The Federal Government is promising to shake-up the
superannuation industry, which it calls fragmented, costly, complex
and suffering from a lack of member engagement. In accepting all
but one of the Financial System Inquiry's recommendations, new
legislation will be introduced to improve efficiency and
competition in the sector. Increased member engagement, development
of new income stream products and comprehensive governance and
conflict of interest reforms are also on the Government's
The immediate outcome of the FSI is the Productivity Commission
being tasked with:
developing criteria to assess the efficiency and
competitiveness of the superannuation system (with a focus on fees
and after-fee returns for members);
to develop alternative models for a formal competitive process
for allocating default members to products; and
once the MySuper reforms have been fully implemented, a further
review on the efficiency and competitiveness of the superannuation
In addition, the Federal Government will develop legislation to
remove impediments to product development for retirement income
products to increase consumer choice and to provide better
protection against longevity and other risks.
While the Federal Government has already acted on the FSI's
recommendation to improve superannuation governance by increasing
the number of independent directors on the board of trustees (on
which we have
previously reported), the Federal Government has
agreed to introduce criminal penalties for trustee directors who
fail to exercise their duties in the best interests of members or
who use their position to gain an advantage for themselves or
others to the detriment of members.
The timeline for reform is as follows:
Develop legislation to improve governance and transparency in
Progress the Retirement Income Streams Review.
Task the Productivity Commission to immediately develop and
release criteria to assess the efficiency and competitiveness of
the superannuation system and to develop alternative models for a
formal competitive process for allocating default fund members to
Develop and introduce legislation to enshrine the objective of
the superannuation system.
Consult on legislation to facilitate trustees of superannuation
funds providing pre-selected comprehensive income products for
Implement legislation to introduce director penalties.
Consult on legislation to improve member engagement, consistent
with the recommendations in the Inquiry.
Monitor leverage and risk within the superannuation
The Federal Government has rejected the FSI's recommendation
to remove the general prohibition on direct borrowing for limited
recourse borrowing arrangements by superannuation funds. The
Government will, however, task the Council of Financial Regulators
and the Australian Taxation Office to monitor leverage and risk in
the superannuation system and report back to Government after three
years. After all relevant data is collected, consideration will be
given to whether changes to the borrowing exception are
here to access the Federal Government's response to the
Financial System Inquiry.
If you have any queries as to how these developments could
impact your business, please contact a member of our team.
 We have also published articles regarding APRA's
own reforms to trustee governance, accessible
 Department of Treasury, Improving Australia's
financial system: Government response to the Financial System
Inquiry, page 6.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
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