will be measured by how quickly superannuation trustee
boards move to a minimum one-third independent directors. However, the
ultimate yardstick will be at the end of the three-year transition period to
assess how many trustees are compliant with the requirements. Another
measurement will be how many trustees may need to use the potential
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
relief on offer from the Australian Prudential Regulation Authority, where
a bona fide effort has been made throughout transition and a compliant
transition plan been lodged with APRA.
2.111 Some parties have indicated that there could be difficulties in
finding sufficient number of independent trustees; however the Australian
Institute of Company Directors maintains a large data base of members
who are seeking board positions, many of whom would be suitable. Funds
who currently have independent directors commented that they have not
had any problems in finding suitable candidates.
58
Chapter 3
Governance arrangements for the Board
of the Commonwealth Superannuation
Corporation
Outline of Chapter
3.1 Schedule 2 to the Bill will restructure the trustee board for the
Australian Government's main civilian and military superannuation
schemes, the Commonwealth Superannuation Corporation (CSC Board),
to comply with the new governance requirements by the end of the
transition period.
3.2 All references in this chapter are to the Governance of
Australian Government Superannuation Schemes Act 2011
(Governance Act) unless otherwise specified.
Context of amendments
Background
3.3 The Australian Government's main civilian and military
superannuation schemes come under the trusteeship of the
Commonwealth Superannuation Corporation (CSC), a Registrable
Superannuation Entity licensee. CSC, and the board that governs CSC
('CSC Board'), is established by the Governance of Australian
Government Superannuation Schemes Act 2011 (Governance Act).
3.4 Schedule 2 to the Bill amends the structure of the CSC Board to
comply with the new governance requirements made by the Bill. The CSC
Board will also be reduced from eleven to nine directors as part of the
restructure.
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Independence of directors
3.5 To facilitate the effective operation of the amendments in
Schedule 2, independent from the CSC has the meaning given by item 2
of Schedule 2 and RSE licensee has the same meaning as in the
Superannuation Industry (Supervision) Act 1993. [Schedule 2, Part 1, item 1,
section 4]
3.6 To enable the CSC Board to comply with the new governance
arrangements set out in the Bill, the Schedule requires that any
appointment of a director nominated by the Minister for Finance (Finance
Minister) that takes effect on or after 1 July 2016 must be independent
from CSC at the time the appointment is made. An independent director
must meet the requirements set out in the new definition of independent
contained in new section 87 of the Schedule 1 of the Bill. [Schedule 2, Part 1,
item 2, subsection 12(4) and 12(4A)]
3.7 After 1 July 2016 persons selected by the Finance Minister for a
relevant acting appointment that commences on or after 1 July 2016 must
also be independent. [Schedule 2, Part 1, item 6, subsection 18(2A)]
3.8 An appointment of an independent director continues to be valid
if that director ceases to be independent from CSC. The director would
not, however, continue to count towards the new requirement contained in
the Bill for trustee boards to consist of at least one-third independent
directors. [Schedule 2, Part 1, item 3, subsection 12(7)]
3.9 Section 17 has been expanded to provide the Minister for
Finance the power to terminate the appointment of a director on the
grounds that they have ceased to be independent from CSC. [Schedule 2,
Part 1, items 4 and 5, subsections 17(5A) and 17(6)]
Number of directors
3.10 The size of the CSC Board will be reduced from eleven to nine
directors (which includes the Chair) from 1 July 2016, through the
reduction of one position of a Finance Minister-nominated director and
one position of a director that is nominated by the President of the
Australian Council of Trade Unions (ACTU). [Schedule 2, Part 2, items 7 and
8, subsections 11(1) and 11(2)]
3.11 The nine member Board will then comprise of:
• two (currently two) non-independent directors nominated by
the Chief of the Defence Force;
60
Governance arrangements for the Board of the Commonwealth Superannuation Corporation
• two (currently three) non-independent directors nominated by
the President of the ACTU [Schedule 2, Part 2, item 9,
paragraph 11(2)(a)];
• four (currently five) independent directors selected by the
Finance Minister in consultation with the Minister for
Defence [Schedule 2, Part 2, item 10 and note to subsection 11(2)];
and
• an independent Chair selected by the Finance Minister in
consultation with the Minister for Defence and subject to the
agreement of the CSC Board.
3.12 As a result of the reduced number of directors on the CSC
Board, the voting and quorum requirements will be adjusted accordingly.
Six directors will constitute a Board quorum. Also, decisions made by the
CSC Board will need the agreement of six of the nine directors. [Schedule 2,
Part 2, items 11 and 14, subsection 21(1) and section 23)].
3.13 The quorum and voting requirements will continue to apply
where a director cannot vote for reasons provided for in section 22 of the
Governance Act. [Schedule 2, Part 2, item 12 and 13, subsections 21(2) and 21(3)]
3.14 Where a decision is made without a meeting, the Board is taken
to have made a decision where six directors indicate their agreement to the
proposed decision in accordance with the method determined by the
Board under subsection 24(2). [Schedule 2, Part 2, item 15, paragraph 24(1)(a)]
Application provisions
3.15 Existing appointments (including the appointment of a person to
act as a director) and the termination of existing appointments to the CSC
Board that occur before Royal Assent are not affected by the amendments
in this Schedule. [Schedule 2, Part 3, item 16 ]
3.16 To assist the CSC Board in transitioning to the revised structure,
Schedule 2 requires that CSC Board appointments, including acting
appointments, that take effect between Royal Assent and 1 July 2016 must
cease at the earlier of: the end of the period specified in the instrument of
appointment; or the end of 30 June 2016. This limitation does not apply to
the appointment of CSC directors nominated by the Chief of the Defence
Force, as the appointment process for these directors will remain
unchanged by the restructure of the CSC Board. [Schedule 2, Part 3, item 17]
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Superannuation Legislation Amendment (Trustee Governance) Bill 2015
3.17 A person who is appointed to the CSC Board between Royal
Assent and 1 July 2016 (and whose appointment is therefore be required
to terminate by no later than the end of 30 June 2016) can be nominated
for reappointment as a CSC director on or after 1 July 2016, subject to
meeting any requirements set out in the Governance Act.
3.18 Although item 7, Part 2 of Schedule 2 will reduce the size of the
Board to nine directors on 1 July 2016, it is possible for the number of
directors to be ten or eleven after this date because the amendments made
by Schedule 2 do not affect CSC Board appointments that take effect
before Royal Assent. As a result, the application provisions for Schedule 2
set out the quorum and voting provisions for the CSC Board where the
size of the Board consists of ten or eleven directors. [Schedule 2, Part 2,
item 18]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Schedule 2: Governance arrangements for the Board of the
Commonwealth Superannuation Corporation
3.19 Schedule 2 is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.20 This Schedule makes amendments to the Governance of
Australian Government Superannuation Schemes Act 2011 to restructure
the Commonwealth Superannuation Corporation Board (CSC Board) to
comply with the new governance requirements and to reduce the Board's
size from eleven to nine directors.
62
Governance arrangements for the Board of the Commonwealth Superannuation Corporation
Human rights implications
3.21 This Schedule does not engage any of the applicable rights or
freedoms.
Conclusion
3.22 This Schedule is compatible with human rights as it does not
raise any human rights issues.
63
Index
Schedule 1: Schedule 1: Governance arrangements for
registrable superannuation entities
Bill reference Paragraph number
Part 1, item 1 1.35
Part 1, item 1, paragraphs 86(1)(a) and (b) 1.38, 1.39
Part 1, item 1, paragraph 86(1)(c) 1.44
Part 1, item 1, subsection 86(2) 1.41
Part 1, item 1, paragraph 86(3)(a) 1.45
Part 1, item 1, paragraph 86(3)(b) 1.47
Part 1, item 1, paragraphs 87(1)(a) and (b) 1.54
Part 1, item 1, paragraph 87(1)(c) 1.57
Part 1, item 1, paragraph 87(1)(d) 1.59
Part 1, item 1, paragraph 87(1)(e) 1.58
Part 1, item 1, paragraph 87(1)(f) 1.63
Part 1, item 1, paragraph 87(1)(g) 1.65
Part 1, item 1, subsection 87(2) 1.56
Part 1, item 1, subsection 87(3) 1.66
Part 1, item 1, subsection 87(4) 1.68
Part 1, item 1, subsection 88(1) 1.70
Part 1, item 1, subsection 88(2) 1.75
Part 1, item 1, subsection 88(3) 1.76
Part 1, item 1, subsection 88(4) 1.77
Part 1, item 1, section 89(1) 1.78
Part 1, item 1, subsection 89(2) 1.79
Part 1, item 1, subsection 89(2) and paragraph 89(3)(b) 1.81
Part 1, item 1, paragraph 89(3)(a), subsections 89(4) and (5) 1.80
Part 1, item 1, subsection 89(6) 1.82
Part 1, item 1, subsection 90(1) 1.84
Part 1, item 1, subsection 90(2) 1.85
Part 1, item 1, subsections 90(3) and (6) 1.87
Part 1, item 1, subsection 90(4) 1.89
Part 1, item 1, subsection 90(5) 1.88
Part 1, item 1, subsection 90(7) 1.90
65
Superannuation Legislation Amendment (Trustee Governance) Bill 2015
Bill reference Paragraph number
Part 1, item 1, section 91 1.91
Part 1, item 1, subsections 92(1) and (2) 1.94
Part 1, item 1, subsection 92(3) 1.95
Part 1, item 1, subsections 92(4) and (5) 1.96
Part 1, item 1, section 93 1.102
Part 1, item 1, section 93A 1.103
Part 1, item 1, section 93B 1.106
Part 2, item 2 1.109
Part 2, items 3 and 5 1.110
Part 2, item 4 1.111
Part 2, item 6 1.113
Part 2, item 6, subsection 10(1) 1.74
Part 2, item 7 1.114
Part 2, item 8 1.115
Part 2, items 9 and 10 1.116
Part 2, item 11 1.117
Part 2, item 12 and 13 1.118
Part 2, item 13 1.119
Part 2, item 14 1.120
Part 2, item 15 1.121
Part 2, item 16 1.122, 1.123
Part 2, item 17 1.125
Part 2, item 18 1.126
Part 2, item 19 1.127
Part 2, item 20 1.128
Part 2, item 21 1.129
Part 2, item 22 1.130
Part 3, item 23 1.136
Part 3, item 24, subsection 24(1) 1.132
Part 3, item 25 1.133
66
Index
Schedule 2: Schedule 2: Governance arrangements for the
Board of the Commonwealth Superannuation Corporation
Bill reference Paragraph number
Part 1, item 1, section 4 3.5
Part 1, item 2, subsection 12(4) and 12(4A) 3.6
Part 1, item 3, subsection 12(7) 3.8
Part 1, items 4 and 5, subsections 17(5A) and 17(6) 3.9
Part 1, item 6, subsection 18(2A) 3.7
Part 2, items 7 and 8, subsections 11(1) and 11(2) 3.10
Part 2, item 9, paragraph 11(2)(a) 3.11
Part 2, item 10 and note to subsection 11(2) 3.11
Part 2, items 11 and 14, subsection 21(1) and section 23) 3.12
Part 2, item 12 and 13, subsections 21(2) and 21(3) 3.13
Part 2, item 15, paragraph 24(1)(a) 3.14
Part 2, item 18 3.18
Part 3, item 16 3.15
Part 3, item 17 3.16
67
69