1 Governing superannuation in 2015 and beyond Facts, fallacies and the future Helen Rowell APRA Member

2 The super industry: then and now

3 Default vs choice assets

4 Comparing ‘like with like’ – not ‘fund with fund’

5 Comparing ‘like with like’ – not ‘fund with fund’ (continued)

6 FALLACY #1: Independent directors will force fund structure and culture to change Only if trustees want it to – responsibility of the Board and sponsoring organisations Business philosophy – not for profit/for profit Strategy & business plan The Board will be able to: Determine the size of the board Decide the composition of the remaining 2/3rds – preserve representative model if want to Choose who are appointed as independent directors – choose the right directors for you

7 FALLACY #2: Mandating independent directors will lead to underperformance Trustee decisions about investment philosophy and investment strategies drive performance Investment philosophy and strategy need not change Risk/return target & asset allocation Choose independent directors that support investment philosophy and investment strategy

8 FALLACY #3: The reforms only affect industry funds Strengthening minimum governance standards for the entire industry The reforms apply to ALL RSE licensees Independence captures relationships and arrangements across the industry

9 Board renewal Boards must have renewal policies Industry is looking for greater renewal Do renewal policies work in practice?

10 Director tenure

11 FALLACY #4: APRA’s proposed new powers are unwarranted Power to determine a person independent Will deal with every application made on its merits BUT we don’t expect an avalanche of applications Legislative definition provides greater certainty APRA’s door always open for discussion and guidance

12 FALLACY #4: APRA’s proposed new powers are unwarranted (continued) Power to determine a person NOT independent Expect this power to be used rarely After significant discussion As a last resort Non-independence not forever For a particular RSE licensee At a particular time Doesn’t preclude appointment as part of the remaining 2/3rds

13 ‘Scale test’ implementation RSE licensees responsible for assessing whether fund meets scale test More than scale – must focus on net outcome for members Requires a robust framework with clear criteria Linked to strategy and business plan Actions to respond to scale test assessments will evolve over time

14 What’s next? Implementation of prudential standards continues Particular focus on sound governance practices and risk culture Liquidity thematic review Future thematic reviews being considered

15 QUESTIONS?