APRA considering new superannuation fund standards that include remuneration governance

On 28 September 2011, the Australian Prudential Regulation Authority (APRA) released its proposed new superannuation industryprudential standards for consultation.

The prudential standards for the superannuation industry will be similar to those already applying to other APRA-regulated industries, covering governance, fit and proper persons, risk management, business continuity management, outsourcing and audit and related matters.

Superannuation-specific standards will cover conflicts of interest, investment governance, insurance in superannuation, defined benefit funding and solvency, and operational risk financial requirements.

In relation to remuneration arrangements, APRA is proposing that:

  • All Responsible Superannuation Entity (RSE) licensees must establish and maintain a Board Remuneration Committee, with the same responsibilities as for the equivalent committees in other APRA-regulated industries
  • All members of the Board Remuneration Committee must be non-executive directors of the RSE licensee (but with no requirement that a majority of these directors are independent)
  • The chair of the Board Remuneration Committee must be a person other than the chair of the full Board, unless the Board chair is the only independent director (in which case the board would need to determine whether the Board chair could also chair the Remuneration Committee)
  • Boards be permitted to nominate the entire board to act as the Remuneration Committee
  • Each board must establish a remuneration policy covering the requirements in CPS 510 (see HERE) including alignment of remuneration arrangements with the ongoing capacity of each RSE to meet the reasonable expectations of its beneficiaries and the RSE licensee’s risk management framework
  • The RSE licensee’s remuneration policy must be published in the public section of each fund’s website
  • The remuneration of responsible officers must be published, although further consideration is to be given to the nature of this disclosure to take account of the variety of ways that directors are remunerated in the superannuation industry.

In light of the suggestion that the detailed disclosure of individual executive remuneration from 2005 has contributed to the increase in pay in listed companies, it will be interesting to track movements in the remuneration of responsible officers after their pay details are made public, and to consider the extent to which any increases are the result of this disclosure or the higher governance requirements.

The new prudential standards for the superannuation industry will be contained in Prudential Standard SPS 510 Governance.

The APRA discussion paper Prudential Standards for Superannuation’, is available HERE.

Submissions on the discussion paper are due by 23 December 2011.

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