ISA warns government off super change

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Industry superfunds are unimpressed with the Treasury’s proposed changes to increase compliance and transparency in superfund governance, warning the government to “take care” before it makes another step.

Assistant Treasurer Arthur Sinodinos, who released the white paper on Wednesday, called for feedback on opening up competition and increasing transparency of super funds ahead of possible legislation and regulation.

The discussion paper addresses fund governance, and promotes the idea of independent trustees rather than an equal number of employer and employee representatives.

But Industry Super Australia (ISA) is not happy at proposals to appoint independent directors to their boards, saying it will fundamentally change the board composition of the industry’s “best performing” super funds.

ISA say funds which have the representative trustee structure benefit members, citing APRA research which shows they have outperformed retail super funds over the past 16 years by an average of 2.3% per year.

“The representative trustee system is a feature of retirement systems globally and in Australia has delivered fund members superior net returns over the long term, when compared to retail super funds typically run by banks,” ISA chief executive David Whiteley said.

“Representative trustee board composition is not homogenous with many funds having independent directors or chairs.” 

The discussion paper canvassed whether super fund directors should be subject to regular performance appraisals, and have their terms capped. 

The Government is also proposing to make changes to the way that workplace default funds are selected, in order to improve transparency and competition.

A 2012 report by the Productivity Commission estimated between $6 billion and $9 billion in super contributions were made to default funds – funds for members who do not choose their own.

Under the current arrangements, employers can select a workplace default fund from a list of up to 15. But ISA say few employers will have the time or expertise to select a default fund for their employees from the expected 100 MySuper options.

“Default superannuation funds have a critical role in ensuring the super system delivers to members who are not engaged with their super. It is absolutely critical that only the best performing funds make the cut,” said Whiteley.

“Industry SuperFunds are concerned that these proposals will remove an important merit based process which is transparent, independent and places a premium on member returns.”

He warned the government to “take care” before implementing changes.

Submissions on the white paper are due 12 February.

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