Issue 671, 18 May 2018
In this issue:
- Retirement income covenant: consultation
- Super board governance practices: APRA thematic review findings
Retirement income covenant: consultation
The government has launched a consultation on proposed principles for the implementation of a retirement income covenant, requiring trustees to develop a retirement income strategy for their members. The consultation follows the government’s Budget announcement that it would introduce a retirement income covenant as part of a retirement income framework (see ASFA Action issue 669).
The government has in recent years indicated its view that the retirement phase of the superannuation system is under-developed and needs to be better aligned with the overall objective of the superannuation system of providing income in retirement to substitute or supplement the Age Pension. The government has previously consulted on the development of a framework for comprehensive income products for retirement (CIPRs) (see ASFA Action issue 617), and is now proposing the development of a broader retirement income framework.
The first stage in this framework is the introduction of a retirement income covenant in the Superannuation Industry (Supervision) Act 1993, which will require trustees to develop a retirement income strategy for their members. The covenant will codify the requirements and obligations for superannuation trustees to consider the retirement income needs of their members, expanding individuals’ choice of retirement income products and improving standards of living in retirement.
The principles the government proposes to implement in the covenant and supporting regulatory structures have been outlined in a Treasury position paper, with submissions due by 15 June.
If you have any feedback you would like ASFA to consider including in submission in response to the position paper, please forward it to Fiona Galbraith by close of business Friday 1 June.
The Budget announcements in relation to the retirement income framework also referred to the introduction of new disclosure requirements for providers of retirement income products. The Minister has indicated that the government expects to be in a position to consult on its proposed requirements later this year.
Super board governance practices: APRA thematic review findings
APRA has released the findings from its thematic review into board practices in the superannuation industry, urging trustees to examine whether their board has the optimum mix of skills, capabilities and experience needed to effectively carry out its responsibilities.
Throughout late 2016 and 2017, APRA undertook a thematic review into board governance practices, examining how well registrable superannuation entity (RSE) licensees were meeting the requirements of Prudential Standard SPS 510 Governance (SPS 510), which was introduced on 1 July 2013. The review covered 29 licensees of various types, sizes, ownership models and board structures, and focused on board composition, board appointment and renewal, and approaches to board performance assessments.
APRA has now written to all RSE licensees, outlining its high-level observations from the review and a number of recommendations for action to be taken by all licensees.
APRA’s observations include:
- while many licensees have adopted processes to ensure that individual directors meet minimum fit and proper requirements, the majority fail to actively consider the optimal composition that is appropriate for the board as a whole, taking into account their strategic plan and the skills, capabilities and experience needed to effectively execute the plan
- better governance practice was demonstrated by RSE licensees with clearly articulated policies on optimal board composition, which addressed a range of relevant aspects including achieving appropriate diversity, policies on multiple directorships and current and expected future skills and experience requirements
- renewal policies and practices of some RSE licensees demonstrated a tension with the spirit and intent of SPS 510, for example by not requiring the board to take into consideration previous terms served on the board when assessing the period of tenure or not enforcing the tenure limits set out in the policy
- board performance assessments that move beyond self-assessment, to include more objective and independent review, often through the use of external experts, are viewed by those boards as providing significant benefits through identifying means for improving the board’s performance.
APRA recommends that licensees:
- consider the optimal composition of their boards in the context of their business and strategic plans
- consider the extent to which the use of independent experts signals a skills deficiency on the board
- have sound board renewal and succession planning processes that strike an appropriate balance between ensuring continuity and bringing in diversity and fresh perspectives
- develop a robust and objective board assessment process that considers the performance of individual directors, as well as the board as a whole.
APRA indicates that it expects all RSE licensee boards to review their existing governance arrangements against the practices outlined in its letter and address any identified areas for improvement. Any amendments to APRA’s prudential framework necessary to reflect APRA’s findings will be addressed as part of its post-implementation review of the superannuation prudential framework, which will commence shortly.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
