This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia, was published in The Australian Financial Review on 9 July 2015 under the title ‘Modernising super is sound policy'.

Draft legislation released in late June by Assistant Treasurer Josh Frydenberg that aims to modernise the governance of our large and growing superannuation funds is fundamentally sound policy.

Compulsory superannuation has been in place for more than two decades. More than $2 trillion is under management; this is expected to grow to $9 trillion by 2040.

Clearly it is in the best interests of fund holders, the capital market and the economy that best-practice governance arrangements are in place to ensure that the superannuation savings of Australians are managed appropriately.

Superannuation is one vital part of Australia's three-pillar retirement income system, with the other two pillars being the age pension and voluntary retirement savings.

The twin objectives of the system are to provide comfortable living standards for people in retirement and to reduce reliance on the taxpayer-funded age pension. With that in mind, it would seem unarguable that funds should be held to the highest standards of integrity and governance.

The government's proposal that one-third of directors be independent, along with the chair, will substantially strengthen governance arrangements. The three-year transition period for boards allows all stakeholders adequate time to adjust to these overdue reforms.

Effective governance is widely accepted as essential to the enduring success and integrity of any organisation.

At the corporate level, an effective board relies on independent decision-making.

The ASX's Corporate Governance Principles set out recommended practices for ASX-listed entities that are likely to achieve good governance outcomes while meeting the reasonable expectations and reflecting the interests of investors. ASX-listed entities without a majority of independent directors must explain their position on an "if not, why not" basis.

The government's changes will simply move superannuation funds to the same set of standards as many of the companies in which the funds invest.

The new standards will also safeguard member interests better by bringing expert, objective, independent advice. Independent directors will bring new perspectives and expertise, and will ensure superannuation fund boards are making use of the best available talent.

The reforms called for by the Assistant Treasurer have been discussed for many years.

The financial system inquiry in 2014 recommended that superannuation fund boards have a majority of independent directors, including an independent chair.

This is already in place across a number of superannuation funds, including the Financial Services Council, which already holds its members to this standard.

The Cooper Review, which reported in 2010, found that "trustee governance structures have not kept up with developments in the industry".

These changes are an important first step towards a best-practice system of superannuation governance. And there is more to do.

The financial system inquiry also recommended that choice be available to all employees. Given the importance of superannuation to people's lifestyle in retirement, everyone should have the choice to pick the fund that is right for them and should be able to change funds easily if they wish.

The consistent message from experts in this space is clear. The Parliament should get behind this sensible modernisation of one of Australia's most important endowments.