The Review was divided into three phases of consultation under the following themes:
- Phase One – Governance
- Phase Two – Operation and Efficiency
- Phase Three – Structure (including SMSFs)
This Issues Paper deals with the first phase: Governance.
Governance broadly refers to the ideas, laws, processes and systems by which organisations are operated, regulated and controlled for the benefit of their relevant stakeholders. Governance is particularly important in the superannuation sector because people typically rely on trustees of superannuation funds to manage their retirement savings, and also frequently rely on the advice of other key agents to make choices about their superannuation options.
Good governance assists in ensuring that the interests of the various stakeholders in the system are aligned as closely as possible, such that funds are managed in the best interests of members, minimising conflicts of duties and interests and loss to the fund through carelessness or fraud.
Superannuation funds operate under a trustee model derived from the general law of equity. That is, a corporate trustee, or a group of individual trustees, controls the fund’s assets and operates them solely for the benefit of its members and beneficiaries. Each trustee has a fiduciary obligation to the members and beneficiaries, which involves taking ultimate responsibility for the entity, and an obligation to manage the assets of the entity with competence, diligence, prudence and honesty.
The Superannuation Industry (Supervision) Act 1993 (SIS Act) also specifies obligations of trustees that automatically form part of the governing rules of all superannuation funds. Many of the obligations in the SIS Act embody duties already imposed on trustees by trust law. This does not include the fundamental duties of trustees to avoid or disclose actual or potential conflicts of interest, although the Corporations Act 2001 conflicts regime will apply if the trust entity has an ASIC-issued Australian financial services licence.
To ensure a consistently high standard of governance across the superannuation industry, it is important for trustees’ duties to be clearly understood, set at an appropriately high level and expressed in a way that is sufficiently flexible and robust to continue to accommodate developments in the size, structure and practices of the superannuation industry.