Tougher disclosure plan mooted for super

THE $1.4 trillion superannuation industry would be forced to disclose all transactions between funds and related parties, under a plan for sweeping change from the union-linked sector.

By InvestSMART · 16 Nov 2012

By InvestSMART ·
16 Nov 2012

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THE $1.4 trillion superannuation industry would be forced to disclose all transactions between funds and related parties, under a plan for sweeping change from the union-linked sector.

In an attempt to boost transparency, fund managers would also be forced to reveal how much they are paid to invest members' retirement savings.

Industry Funds Management, which represents not-for-profit funds, unveiled the plan as part of its proposal for tougher governance rules, released yesterday.

Related-party transactions occur where a fund outsources a service to an entity with which it has financial links, such as a bank-owned fund purchasing services from the bank.

A 2010 paper from the Australian Prudential Regulation Authority found "for-profit" retail funds tended to pay more when entering into related-party transactions than other funds.

Top fund managers - who can make anywhere between $500,000 and several million dollars a year - would also have to publish their pay under the policy. Today, fund managers' pay is often a closely guarded secret.

The calls for change came as APRA released final rules on investment and governance standards for the super industry - which it will supervise from next July.

The deputy chairman of APRA, Ross Jones, said the regulator would take a "principles-based" approach to implementing the new regime, and would not be too prescriptive.

"APRA will work with superannuation trustees and boards of directors to monitor how they meet the new prudential requirements and uphold their responsibility to prudently manage superannuation funds in the best interests of beneficiaries," Mr Jones said.

The latest proposals from union-linked funds go further than what the regulator has outlined in its standards for the industry.

The new chair of Industry Funds Management, former Victorian Premier, Steve Bracks, said the group's latest proposals would make superannuation more accountable as the industry grew.

"We are calling for uniform disclosure standards to be legislated across all parts of the super industry - including investment managers and other material service providers," he said.

Earlier this year, retail funds proposed their own set of governance standards, which included having a majority of independent directors on fund boards, and publishing the pay of senior executives and directors.

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Frequently Asked Questions about this Article…

What superannuation disclosure changes are being proposed to boost transparency?

Industry Funds Management has proposed that the $1.4 trillion superannuation industry disclose all transactions between funds and related parties and require fund managers to reveal how much they are paid. The plan calls for uniform, tougher disclosure standards across investment managers and other material service providers to make superannuation more accountable.

Who is behind the push for tougher disclosure rules in the super industry?

The proposal comes from Industry Funds Management, which represents not-for-profit and union-linked funds. The group's new chair, former Victorian premier Steve Bracks, is publicly calling for legislated uniform disclosure standards across the sector.

What are related-party transactions in superannuation and why do they matter?

Related-party transactions occur when a fund outsources services to an entity with financial links to the fund — for example, a bank-owned fund buying services from its bank. The article notes regulators have found for-profit retail funds sometimes pay more in these deals, so disclosure helps members spot potential conflicts and extra costs.

Would fund managers have to publish their pay under the new proposals?

Yes. The proposals would force top fund managers to publish how much they are paid. The article notes top managers can earn anywhere between about $500,000 and several million dollars a year, and that pay is often currently kept private.

How do these disclosure proposals relate to APRA’s new investment and governance rules?

APRA has released final rules on investment and governance standards and will start supervising the industry from next July. Industry Funds Management’s proposals go further than APRA’s standards by seeking legislated, uniform disclosure requirements across all parts of the super industry.

How will APRA implement and supervise the new prudential requirements?

APRA’s deputy chairman Ross Jones said the regulator will take a "principles-based" approach and won’t be overly prescriptive. APRA plans to work with superannuation trustees and boards to monitor how they meet the new prudential requirements and manage funds in beneficiaries’ best interests.

What governance changes have retail funds proposed that relate to disclosure and accountability?

Earlier this year retail funds proposed governance standards that include having a majority of independent directors on fund boards and publishing the pay of senior executives and directors — measures intended to improve accountability and transparency.

How could tougher disclosure standards affect everyday super members?

Greater disclosure of related-party transactions and fund manager pay could help everyday members understand where their money is being spent, compare fees and potential conflicts across funds, and hold trustees more accountable — all aimed at making the super industry more transparent and accountable as it grows.