Superannuation fund trustees warn of regulatory ‘overreach’

Proposed new laws give governments the broad power to ban any payments or investments by super fund trustees.

“The measure would allow any government at any time to ban any investment, regardless of how well it performs,” AIST chief executive Eva Scheerlinck told The Australian on Tuesday.

A key superannuation lobby group has criticised the federal government for regulatory “overreach” in proposing new laws giving governments the broad power to ban any payments or investments by super fund trustees.

In its submission on the government’s proposed superannuation legislation, the Australian Institute of Superannuation Trustees says the proposed changes to super law, which introduce a new requirement for fund trustees to act in the “best ­financial interests of members”, were so broad they could allow governments to ban funds from investing in specific assets.

“The measure would allow any government at any time to ban any investment, regardless of how well it performs,” AIST chief executive Eva Scheerlinck told The Australian on Tuesday.

“The benefit to workers of super is the ability to invest over the long term with certainty.

“This change removes that certainty and risks significant impact on investment outcomes for members.

“Why would a government want this power when super funds are already required under law to invest in the best interests of their members?”

The AIST represents super fund trustees from the $750bn ­industry super sector as well as corporate and public sector super funds.

In its submission to the federal government on the proposed new law, the ACTU said it believed it was geared to support the retail super sector and disadvantage the industry super sector.

The draft legislation says super fund trustees cannot “make a payment or investment of a kind proscribed by the regulations”.

But it does not give any definition of what it deems to be proscribed payments.

The explanatory memorandum for the bill, recently released by the government, says the inclusion of a “best financial interests’ duty test” is aimed at ensuring that super funds were “solely focused on improving their retirement incomes and not some subsidiary or ancillary purpose”.

It notes that “numerous reports and hearings in recent years have highlighted the extent of spending by super funds on discretionary items like advertising, sponsorships and corporate entertainment”.

“Inappropriate expenditure on these items risks compromising member outcomes and eroding retirement incomes,” it says.

The industry super sector has been concerned at the broad-reaching nature of the proposals in the legislation, outlined in October’s federal budget, which are aimed at improving efficiency of the sector and weeding out underperforming funds.

The AIST submission says it is strongly opposed to changes that it says would give the government “extraordinary power to prohibit any payment or investment by a super fund at any time, even if such a payment is in the best ­financial interests of members”.

“There is no reasonable basis to institute a law or regulation which gives the government the power to unilaterally intervene in the ­operations and investments of superannuation funds that are discharging their duty to unilaterally operate in the best financial interests of members,” it says.

“It is well established that, as a matter of principle, governments should remain at arm’s length from investment decisions.”

The institute sees the legislation giving governments of the future the power to ban any investments by super funds it does not approve of.

“A future government that does not approve of coal investments could introduce regulations to ban super funds from investing in coal assets,” it says.

“Likewise, another government that does not approve of super funds investing in renewable energy could prohibit such investment.”

The legislation is part of a package of superannuation changes announced in the budget that include the “stapling” of a super fund to individual members and publicly ranking super funds’ investment performance by specific benchmarks.

The legislation could see super funds that underperform deemed investment benchmarks for two years in a row banned from accepting new members.

The legislation also gives the government power to review investments and payments by super funds that it deems are not in the best financial interests of members. It seeks to shift the onus on proof from government or super fund regulators to super fund trustees to prove that any investments or payments made are in the best financial interest of members.

The AIST submission says there is a “lack of visibility” in the proposed legislation “on what business practices may or may not be banned in future”.

“It seems incongruous that a government can decide what is in the best financial interest of a particular fund’s members while a trustee director is required to prove that every expenditure ­decision meets the same standard,” it says.