Australian Pension Report Shows Governance Changes on Horizon

(December 17, 2009) – An Australian government-appointed panel’s proposals to tighten pension governance would have only moderate consequences for the nation’s retirement industry.

The Cooper Review, as it is called, has issued an interim report on Australia’s pension industry. In it, it suggests that governance standards at pension funds be raised to meet that of listed companies, and that trustees be held to a basic standard of knowledge and skills, as well as undergo performance appraisals on a regular basis.

However, the report stops short of recommending that pension funds avoid securities lending—a hot topic after severe problems in 2008 – and does not recommend greater government involvement in directing trustees how to invest. Instead, greater transparency of risks for securities lending has been suggested. Overall, it recommends that the “twin peaks” structure of Australian pension fund regulation—where the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission have distinct responsibilities—be retained due to a lack of benefits from a single regulator.

The report also does not force smaller funds to merge with others, as some had expected, although it does suggest that small funds be forced to justify their independence in the face of economies of scale.

The Review’s final report is due June 30, 2010.