A Centre for International Finance and Regulation (CIFR) study has found little empirical evidence that independence would improve investment performance but suggests that independence is important in maintaining the legitimacy of the superannuation system.
The Federal Government has set instilling independence within the governance of superannuation as a key priority for the sector.
Dr Scott Donald of the University of New South Wales, who completed the research together with Suzanne Le Mire of the University of Adelaide, said that the concept of independent directors had become a widely accepted aspect of governance within the listed company sector. However, the application of independence in the superannuation industry had been constrained by 'equal representation' rules. These rules require superannuation fund boards to have an equal number of member and employer representatives.
Donald said while reform was pending, it was important for all involved to recognise the limitations of what independence could realistically achieve, and the complexities associated with making it work.
"Our study reviewed the growing literature on superannuation governance globally, and we found very little empirical evidence to support the assertion that independence on superannuation fund boards will deliver enhanced investment performance," he said, adding that the absence of evidence in either direction should not, however, be seen as fatal as independence does support good decision making which is essential in superannuation governance.
"Independence also offers a number of other potential advantages that have not been fully explored in the superannuation debate. This includes the potential to enhance legitimacy of a system in which stakeholders are forced to participate but in which they may feel under-prepared or disempowered. Perceptions of independence, for example, can increase individual confidence and acceptance of the decisions super trustees make in respect of their superannuation balances," Donald said.
The study acts as a foundation for a second report to be released by CIFR in the coming weeks which reports on a set of qualitative interviews undertaken with directors currently serving on superannuation fund boards.