Revised Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)Chapter 1 Overview of improving accountability and member outcomes in superannuation
Outline of chapter
1.1 This Bill contains amendments to the SIS Act, the Corporations Act and the FSCODA that will modernise and increase confidence within the superannuation system.
1.2 This Chapter provides an overview of those amendments.
Context of amendments
1.3 Superannuation is a major part of Australia's retirement income system. Together with the Age Pension and savings outside of superannuation, it supports Australians in their retirement years.
1.4 It has been more than 25 years since compulsory superannuation was introduced. And yet the architecture of that system that has seen funds under management grow from around $136 billion to more than $2.3 trillion - an almost 1,300 per cent increase - has changed very little.
1.5 Superannuation is now the second-largest savings vehicle for Australian households (accounting for 17 per cent of household assets).
1.6 Over the next decade as the system reaches maturity, Australians will have received compulsory superannuation contributions for most or all of their working lives. As such, the income generated from these contributions will be an essential contributor to people's wellbeing in retirement.
1.7 Given the importance of the superannuation sector to working Australians, and its importance in the financial system and the economy more broadly, we need to ensure that there is confidence in the system and that it meets contemporary standards, and is consistently delivering the best outcomes for members.
1.8 Having a modern, vibrant superannuation system, which is solely focused on delivering outcomes for members, culminating in the efficient delivery of income in retirement, is critical.
1.9 A modern superannuation system empowers members; provides for transparency and accountability around funds' activities and performance; is consistent with community expectations for a compulsory system and international best practice for governance arrangements; enables regulators to hold trustees to high standards and take appropriate action where they fall short; and ensures members get their full entitlements.
1.10 It is appropriate for key aspects of the superannuation system to be modernised. Several aspects of the regulatory framework do not meet contemporary best practice or the standards applied elsewhere in the financial system. This means that the current framework is not holding funds to the highest standards of governance and accountability, to the detriment of members.
1.11 Superannuation funds must ensure members' interests are always paramount - after all, our system is premised upon a trust framework and trustees owe fiduciary obligations to their members.
1.12 The Bill will modernise and increase confidence within the superannuation system by:
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- lifting the bar for fund performance - facilitating improved decision-making;
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- strengthening supervision and enforcement - giving APRA improved capability to take preventive and corrective action in response to breaches of the law or where funds may not be acting in the best interests of their members; and
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- empowering members - strengthening fund accountability and boosting confidence in the superannuation system.
Summary of new law
Annual outcomes assessment
1.13 Schedule 1 to this Bill strengthen the obligations on superannuation trustees to annually assess and compare the appropriateness of their product offerings (both MySuper and choice), including how each product continues to promote the financial interests of members.
1.14 The amendments will expand the range of factors that trustees consider in assessing the quality and appropriateness of their MySuper product.
Authority to offer a MySuper product
1.15 Schedule 2 to this Bill provides APRA an enhanced capacity to refuse a registerable superannuation entity (RSE) a new authority to offer a MySuper product, or to cancel such authority.
1.16 This will improve the quality of MySuper products by allowing APRA to refuse, or cancel, an authority to offer a MySuper product if APRA has a reason to believe the RSE licensee may fail to comply with its obligations.
Penalties for contravening covenants
1.17 Schedule 3 to this Bill ensures that trustees and directors of RSE licensees are held accountable for their conduct in the same way trustees and directors of managed investments schemes are currently held accountable.
1.18 The amendments will ensure that an appropriate penalty regime is in place for trustees and directors who fail to execute their responsibilities to act in the best interests of member beneficiaries, or who use their position to further their own interests to the detriment of member beneficiaries.
1.19 The Government announced this on 20 October 2015 in its response to the FSI. The Government also announced this on 4 February 2019 in Restoring trust in Australia's financial system (Recommendation 3.7).
Approval to own or control an RSE Licensee
1.20 Schedule 4 to this Bill seeks to protect members by strengthening APRA's supervision and enforcement powers when a change of ownership or control of an RSE licensee takes place. The amendments will reduce the potential for fraud against members of RSEs by requiring prospective owners to obtain approval from APRA to own or hold a controlling stake in an RSE licensee.
1.21 The amendments will enable APRA to refuse authority for a change in ownership or control where it has concerns about the person seeking ownership or control, give a direction to a person to relinquish control of an RSE licensee and remove or suspend an RSE licensee where it is subject to the control of its owner.
APRA directions power
1.22 Schedule 5 to this Bill harmonises the directions powers across the banking, insurance and superannuation industries, by enabling APRA to intervene at an early stage to address prudential concerns in a manner that ensures actions undertaken are in the best interests of members.
Portfolio holdings disclosure
1.23 Schedule 6 to this Bill refines the current requirements for RSE licensees to make publically available their portfolio holdings. On commencement of the amendments, members will have access to information on how superannuation funds invest member contributions on a semi-annual basis.
1.24 Superannuation funds will be required to disclose the following on a semi-annual basis:
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- investments (down to the underlying asset) that they hold directly or through associated entities; and
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- their initial investments into non-associated entities.
1.25 In September 2013, the Government committed to improving superannuation transparency. The Government released a discussion paper Better regulation and governance, enhanced transparency and improved competition in superannuation on 28 November 2013.
Annual members' meetings
1.26 Schedule 7 to this Bill will ensure greater accountability and transparency of superannuation funds by requiring RSE licensees to hold AMMs. The meetings will give members an opportunity to discuss the key aspects of the fund and provide them with a forum to ask questions about all areas of the fund's performance and operations.
1.27 The amendments will require RSE licensees to hold an AMM within nine months after the end of each income year.
Reporting standards
1.28 Schedule 8 to this Bill amends the FSCODA to provide APRA with the ability to obtain information on expenses incurred by RSE and RSE licensees in managing or operating the RSE.
1.29 This additional information will enable APRA to understand the full picture of how RSEs are using member contributions and will enable APRA to consider whether expenses of individual RSEs are in line with covenants under the SIS Act.
Superannuation trustees not to incentivise employers
1.30 Schedule 9 to this Bill will ensure greater accountability of trustees of superannuation funds that uses goods or services to influence employers to nominate the superannuation fund as the default fund or influence employers to encourage their employees to nominate the fund as their choice of fund (no treating of employers).