Governing superannuation
in 2015 and beyond
Facts, fallacies and the future
Helen Rowell
APRA Member
1
The super industry: then and now
Number of RSEs by fund type
1400
1200
1000
800
600
400
200
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Corporate
Industry
Pooled Superannuation Trusts
Public Sector
Retail
2
Default vs choice assets
Default assets by fund type (June 2015)
Default assets
Non-default assets
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Corporate
Industry
Public Sector
Retail
3
Comparing ‘like with like’ –
not ‘fund with fund’
4
Comparing ‘like with like’ –
not ‘fund with fund’ (continued)
5
FALLACY #1: Independent directors will
force fund structure and culture to change
• Only if trustees want it to – responsibility of the Board and sponsoring
organisations
Business philosophy – not for profit/for profit
Strategy & business plan
• The Board will be able to:
Determine the size of the board
Decide the composition of the remaining 2/3rds – preserve representative model if want to
Choose who are appointed as independent directors – choose the right directors for you
6
FALLACY #2: Mandating independent directors
will lead to underperformance
• Trustee decisions about investment philosophy and investment strategies drive
performance
• Investment philosophy and strategy need not change
Risk/return target & asset allocation
• Choose independent directors that support investment philosophy and investment
strategy
7
FALLACY #3: The reforms only affect
industry funds
• Strengthening minimum governance standards for the entire industry
• The reforms apply to ALL RSE licensees
• Independence captures relationships and arrangements across the industry
8
Board renewal
• Boards must have renewal policies
• Industry is looking for greater renewal
• Do renewal policies work in practice?
9
Director tenure
Directors' tenure by years served (August 2015)
60%
Proportion of directors
50%
40%
30%
20%
10%
0%
< 5 years
5 years
10 years
15 years > 20 years
< 10 years < 15 years < 20 years
10
FALLACY #4: APRA’s proposed new powers
are unwarranted
• Power to determine a person independent
Will deal with every application made on its merits
BUT we don’t expect an avalanche of applications
Legislative definition provides greater certainty
APRA’s door always open for discussion and guidance
11
FALLACY #4: APRA’s proposed new powers
are unwarranted (continued)
• Power to determine a person NOT independent
Expect this power to be used rarely
After significant discussion
As a last resort
Non-independence not forever
For a particular RSE licensee
At a particular time
Doesn’t preclude appointment as part of the remaining 2/3rds
12
‘Scale test’ implementation
• RSE licensees responsible for assessing whether fund meets scale test
• More than scale – must focus on net outcome for members
• Requires a robust framework with clear criteria
Linked to strategy and business plan
• Actions to respond to scale test assessments will evolve over time
13
What’s next?
• Implementation of prudential standards continues
• Particular focus on sound governance practices and risk culture
• Liquidity thematic review
• Future thematic reviews being considered
14
QUESTIONS?
15