The government’s proposed Your Future, Your Super reforms, announced in the federal budget last year, include a legislation change that would grant Treasurer Josh Frydenberg the power to intervene in a super fund’s investment or payment, if Treasury ruled it shouldn’t go ahead. The reforms, if passed, are scheduled to take effect from July.
Scott Hartley, AMP Australia chief executive and former Sunsuper boss, told a parliamentary hearing he was perplexed with the veto power, commenting it would override the processes and judgements of investment teams.
“Trustees make investments in the best interests of members. They have investment committees, they have investment teams, they have asset consultants that advise them on those investments,” Mr Hartley told the Senate Economics Legislation committee on Wednesday.
“They must be in a much better position to assess the investment, the quality of the investment, the importance of that investment for member outcomes. I find it puzzling to understand what additional information that a government official might have to override the judgement of a trustee.”
The power, if used, could dampen member outcomes if the Treasurer were to dismiss funds’ judgements for what was in their best interests, he added.
Labor senator and acting deputy committee chair Tony Sheldon also asked if trustees would need to consider the political nature of an investment, at the risk of it being blocked by Treasury.
“Certainly. Trustees that I have worked with in the past have always been apolitical. I’ve never considered politics in any decisions that I have made in investment, so it’s hard for me to properly understand where that situation could arise,” Mr Hartley said.
Senator Sheldon further asked: “The existence of such a power… could discourage funds from making investments the Treasurer may disagree with. If such a power is extended to cover corporate boards as well as super trustees, what do you think could be the implications?”
“If it was extended to cover corporate boards or corporation boards, I think it would be quite a strange environment wouldn’t it – to operate in,” Mr Hartley responded.
“I’m sorry I’m struggling with the question Senator, because I think it’s quite a strange construct to have a Treasurer being able to override decisions of a super trustee board, if they are acting in the best financial interests of their members and that is justifiable in the case. It seems very odd that they would have a role to play in overriding the business decisions for the trustee.”
AMP has criticised a number of the other reforms in its submission to policymakers, with Mr Hartley stating the laws are being “introduced with undue haste”. The bill is currently before the House of Representatives.
“There was no consultation before the policy proposals were raised in last year’s budget,” he said.
“This was despite the fact there are significant deviations away from the recommendations contained in the Productivity Commission report on which these policy proposals are reportedly based.”
A further criticism was the uncertainty around the proposed benchmarking test, which will see APRA measure funds’ net investment performance annually. If funds fall under the benchmark two years in a row, they will be blocked from receiving new members.
When asked by Liberal senator Andrew Bragg if AMP would pass the test, the chief merely responded: “We haven’t seen the regulations, we don’t know.”
AMP has also joined other superannuation players in voicing concerns around the benchmarks being applied retrospectively – with the first test to be based on seven years of performance data. Following tests will be based on performance across eight years.
The first benchmarking test would take place in a matter of months if the laws are passed in their current form.
“I know of no other circumstances where legislation is introduced and applied retrospectively to shape the future of an industry,” Mr Hartley said.
“The retrospectivity of the performance assessment lacks fairness. There is really no opportunity for trustees to alter the outcome in such a short period of time before the proposed start date. Further, it is a complete shift from the CPI+ benchmark trustees have been focused on since the legislation of relevant Cooper reforms.”
Efficiency around how members’ money is used in the industry could stand to be improved, he admitted later in the hearing, but a prospective test would have better outcomes.
“The inefficiency in the industry I think, is in multiple areas, but there is inefficiency in investment management,” Mr Hartley said.
“There is inefficiency operationally in super funds, particularly in subscale funds.”
