2011-2012
EXPOSURE DRAFT
SUPERANNUATION LEGISLATION AMENDMENT (FURTHER MYSUPER
AND TRANSPARENCY MEASURES) BILL 2012
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Employment and Workplace Relations and Minister for Financial Services
and Superannuation, the Hon Bill Shorten MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Chapter 1
Fees, costs and intrafund advice................................... 7
Chapter 2
Insurance .....................................................................19
Chapter 3
Collection and disclosure of information .......................25
Chapter 4
Modern awards and enterprise agreements .................45
Chapter 5
Defined benefit members .............................................55
Chapter 6
Transition to MySuper ..................................................61
Chapter 7
Eligible rollover funds ...................................................71
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation
Definition
APRA
Australian Prudential Regulation Authority
APRA Act
Australian Prudential Regulation Authority
Act 1998
ASIC
Australian Securities and Investments
Commission
Corporations Act
Corporations Act 2001
DEEWR
Department of Education, Employment and
Workplace Relations
ERF
Eligible Rollover Fund
FW Act
Fair Work Act 2009
FSCOD Act
Financial Sector (Collection of Data) Act
2001
FWA
Fair Work Australia
LI Act
Legislative Instruments Act 2003
MySuper Core Provisions Bill
Superannuation Legislation Amendment
(MySuper Core Provisions) Bill 2011
Retirement Savings Accounts
Act
Retirement Savings Accounts Act 1997
RIS
regulation impact statement
RSE
registrable superannuation entity
SG Act
Superannuation Guarantee (Administration)
Act 1992
SG Regulations
Superannuation Guarantee (Administration)
Regulations 1993
SIS Act
Superannuation Industry (Supervision) Act
1993
SIS Regulations
Superannuation Industry (Supervision)
Regulations 1994
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SMSF
self-managed superannuation fund
The Review
The review into the governance, efficiency,
structure and operation of Australia’s
superannuation system or the Super System
Review (Cooper Review)
TPCA Act
Fair Work (Transitional Provisions and
Consequential Amendments) Act 2009
TPD
total permanent disability insurance
Trustee Obligations and
Prudential Standards Bill
Superannuation Legislation Amendment
(Trustee Obligations and Prudential
Standards) Bill 2012
General outline and financial impact
Stronger Super
On 16 December 2010, the Assistant Treasurer and Minister for Financial
Services and Superannuation, the Hon Bill Shorten MP, announced the
Stronger Super reforms.
Stronger Super represents the Government’s response to the review of the
governance, efficiency, structure and operation of Australia’s
superannuation system, the Super System Review. The Government
released the Super System Review’s final report on 5 July 2010.
To provide input on the design and implementation of the Stronger Super
reforms, the Government undertook extensive consultations with industry,
employer and consumer groups. The Government announced its decisions
on the key design aspects of the Stronger Super reforms on 21 September
2011 (Minister’s Media Release No. 131 of 21 September 2011).
This Bill is the third tranche of legislation implementing the
Government’s MySuper and governance reforms as part of Stronger
Super. The first tranche of legislation was introduced to the Parliament on
3 November 2011 as the Superannuation Legislation Amendment
(MySuper Core Provisions) Bill 2011 (the MySuper Core Provisions Bill).
The second tranche of legislation was introduced to the Parliament on 16
February 2012 as the Superannuation Legislation Amendment (Trustee
Obligations and Prudential Standards) Bill 2012 (the Trustee Obligations
and Prudential Standards Bill).
This Bill introduces the next stage of the reforms. The Bill:
• bans entry fees and sets criteria for the charging of other fees
in superannuation, including rules for the charging of
financial advice;
• requires all superannuation funds to provide life and TPD
insurance to members (excluding defined benefit members)
on an opt-out basis;
• enables APRA to collect information on a look-through
basis;
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• requires the disclosure and publication of key information in
relation to superannuation funds;
• allows only MySuper funds to be eligible as default funds in
modern awards and enterprise agreements;
• allows exceptions for members of defined benefit funds;
• requires trustees to transfer certain existing balances of
members to MySuper; and
• provides rules in relation to ERFs.
Date of effect: The majority of these provisions will apply from no earlier
than the commencement of the MySuper Core Provisions Bill or the
Trustee Obligations and Prudential Standards Bill. This ensures that
appropriate provisions of this Bill commence at the same time as
provisions of the first two tranches of legislation.
• Schedule 1, relating to fees, costs and intrafund advice,
generally commences immediately after the commencement
of the MySuper Core Provisions Bill (being 1 January 2013
or an earlier date set by Proclamation);
• Schedule 2, relating to insurance, generally commences on 1
July 2013;
• Schedule 3, relating to collection and disclosure of
information, generally commences the day after the Bill
receives Royal Assent;
• Schedule 4, relating to Modern Awards and enterprise
agreements, generally commences the day after the Bill
receives Royal Assent;
• Schedule 5, relating to defined benefit members, generally
commences immediately after the commencement of the
MySuper Core Provisions Bill (being 1 January 2013 or an
earlier date set by Proclamation);
• Schedule 6, relating to the transition to MySuper, generally
commences immediately after the commencement of the
MySuper Core Provisions Bill (being 1 January 2013 or an
earlier date set by Proclamation);
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General outline and financial impact
• Schedule 7, relating to eligible rollover funds, generally
commences immediately after Royal Assent of the Trustee
Obligations and Prudential Standards Bill; and
• Schedule 8, relating to other amendments, generally
commences immediately after the commencement of the
MySuper Core Provisions Bill.
Proposal announced: On 16 December 2010, the Minister announced the
Stronger Super reforms. On 21 September 2011, the Minister announced
the Government’s decisions on the key design aspects of the Stronger
Super reforms.
Financial impact: This Bill has no significant financial impact on
Commonwealth expenditure or revenue.
Summary of regulation impact statement
Regulation impact on business
Impact: The regulation impact statement (RIS) for Stronger Super
implementation can be found at http://ris.finance.gov.au. The relevant
sections of the RIS covered in this Bill are transfer of accrued default
balances, types of insurance offered through superannuation and sections
2 and 3 of the appendix. A RIS exemption was granted for the remainder
of the Stronger Super reforms, which will be subject to a postimplementation review.
Measures to be contained in subsequent tranches of
legislation
The MySuper and governance reforms will be implemented in several
tranches of legislation. This is the third tranche. Further reforms will be
contained in a subsequent tranche of legislation, including:
• an override of governing rules that require a trustee to use a
particular service provider;
• additional governance measures (requiring trustees to provide
members with reasons for decisions in respect to formal
complaints, providing APRA with the administrative power
to impose fines, making provisions in a trustee company
constitution that prohibit a director from exercising a
deliberative vote ineffective, clarifying the definition of
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‘superannuation contributions’ in the Corporations Act,
making a requirement to publish the terms and conditions of
each type of insurance on a fund’s website and increasing the
time limits for which members can lodge complaints to the
Superannuation Complaints Tribunal in relation to total and
permanent disability claims);
• consequential amendments to deal with the nomination of
superannuation funds in modern awards and enterprise
agreements;
• consequential amendments to the Corporations Act to ensure
the necessary obligations of that Act apply to MySuper
products;
• consequential amendments to move requirements for fitness
and propriety, actuaries and auditors from the legislation to
the prudential standards; and
• amendments to the Corporations Act so that RSE licensees
that are also responsible entities of managed investment
schemes are no longer exempt from the Corporations Act
requirements to have available adequate financial resources.
6
Chapter 1
Fees, costs and intrafund advice
Outline of chapter
1.1
This chapter explains the requirement for an RSE licensee to
elect not to charge commissions in respect of amounts held in a MySuper
product, rules governing the charging for financial advice including
intrafund advice and the general fee rules that will apply to regulated
superannuation funds and approved deposit funds.
Context of amendments
1.2
The Government has committed to MySuper as a
commission-free superannuation product. Therefore, to be authorised to
offer a MySuper product, RSE licensees will need to design their
MySuper products so that they do not charge any fee that relates to
commission payments.
1.3
To ensure equitable charging of fees for financial advice
provided to members, it is important that those members seeking more
complex personal advice in relation to their superannuation bear the cost
of that advice. However, it is appropriate that superannuation funds
continue to be able to provide a member with simple, non-ongoing
personal advice relating to the member’s interest in the fund – commonly
referred to as intrafund advice – and that this advice be able to be
collectively charged across the fund’s membership.
1.4
Performance-based fees are used as an incentive to encourage
investment managers to obtain returns greater than they otherwise would
if they were simply paid an asset-based fee. However, the Review
identified a range of concerns with the current structure of
performance-based fees that mean they may not always be in the
member’s best interests. In response, the Government announced it would
determine parameters for performance-based fee arrangements in
MySuper.
1.5
The charging of fees within superannuation is a crucial
determinant of the returns that members receive and the retirement
benefits that accrue to members. Certain fees may also impede
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competition by inhibiting members from making active choices in relation
to their superannuation. For these reasons, the Government has
previously announced that entry fees would be prohibited and that certain
other fees would be limited to being charged on a cost-recovery basis
only. Further, a fair and reasonable allocation of costs between different
products within a fund will ensure members are only charged for the
benefits and services they are receiving.
Summary of new law
1.6
An RSE licensee that applies for authorisation to offer a
MySuper product must elect not to charge members of a MySuper product
a fee that relates to the payment of conflicted remuneration in relation to a
MySuper product. This election effectively prohibits the trustee from
deducting any amount from a MySuper product that relates to making a
commission payment to a financial adviser.
1.7
New criteria will apply to any performance-based fee payable to
an investment manager in relation to assets of a fund that are attributable
to a MySuper product. However, a trustee may still have an arrangement
without all or some of these criteria if they can demonstrate the
arrangement promotes the financial interests of members that hold the
MySuper product.
1.8
Specific restrictions will apply to the types of personal advice
that superannuation trustees can charge collectively across their
membership. The types of personal advice for which a superannuation
trustee cannot charge across the membership of the fund are those types of
advice that are likely to be more complex in nature and therefore more
costly to provide. Further, only personal advice that is of a one-off or
transactional nature will be allowed to be spread across the membership of
the fund. All personal advice provided to members must comply with the
Corporations Act including the obligation for the advice to be appropriate
and in the best interests of the member.
1.9
The cost of financial product advice that is provided to an
employer of one or more members of the fund will be prohibited from
being recovered through a fee charged to members of the fund. This
prevents commissions and other costs being deducted from the balances of
the employees of an employer in relation to advice that employer receives.
1.10
All regulated superannuation funds and approved deposit funds
will have to comply with some general fee rules. These include a
prohibition of entry fees and limitation on exit fees, switching fees and
buy-sell spreads to being charged on a cost recovery basis.
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Fees, costs and intrafund advice
1.11
An RSE licensee that charges a different administration fee to
employees of a particular employer in a MySuper product must comply
with an additional condition in relation to that administration fee. The
administration fee must be at least equal to the costs that reasonably relate
to the administration and operation of the MySuper product for those
employees.
Comparison of key features of new law and current law
New law
Current law
An RSE licensee that applies for a
MySuper product must elect that
they will not charge a fee on an
amount in a MySuper product that
relates to the payment of conflicted
remuneration to a financial services
licensee.
No equivalent currently in the SIS
Act.
Performance-based fees must
comply with criteria regarding how
the fee is determined.
No equivalent currently in the SIS
Act.
Superannuation trustees are
prohibited from charging across the
membership of the fund for
providing personal financial
product advice on specific topics
and personal financial product
advice on an ongoing basis.
No specific restrictions on
superannuation trustees charging
across the membership of the fund
for providing financial product
advice.
The cost of financial advice that is
provided to an employer of one or
more members of the fund will be
prohibited from being recovered
through a fee charged to any
member of the fund.
No equivalent currently in the SIS
Act.
Exit fees, switching fees and buysell spreads will be limited to cost
recovery.
No equivalent currently in the SIS
Act.
Entry fees will be prohibited.
No equivalent currently in the SIS
Act.
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An administration fee charged to
employees of a particular employer
in a MySuper product that is
different to the administration fee
charged to other members must, in
addition to being the same for all
employees, be at least equal to the
costs that reasonably relate to the
administration and operation of the
fund for those employees.
The MySuper Core Provisions Bill
requires a trustee to charge all
employees of a particular employer
the same administration fee,
whether it is the same flat fee, the
same percentage fee or the same
combination of flat fee and
percentage fee.
Detailed explanation of new law
Election regarding fees in MySuper products relating to conflicted
remuneration
1.12
An RSE licensee that applies for authorisation to offer a
MySuper product must accompany their application with an election not
to charge members of the MySuper product a fee relating to the payment
of conflicted remuneration. [Schedule 1, item 14, subsection 29SAC(1)]
1.13
The RSE licensee must elect that they will not charge any
member that holds the MySuper product a fee that relates directly or
indirectly to costs of the fund in paying conflicted remuneration to a
financial services licensee or a representative of a financial services
licensee. This part of the election effectively prohibits the trustee from
making any commission payment to a financial adviser that is deducted
from a MySuper product. [Schedule 1, item 14, subparagraph 29SAC(1)(a)(i)]
1.14
In addition, the election by the RSE licensee also extends to not
charging any member that holds the MySuper product a fee that relates to
costs of the fund in paying an amount to another person that relates to
conflicted remuneration paid by that other person to a financial services
licensee, or a representative of a financial services licensee. [Schedule 1,
item 14, subparagraph 29SAC(1)(a)(ii)]
1.15
Therefore, this second part of the election will prohibit an RSE
licensee from paying premiums on insurance policies that have embedded
commissions paid by an insurance company to a financial adviser in
relation to the insurance arrangements offered through the superannuation
fund.
1.16
For the purposes of this election, the meaning of conflicted
remuneration will also cover financial product advice provided to the RSE
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Fees, costs and intrafund advice
licensee or to any other person to whom the RSE licensee pays an amount
that relates to the conflicted remuneration paid to the financial services
licensee or a representative of a financial licensee that provided the
advice. [Schedule 1, item 14, subsection 29SAC(3)]
1.17
Under the Corporations Act, a trustee of a superannuation fund
is considered to be a retail client if it has net assets of less than
$10 million. This definition would otherwise exclude most RSE
licensees. For this reasons, all RSE licensees must be treated as a retail
clients to prevent the cost of commission payments being deducted from a
MySuper product in these circumstances. [Schedule 1, item 14,
subsection29SAC(3)]
1.18
For example, an RSE licensee may receive advice in relation to
a life insurance product which the RSE licensee subsequently acquires for
the MySuper product members of the fund and the insurer may pay a
commission to the financial adviser in respect of that advice. Therefore,
the RSE licensee will be deemed to be a retail client in relation to this
advice, which will mean that the commission is treated as conflicted
remuneration for the purposes of the election, even if, under the
Corporations Act, the RSE licensee might not be a retail client.
1.19
If APRA is satisfied that the RSE licensee has failed to give
effect to this election then they will have the ability to cancel an
authorisation to offer a MySuper product. [Schedule 1, item 17,
paragraph 29U(2)(k)]
1.20
The election must be in writing and in the approved form.
[Schedule 1, item 14, paragraphs 29SAC(1)(b) and 29SAC(1)(c)]
Performance-based fees
1.21
New criteria will apply to any performance-based fee payable to
an investment manager under a contract or arrangement to invest assets of
a fund that are attributable to a MySuper product. [Schedule 1, item 30,
section 29VC]
1.22
Performance-based fees typically entitle the investment manager
to a payment equal to a pre-determined percentage of the increased value
of the asset or income received from the investment that exceeds a given
benchmark over a particular testing period.
1.23
The criteria will apply to an arrangement entered into on or after
1 July 2013 if all or any part of the assets invested under that mandate is
attributable to a MySuper product that the superannuation fund offers.
[Schedule 1, item 30, subsection 29VC(1)]
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1.24
There are five criteria that must be contained in the terms of the
arrangement the fund has with the investment manager if there is a fee
that is determined, in whole or in part, by reference to the performance of
the investment made by the investment manager on behalf of the trustee or
trustees of the fund. [Schedule 1, item 30, subsections 29VC(3) – (7)]
1.25
The first criterion is that if the investment manager is entitled to
a fee in addition to the performance-based fee then this fee must be lower
than it would be if there was no performance-based fee. [Schedule 1, item 30,
subsection 29VC(3)]
1.26
This requires trustees to only agree to pay performance-based
fees where the investment manager puts at risk the fees they would
otherwise be entitled to. This ensures that there is sufficient incentive for
the investment manager to achieve the required performance.
1.27
The second criterion is that the period over which the
performance-based fee is determined must be appropriate to the kinds of
investment to which it relates. [Schedule 1, item 30, subsection 29VC(4)]
1.28
To satisfy this requirement, certain assets, such as infrastructure,
may require longer testing periods to reflect that these investments are
usually made for several years and may have high costs to exit early.
However, other assets that may be invested in over shorter periods, such
as bonds, could have shorter testing periods.
1.29
The third criterion is that the performance of the investment
must be measured by comparison with the performance of investments of
a similar kind. [Schedule 1, item 30, subsection 29VC(5)]
1.30
An investment manager should only be paid a performancebased fee where they generate returns that are greater than assets with a
comparable level of risk and are subject to the same market forces. For
example, a performance-based fee for any shares traded on the Australian
Securities Exchange could be measured by comparison to an after-tax
benchmark that uses the All Ordinaries index. In this example, it would
not be appropriate to determine the performance of these shares against
the interest rate paid on Commonwealth Government Securities.
1.31
The fourth criterion is that a performance-based fee must be
determined on an after-costs and, where possible, an after-tax basis.
[Schedule 1, item 30, subsection 29VC(6)]
1.32
This is consistent with the new obligation of RSE licensees in
relation to members that hold a MySuper product to promote the financial
interests of members, in particular returns to those beneficiaries (after the
deduction of fees, costs and taxes). Consistent with this obligation, the
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Fees, costs and intrafund advice
trustee should only agree to an arrangement that is targeted to the
objective of maximising the returns members receive.
1.33
The fifth criterion is that the performance-based fee must be
calculated in a way that includes disincentives for poor performance.
[Schedule 1, item 30, subsection 29VC(7)]
1.34
Superannuation is a long-term investment and the culmination of
returns over a long period determines a member’s retirement benefit. For
this reason, there must be commensurate disincentives for investment
managers to avoid underperformance compared to the potential
performance-based fee that provides the incentive to outperform.
1.35
For example, there may be clawback provisions that require
performance-based fees from earlier testing periods to be returned to the
superannuation fund if the investment manager underperforms in the
current testing period. Also, there could be high-water mark provisions
that require an investment manager to recover prior periods of
underperformance before becoming entitled to a performance-based fee in
the current testing period.
1.36
A lack of disincentives can encourage investment manager’s to
pursue volatile investments that may entitle them to a performance-based
fee in one period without that fee being at risk in later testing periods.
This short-term focus without any consequences for the longer term return
is not in the interest of members for whom the ultimate objective is to
maximise their retirement benefit.
1.37
However, despite these five criteria, a trustee may still have an
arrangement under which assets attributable to the MySuper product are
invested subject to a performance-based fee which does not meet the
criteria if they can demonstrate the arrangement promotes the financial
interests of the members of the fund that hold the MySuper product.
[Schedule 1, item 30, subsection 29VC(8)]
1.38
These criteria should be able to be included in the majority of
arrangements that trustees have with investment managers. It would be
difficult for a trustee to assert that a particular arrangement was in the best
financial interests of members that hold the MySuper product where they
could invest in those same assets under an alternative arrangement that
does contain these criteria. However, it may not be possible to access
certain assets, in particular assets sold through international markets,
without entering into an arrangement that does not contain one or more of
these criteria.
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Intrafund advice
1.39
Superannuation funds often provide financial product advice to
their members – commonly referred to as intrafund advice. This financial
product advice can be general (i.e. advice that does not take into account
the particular circumstances of the client) or personal (advice that does
take into account those circumstances). In the case of general advice, it
might be delivered through lectures or website material, while personal
advice is more likely to be delivered through a call centre or meeting. As
long as the superannuation trustee complies with the sole purpose test
under the Act, there are currently no restrictions on trustees passing on the
costs of providing this advice to their membership, most commonly
through the administration fee.
1.40
In recognition of the importance of retirement savings not being
eroded through excessive fees, the amendments place specific restrictions
on the types of personal advice that superannuation trustees can charge
across their membership as intrafund advice. The amendments do not
seek to inhibit the ability of a superannuation trustee to provide advice to
their members, but recognise that the cost of providing some types of
advice should be incurred directly by the member receiving the advice
rather than the membership of the fund as a whole.
1.41
The types of personal advice for which a superannuation trustee
will not be able to charge across the membership of the fund are those
types of advice that are likely to be more complex in nature and therefore
more costly to provide. In particular, a trustee will not be able to charge
across their membership for personal advice to the extent that it relates to:
• a financial product other than the member’s beneficial
interest in the fund;
• whether the member should consolidate their superannuation
holdings in two or more superannuation entities into one; and
• the giving of a direction to the trustee by a member to invest
in a specified financial product or financial products.
[Schedule 1, item 34, subsection 99F(2)]
1.42
Further, the amendments only allow personal advice that is of a
one-off or transactional nature to be spread across the membership of
fund. For example, this could be personal advice in relation to a specific
question asked by the member on a topic other than those topics identified
in 1.41. Costs for an ongoing advice relationship must be charged directly
to the member. [Schedule 1, item 34, paragraph 99F(1)(b)]
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Fees, costs and intrafund advice
1.43
In addition, it is expected that superannuation trustees that offer
advice services to their members that are collectively charged across the
membership of the fund will have in place internal policies to manage the
costs of those services and ensure they are not excessively used by any
particular member to the detriment of other members.
1.44
The amendments also provide for additional types of personal
advice that must be charged directly to a member to be prescribed by
regulations. This provides for the flexibility to allow for further types of
advice to be added should evidence indicate that the costs of
superannuation trustees to provide this form of advice are unreasonably
eroding retirement savings. [Schedule 1, item 34, subparagraph 99F(2)(a)(iv)]
1.45
Many superannuation trustees outsource their advice services to
their members to an external advice provider rather than providing these
services in-house. The rules outlined in these amendments governing the
cost of financial product advice apply regardless of whether the advice is
provided in-house or through an external advice provider acting under an
arrangement with the trustee. [Schedule 1, item 34, subsection 99F(1)]
1.46
Nothing in these amendments operates to exclude the
application of the laws governing the provision of financial product advice
imposed by the Corporations Act. Importantly, this means that personal
advice provided to members must be appropriate and in the best interests
of the member. These amendments are about how superannuation trustees
recover the costs of providing advice services to their members.
1.47
ASIC is the responsible regulator for intrafund advice.
However, APRA may also cancel an RSE licensee’s authorisation to offer
a MySuper product, if on the advice of ASIC, it is concluded that the RSE
licensee has not complied. [Schedule 1, item 16, paragraph 29(U)(2)(d)]
General fee rules
1.48
General fee rules will apply to certain fees charged by regulated
superannuation funds and approved deposit funds. However, these rules
will not apply to SMSFs and pooled superannuation trusts. [Schedule 1,
item 34, section 99A]
1.49
RSE licensees will have to comply with the general fee rules for
all products they offer, in any case, but this will allow APRA to ensure
that the general fee rules are complied with in relation to a MySuper
product specifically at the time they consider an application for
authorisation. If a RSE licensee does not comply with the general fee
rules they will be in breach of a standard condition on their RSE licence.
In addition, if they do not comply with the general fee rules in relation to
the MySuper product than APRA may cancel authorisation of that
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MySuper product. [Schedule 1, item 15, paragraph 29T(1)(i) and Schedule 1, item
16, paragraph 29U(2)(d))]
1.50
The cost of financial product advice (other than intrafund
advice) provided to a member will be able to be charged to that member
as an activity fee. [Schedule 1, item 26, subsection 29V(8)]
1.51
However, the MySuper Core Provisions Bill requires an RSE
licensee to charge each member that has an interest in a MySuper product,
and to whom a particular activity relates, an activity fee calculated on the
same basis. For example, each member that requests that their
contribution is split must be charged the same flat fee, same percentage
fee or same combination of flat fee and percentage fee.
1.52
Therefore, to allow the costs of financial advice to be passed
directly to the member to whom it relates, an activity fee relating to
financial advice will not have to comply with the charging rules in relation
to MySuper products and may be a different fee for each member that
holds the MySuper product. [Schedule 1, item 27, subsection 29VA(9)]
1.53
This means that for more complex financial advice the trustee
may charge for certain financial advice as an activity fee to pass the cost
of that advice directly onto the member who was provided that advice
rather than charging the costs of that advice to all members of the fund.
Financial advice may also be charged as part of the administration fee to
all members of the fund unless it is a certain type of personal advice that
must be charged to the member to whom the advice relates.
1.54
The charging of entry fees will be prohibited. An entry fee is
defined as a fee that relates, directly or indirectly to the issuing of a
beneficial interest in a superannuation entity to a person who is not
already a member of the entity. [Schedule 1, item 34, subsection 99B(1)]
1.55
Buy-sell spreads, switching fees and exit fees will only be able
to be charged on a cost-recovery basis. However, the MySuper Core
Provisions Bill requires an RSE licensee to charge each member that has
an interest in a MySuper product, and to whom a particular activity
relates, an activity fee calculated on the same basis. For example, each
member that requests that their contribution is split must be charged the
same flat fee, same percentage fee or same combination of flat fee and
percentage fee. [Schedule 1, item 34, subsection 99C(1)]
1.56
Charging a fee on a cost recovery basis means that the fee aims
to recover the expected costs of that action. It does not require precise
cost recovery in each instance of the fee being charged to a member.
Rather, across all instances the cumulative amount of fees must equal, as
16
Fees, costs and intrafund advice
close as is practicable, the costs of undertaking that action for all members
that are charged the fee.
1.57
Regulations, if any, may prescribe in further detail ways in
which these fees may be calculated on a cost-recovery basis. [Schedule 1,
item 34, subsection 99C(2)]
1.58
The costs of providing financial advice to employers cannot be
included in any fee charged to any member of a superannuation fund.
Employees should not have their benefits reduced by costs relating to
advice provided to their employer in satisfying their superannuation
guarantee obligations, including selecting a default fund for the
contributions of their employees. [Schedule 1, item 34, section 99D]
1.59
Trustees must attribute costs of the fund fairly and reasonably
between the classes of beneficial interest in the fund. This means that
costs must be fairly and reasonably allocated across all MySuper products
and choice products offered by the fund. [Schedule 1, item 34, subsection 99E]
1.60
The definitions of administration fee, activity fee, investment
fee, buy-sell spread, exit fee and switching fee, as included in the
MySuper Core Provisions Bill, will be amended to refer to superannuation
entities. These definitions are used in the general fee rules which will
apply to entities that are not a regulated superannuation fund such as an
approved deposit fund. These definitions and the definition of general fee
rules will be included in the definitions of the Act in subsection 10(1) of
the SIS Act [Schedule 1, items 4-6, 8, 11 and 12, subsection 10(1) and subsections]
1.61
As there will be new general fee rules, fees will be explicitly
added as a matter that can be dealt with in operating standards made in the
SIS Regulations. [Schedule 1, item 31, paragraphs 31(2)(da) and 31(2)(db)]
1.62
To avoid doubt, it is clarified that operating standards may be
prescribed for any aspect of the operation of an entity to which a covenant
or other provision of the Act or Regulations relates. It is further clarified
that an operating standard is of no effect to the extent it conflicts with the
Act. [Schedule 1, item 32, section 33A]
1.63
These general fee rules specify that certain fees can and cannot
be charged in certain circumstances. Changes to the disclosure regime in
the Corporations Act and Corporations Regulations may also be required
to align the disclosure requirements with both the charging rules in the
MySuper Core Provisions Bill and the general fee rules.
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
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Additional condition administration fee discounts
1.64
The MySuper Core Provisions Bill sets out the conditions that
must be met for a fund to be able to offer a different administration fee in
respect of employees of a particular employer.
1.65
An additional condition to be met by is that the total amount of
the administration fee charged to the employees of a particular employer
must be at least equal to an amount that reasonably relates to the
administrative and operating costs incurred by the fund in relation to those
members. This aims to ensure that any discounted administration fees
reflect actual administrative efficiencies, and also prevent cross
subsidisation of administration fees across different members of a fund.
[Schedule 1, item 29, subsection 29VB(5)]
1.66
Any costs incurred by the trustee of the fund in the
administration and operation of the fund that are charged as part of an
investment fee, a buy-sell spread, a switching fee, an exit fee or an activity
fee are excluded from this additional condition as these fees will have to
be the same for all members that hold the MySuper product, not just the
employees of a particular employer. [Schedule 1, item 29, paragraph
29VB(5)(b)]
Application provisions
1.67
The general fee rules will commence immediately after the
provisions of the MySuper Core Provisions Bill that relate to
authorisation. This allows APRA to assess trustees against the general fee
rules, in addition to the MySuper fee rules, when they apply for
authorisation to offer a MySuper product.
1.68
However, the general fee rules will only apply to funds from
1 July 2013. [Schedule 1, item 35]
18
Chapter 2
Insurance
Outline of chapter
2.1
This chapter explains the amendments of the Bill relating to the
provision of benefits to members of a superannuation fund that are
supported by an insurance policy.
Context of amendments
2.2
Insurance is a key element of the benefits provided to members
of a superannuation fund.
2.3
These benefits protect members against the risk of not being
able to accumulate sufficient retirement savings, for themselves or their
dependents, due to having to cease work as a result of injury or illness or
as a result of death.
2.4
For this reason, the Government has announced that trustees will
be required to provide minimum levels of default life insurance and total
and permanent disability (TPD) insurance to all members of their fund on
an opt-out basis. Trustees that cannot obtain opt-out insurance at a
reasonable cost must provide members with MySuper interests with
compulsory insurance or may offer compulsory or no insurance to
members with only choice product interests.
2.5
Currently, some members are being charged premiums for
various types of insurance that may not be released to them when an
insurance payment is made for them, because the circumstances do not
meet a condition of release. The Government announced that it would
end this practice and believes that it is in best interest of members to align
the insurance definitions with the conditions of release so that insurance is
consistent with the purpose of superannuation and that monies are
available to members when the insurer makes a payment to the fund under
the relevant insurance policy.
2.6
Following the Review, the Government announced that,
following a suitable transition period, funds would be prohibited from
self-insuring any benefits of the fund, including life and TPD insurance
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
benefits, except for defined benefit funds that are currently permitted to
self-insure. The ban on self-insurance for accumulation funds will
address the risks of any short fall in insurance benefits being funded from
other member balances and also ensure that insurance benefits are paid
from authorised insurance institutions that are required to comply with
relevant prudential regulation.
Summary of new law
2.7
A trustee of a superannuation fund must provide members, by
way of insurance, with benefits for death and benefits that are consistent
with the definition of permanent incapacity in the SIS Regulations. This
definition of permanent incapacity will continue to be prescribed by the
SIS regulations as it will also be used to define the types of insurance that
can be offered.
2.8
A relevant member must have the option to opt-out of one or
both of life and TPD insurance unless the fund meets conditions
prescribed in the regulations that will be if a trustee is not able to obtain
opt-out cover at a reasonable cost.
2.9
Reasonable conditions will be able to be imposed in relation to
qualifying for life and TPD insurance that is given to the member. It
would be reasonable for the trustee to reflect conditions in the insurance
policy in the benefits that are provided to members.
2.10
The existing requirement for a fund to offer a minimum level of
life insurance in order to accept contributions for employees that do not
have a chosen fund will be retained. This amount of insurance offered
must be at least given to that minimum unless the member elects that the
benefits not be provided or, if permitted by the fund, the member elects to
hold a lower amount of life insurance.
2.11
Operating standards will be able to be made in the SIS
Regulations on the kinds of benefits that may be offered by way of
insurance and the kinds of benefits that must be offered by way of
insurance. New regulations will be made to ensure that trustees only offer
insurance that is consistent with benefits that can be released under the
conditions of release in the SIS Regulations and to prohibit self-insurance
(except for defined benefits funds that currently self-insure for defined
benefit members).
20
Insurance
Comparison of key features of new law and current law
New law
Current law
Each member of a fund must be
offered benefits that are supported
by life and TPD insurance with the
ability to opt-out of these benefits.
The amount of life insurance given
must be at least the minimum set
out in the SG Regulations.
There are no requirements
regarding default insurance
currently. However, to accept
contributions from an employer for
employees that do not have a
chosen fund the fund must offer at
least the minimum amount of life
insurance required by the SG
Regulations.
Operating standards will be able to
deal with kinds of benefits that
must, and the kinds of benefits that
must not, be provided by the
trustee taking out insurance (or
insurance of a particular kind).
The SIS Act does not expressly
allow operating standards to be
made on types of insurance offered
or self-insurance.
Detailed explanation of new law
Minimum level of life insurance for SG Act purposes
2.12
The sole purpose test permits benefits to be provided to
members of a superannuation fund, including on the member’s death and
on the cessation of gain or reward in any business, trade, profession,
vocation, calling, occupation or employment on account of ill-health of
the member. Trustees that provide these benefits will typically purchase
insurance policies that provides for additional benefits on the realisation
of these risks.
2.13
Currently, to accept contributions from an employer on behalf of
an employee that does not have a chosen fund, a fund must offer a
minimum level of life insurance as set out in the SG Regulations. This
requirement will be changed so that a fund that accepts contributions for
employees must actually provide benefits to each member of the fund in
respect of death at the minimum level set out in the SG Regulations.
However, this amount will be subject to the member electing that the
benefits not be provided or, if it is permitted by the fund, the member
electing to hold a lower amount of life insurance. [Schedule 2, item 1,
paragraph 32C(2)(d)]
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Default insurance
2.14
There will be a general requirement for all superannuation funds
to provide each member of the fund benefits by taking out insurance on
permanent incapacity and in the event of the death of the member. In
other words, each fund will have to give as a default both life and TPD
insurance. [Schedule 2, item 4, section 68AA]
2.15
This will provide a safety net to members who are least likely to
give consideration to their insurance needs. To avoid doubt, to meet this
requirement it is not sufficient for trustees to simply release the member’s
accrued superannuation balance. Rather, the trustee must provide benefits
by taking out an insurance policy or through self-insurance, where the
fund is permitted to self-insure under the operating standards. A failure to
comply with this requirement will be a breach of a standard condition of
the RSE licence. [Schedule 2, item 4, subsection 68AA(1)]
2.16
Permanent incapacity will be defined using the existing
definition in the SIS Regulations. This definition is already used as a
condition of release. This definition will be prescribed by regulations to
maintain consistency with present conditions of release and because the
definition will also be used to define the types of insurance, particularly
TPD insurance, that may be offered within superannuation. [Schedule 2,
item 2, subsection 10(1)]
2.17
Trustees may determine reasonable conditions to which the
provisions for death and permanent incapacity benefits may be made.
Reasonable conditions may include, but are not restricted to: the member
working a certain number of hours per week; the member accruing a
particular balance; or a member or their employer making a certain level
of contributions in a specified period. Where a trustee has taken out
insurance, a condition is also considered to be reasonable if it is the same
or corresponds with the terms and conditions of the underlying insurance
policy. Should a member not meet any reasonable condition set by a
trustee, the trustee will not be required to provide the insured benefits to
the member. The conditions that apply to life and TPD insurance may be
different. For example, a member may not qualify for TPD insurance
under a certain condition but may still qualify for life insurance.
[Schedule 2, item 4, subsections 68AA(3) - (5)]
2.18
Any member of the fund may elect to opt-out of either or both of
the provided life and TPD insurance. Providing members with the option
to opt-out of life and TPD insurance allows them to protect their balance
whilst accepting the financial risks of death or permanent incapacity if
they choose. It also provides members with the option of obtaining this
cover outside of superannuation. If a member elects to opt-out of either
life or TPD insurance, the trustee is not required to provide this insurance
22
Insurance
to the member. Funds may also permit members to increase or decrease
their insurance cover from the default amount. [Schedule 2, item 4, subsection
68AA(6)]
2.19
However, trustees will not have to comply with the opt-out
requirements should they meet the conditions prescribed in the regulations
in relation to the taking out of insurance. It is intended that the
regulations will provide an exception where a trustee is unable to obtain
opt-out insurance at a reasonable cost. Should a trustee meet the
conditions prescribed in the regulations, it will be required to offer
compulsory insurance for any member who holds a MySuper product and
compulsory or no insurance for members who do not hold a MySuper
product. [Schedule 2, item 4, subsections 68AA(7), (8) and (10)]
2.20
Trustees will have the discretion to determine the minimum
levels of insurance they may provide for their members depending on
what is in their best interests. Trustees may offer each member of the fund
the same minimum level of default life and TPD insurance or they may
vary the minimum level either across different workplaces or at the
member level. There are no additional restrictions applying to default
insurance at the workplace level. In practice, this gives trustees the option
of providing different levels of default insurance cover to different
categories of employees within a particular workplace, reflecting their
different insurance needs.
2.21
The requirement for trustees to offer a minimum level of opt-out
life and TPD insurance does not apply to eligible rollover funds, selfmanaged superannuation funds, or to defined benefit members.
[Schedule 2, item 4, subsection 68AA(9)]
Operating standards for types of insurance and self-insurance
2.22
Operating standards will be able to be made in the SIS
Regulations that relate to the kinds of benefits that must not be provided
by taking out insurance and the kinds of benefits that must not be
provided other than by taking out insurance. It is expected there will be
two new operating standards on insurance under these provisions.
[Schedule 2, item 3, paragraphs 31(2)(ea) and (eb)]
2.23
First, an operating standard will be made to define the types of
insurance that can be offered through superannuation. [Schedule 2, item 3,
paragraphs 31(2)(ea)]
2.24
The operating standard will limit trustees to only taking out risk
insurance policies for the provision to beneficiaries of insured benefits
that satisfy the conditions of release in the SIS Regulations for death,
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
terminal medical condition, permanent incapacity and temporary
incapacity.
2.25
By using an operating standard, the types of insurance will be
directly aligned with the existing definitions of these concepts that are
used in the conditions of release in the SIS Regulations. This means that
members can only have premiums deducted to the extent that the trustee is
able to release the proceeds of that insurance policy to the member. This
ensures members are able to have the proceeds of insurance policies
released to them at the time a risk that they are insured for occurs. At
present, insurance that is not consistent with these definitions cannot be
released to members when the insurer makes a payment to the fund under
the relevant insurance policy. It is intended that these types of insurance
policies will have to be phased out over a transition period, which will be
prescribed by the operating standards. [Schedule 2, item 3, paragraphs 31(2)(ea)
and (eb)]
2.26
Second, an operating standard will be made prohibiting a
superannuation fund from providing insured benefits consistent with the
conditions of release for death, terminal medical condition, permanent
incapacity or temporary incapacity in the SIS Regulations unless it is
backed by an insurance policy. This operating standard will ensure that a
superannuation fund cannot self-insure unless it is a defined benefit fund
or scheme that is already permitted to self-insure in respect of defined
benefit members by a condition on their RSE license. Prohibiting selfinsurance for accumulation funds will reduce the risk for other members
should the fund not maintain adequate capital resources to release
unforseen member claims as well as ensuring that the insurance provided
complies with the prudential requirements relating to insurance.
[Schedule 2, item 3, paragraph 31(2)(eb)]
24
Chapter 3
Collection and disclosure of information
Outline of chapter
3.1
This chapter explains amendments to the APRA Act, the
Corporations Act, the FSCOD Act and the SIS Act to expand the coverage
of APRA’s data collection, enable the publication of data on MySuper
products, and improve disclosure for superannuation, including through
new requirements to publish a product dashboard and portfolio holdings.
Context of amendments
3.2
The Review identified a lack of transparency, comparability and,
consequently, accountability in Australia’s superannuation system. In
particular, there is no standardised methodology for calculating and
disclosing relevant fund or investment option information. It was also
noted that members often rely inappropriately on historical investment
return data which gives no information about the risk attached to those
returns.
3.3
The Government has committed to improve transparency in the
superannuation system through enhanced disclosure requirements and
broadening APRA’s ability to collect and publish information on the
operation and efficiency of superannuation funds.
3.4
MySuper products are intended to set a new benchmark for
superannuation in the level of transparency and comparability of key
performance information. APRA will collect and publish information on
the fees, costs and returns of each MySuper product.
3.5
The Review noted that portfolio disclosure in Australia is
unduly opaque and does not meet global best practice. Requiring the
disclosure of portfolio holdings will provide greater transparency and
allow members to understand where their superannuation is invested.
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
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Summary of new law
APRA’s data collection
3.6
APRA will have the ability to collect additional data from RSE
licensees. In particular, an obligation to provide relevant data will apply
to related body corporates, custodians of an RSE licensee and other parties
under a contract or arrangement with one of these entities or the RSE
licensee itself. This will allow APRA to collect more accurate and
complete data on the investments and costs of superannuation entities.
Publication of MySuper data
3.7
APRA will be required to publish information on the returns,
fees and costs of all MySuper products quarterly. This requirement does
not limit APRA from publishing other information regarding MySuper or
other superannuation products.
Requirements to publish a product dashboard and other information
3.8
RSE licensees will be required to publish a product dashboard
for each of the fund's MySuper and choice products on a part of their
website that is accessible to the public at all times. The product dashboard
will contain information on the investment return target and the number of
times the target has been achieved, level of investment risk, a statement
about the liquidity of the product and a measure of the average amount of
fees charged in relation to the product on a per member basis.
3.9
Funds will also have to disclose the remuneration of directors
and executive officers. Regulations will specify other documents to be
published on a fund’s website to promote transparency.
Requirement to publish portfolio holdings
3.10
RSE licensees will be required to publish information regarding
their portfolio holdings on their website. The RSE licensee must publish
portfolio holdings as at the reporting day, which will occur once every six
months on 30 June and 31 December, within 60 days after each reporting
day.
3.11
A person who invests assets derived from an RSE under a
contract or arrangement will be required to notify any person with whom
they are investing those assets that they will be required to provide the
relevant information regarding the financial product to the RSE licensee
26
Collection and disclosure of information
so that the RSE licensee can satisfy their obligation to publish portfolio
holdings.
3.12
Any person so notified must provide the information sufficient
to identify each financial product that is invested in with assets derived
from the RSE, and the value invested, so that the RSE licensee is able to
comply with their obligation to publish portfolio holdings.
Comparison of key features of new law and current law
New law
Current law
APRA may make a determination
concerning the confidentiality of a
reporting document or reporting
documents of a specified kind that are
required to be given. APRA may
determine whether a document of a
particular kind is confidential even
though the documents have not yet
received by APRA.
If a document relating to a financial
sector entity is given to APRA in
accordance with the FSCOD Act and
is then determined by APRA to not
contain confidential information then
it is not an offence for APRA to
disclose the document or any
information contained in the
document.
APRA may make a
non-confidentiality determination in
relation to a specified part of a
reporting document (or reporting
document of a specified kind), as well
as the whole of the reporting
document (or reporting document of a
specified kind).
By legislative instrument, APRA can
determine whether a particular
document given by a financial sector
entity is non-confidential.
APRA may determine that
information is non-confidential if,
taking into account any
representations made by interested
parties, APRA considers that the
benefit to the public from the
disclosure outweighs any detriment to
commercial interests that the
disclosure may cause.
APRA may make a determination as
to whether a reporting document
contains confidential information but
there is no guidance as to how that is
to be assessed.
If APRA requires an RSE licensee to
provide information in relation to the
investment of assets, or assets derived
from assets of the RSE licensee or a
person connected with the RSE
licensee, certain persons connected
with the RSE licensee, in or through
whom assets of or deriving from the
RSE are invested, will be required to
There are no provisions in the
FSCOD Act enabling APRA to
require RSE licensees to provide such
information to APRA, or applying to
persons connected with RSE
licensees.
27
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
provide information to enable the
RSE licensee to report to APRA.
28
A choice product will be defined as a
product which is not a MySuper
product or a defined benefit product.
A choice product is defined in the
Superannuation Legislation
Amendment (MySuper Core
Provisions) Bill 2011 as a product
which is not a MySuper product.
RSE licensees will be required to
publish the details of the
remuneration of directors and
executive officers. Further disclosure
of documents to promote systemic
transparency will be specified in
regulations.
There are no existing requirements in
the SIS Act to publish detail of
remuneration.
When an RSE licensee provides
information to any person, other than
if required to give the information to
a Commonwealth agency, it will be
required to provide that information
which is consistent with information
provided to APRA under a reporting
standard.
There is no existing provision in the
SIS Act requiring the provision of
consistent information.
APRA must publish quarterly
information on MySuper products.
This will include information on fees,
costs and net returns.
There is no existing provision in the
SIS Act requiring publication of
MySuper data.
RSE licensees will be required to
publish a product dashboard for each
MySuper and choice product that is
up-to-date, accurate and complete.
The product dashboard will contain
information on investment return
target, the number of times the target
has been achieved, level of
investment risk, a statement about the
liquidity of the product and a measure
of the average amount of fees charged
in relation to the product on a per
member basis.
There is no existing requirement in
the Corporations Act for RSE
licensees to publish a superannuation
product dashboard.
RSE licensees must publish
information on their portfolio
holdings as at the reporting day
within 60 days of the reporting day.
There are no existing requirements to
publish portfolio holdings in the
Corporations Act.
Parties who invest assets of an RSE,
or assets derived from assets of an
RSE, will be required to notify the
provider of the financial product that
they must provide information to the
There are no existing requirements
for other parties to notify that assets
invested relate to an RSE or to
provide information to an RSE
licensee on financial products.
Collection and disclosure of information
RSE licensee that will allow the RSE
licensee to comply with the
requirement to publish portfolio
holdings.
Detailed explanation of new law
APRA’s data collection and publication
3.13
APRA will have an expanded role in the collection and
publication of data on superannuation entities. The additional data to be
published by APRA will provide members, employers, the industry, and
other interested stakeholders with information to compare the
performance of superannuation products. This will also enhance the
accountability of trustees in meeting their heightened duties to promote
the best financial interests of members that hold the MySuper product.
APRA’s Secrecy obligations and determination
3.14
At present, section 57 of the APRA Act permits APRA to make
a determination that data provided in a particular reporting document,
which has been submitted in accordance with a reporting standard made
under the FSCOD Act, is non-confidential, and can be published without
breaching section 56 of the APRA Act.
3.15
APRA will now be able to make a determination on a class of
reporting document required to be given to APRA under the FSCOD Act
by a registered entity or a body regulated by APRA. It is also made clear
that APRA can make a determination in relation to a specified part (or the
whole of) a reporting document. [Schedule 3, item 4, subsection 57(1)]
3.16
Therefore, APRA’s determination may cover document of a
certain type, or particular information within documents of that type.
Such a determination will be able to apply prospectively in relation to
reporting documents yet to be received by APRA. For example, APRA
may determine that information reported in specified line items of a
particular reporting form is non-confidential. APRA will also be able to
do this for a specific document that has been received by APRA (as is
presently the case). This change will allow APRA to streamline the
current determination process where APRA undertakes a single
consultation process as to the confidentiality of information but is required
to repeat confidentiality determinations as information is received in
accordance with periodic reporting requirements. [Schedule 3, item 4,
subsection 57(2)]
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
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3.17
APRA will not be able to make a section 57 determination
unless it has given interested parties a chance to make a representation on
whether the document contains confidential information. [Schedule 3, item 4,
subsection 57(3)]
3.18
Where APRA’s determination relates to a particular document
an interested party is defined as an entity or body which is required to give
the information to APRA under the FSCOD Act. APRA may make a
determination that information is not confidential if, taking into account
representations made by the interested party, APRA considers that the
benefit to the public from the disclosure outweighs any detriment to
commercial interests that the disclosure may cause. [Schedule 3, item 4,
paragraph 57(4)(a)]
3.19
Where APRA’s determination is on a type of document then an
interested party is defined as an association or other body representing the
entities or bodies which are required to give the information to APRA
under the FSCOD Act. Again, APRA may make a determination that
information is not confidential if, taking into account representations
made by these parties, APRA considers that the benefit to the public from
the disclosure outweighs any detriment to commercial interests that the
disclosure may cause. [Schedule 3, item 4, paragraph 57(4)(b)]
APRA’s ability to collect look through data
3.20
APRA will be given an explicit power to make a reporting
standard, requiring RSE licensees to provide investment information on
their assets or assets derived from their assets that are invested by a
connected person who is a related body corporate of the RSE licensee, a
custodian of an RSE licensee and other parties under a contract or
arrangement with one of these entities or the RSE licensee itself. [Schedule
3, item 27, subsection 13(4A)]
3.21
The reporting standard will be able to require information on
deductions from the return on investment, the financial products or other
property which the assets are invested in and the operations of the
investor. [Schedule 3, item 27, paragraph 13(4A)(a) and (b)]
3.22
For example, under such a reporting standard, RSE licensees
may be required to provide information on assets and financial products
invested in a managed investment scheme, PST or other trust, which has
in turn invested the assets in financial products or property. A reporting
standard may impose such a requirement where the investment is by a
person connected with the RSE licensee. [Schedule 3, item 27, paragraph
13(4A)(c) and (d)]
30
Collection and disclosure of information
3.23
As noted above, a reporting standard may require the RSE
licensee to provide information in relation to assets invested by a person
connected with the RSE licensee. [Schedule 3, item 27, paragraph 13(4B)(a)]
3.24
Where the assets are invested under contract or other
arrangement between the RSE licensee (or a related body corporate of the
RSE licensee or a custodian in relation to the relevant assets) and a person
connected with the RSE licensee then the contract or arrangement has an
implied term which requires the RSE licensee to notify the connected
person that the assets are derived from a RSE. [Schedule 3, item 27, paragraph
13(4B)(c)]
3.25
The contract or arrangement will also have an implied term
requiring the connected person to provide the RSE licensee with the
required information. [Schedule 3, item 27, paragraph 13(4B)(d)]
3.26
A person “connected with” an RSE licensee is defined so as to
capture, in general terms, an entity within the RSE licensee’s corporate
group through to the first non-associated entity (or the first non-associated
entity acting under an arrangement with a custodian). That is, a related
body corporate of the RSE licensee, a custodian holding the RSE
licensee’s superannuation assets, or a person under a contract or
arrangement with the RSE licensee, related body corporate or custodian.
[Schedule 3, item 27, subsection 13(4C)]
3.27
For example, if the RSE licensee invests assets of the
superannuation fund in an investment life policy issued by a related life
company, which in turn invests in a managed investment scheme of which
another related body corporate is responsible entity, both the life company
and the responsible entity will be persons connected with the RSE
licensee. Accordingly, a reporting standard may require the RSE licensee
to report on the underlying investments of the managed investment
scheme and the deductions on net returns imposed by the responsible
entity and life company.
3.28
These requirements may apply to several contracts or
arrangements that invest the assets, or assets derived from the assets, of an
RSE licensee through several parties as set out in example 3.1.
Example 3.1
An RSE licensee (ABC Super) invests assets of their fund through a
custodian. The custodian must invest as directed by ABC Super. The
custodian, at the direction of ABC Super, provides assets of ABC
Super under a contract of investment with ABC investment manager
that is a related body corporate of ABC Super.
31
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
ABC investment manager makes investments on behalf of several
entities including ABC Super by purchasing units in Managed
Investment Scheme 1. Managed Investment Scheme 1 is not a related
body corporate of ABC Super.
In this example, ABC Super must notify the custodian the assets are
those of ABC Super.
The custodian must, in turn, notify ABC investment manager that the
assets invested under the contract are those of ABC Super.
ABC investment manager then must notify Managed Investment
Scheme 1 that they are investing assets that are derived from assets of
ABC Super.
Information on the deductions from the investments and details on the
types of financial products and other property that is invested in must
be provided by each entity to the entity preceding it in the chain of
investment.
Managed Investment Scheme 1 provides ABC investment manager
details of the costs it deducts from the investment return. In turn, ABC
investment manager provides this information and details of the costs it
deducts from the investment return it received from Managed
Investment Scheme 1 to the custodian. The custodian provides the
collated information to ABC Super.
The steps involved are set out in Diagram 3.1.
Diagram 3.1
ABC Super
Custodian
Investment of
assets that require
notification
Providing the
required
information
ABC investment
manager
Managed Investment
Scheme 1
32
Collection and disclosure of information
3.29
Arrangement and financial product are defined as having the
same meaning as under chapter 7 of the Corporations Act as these terms
are used with the same underlying concepts as the Corporations Act.
[Schedule 3, items 29 and 31, section 31]
3.30
Custodian, pooled superannuation trust, related body corporate,
registrable superannuation entity and RSE licensee are defined as having
the same meaning as in the SIS Act as these terms are used with the same
underlying concepts and are superannuation specific. [Schedule 3, items 30,
and 32 - 35, section 31]
3.31
Information collected under a reporting standard that relates to
entities other than the RSE licensee will also be treated as protected
documents and protected information for the purposes of the APRA Act.
[Schedule 3, items 1 and 2, subsection 56(1)]
3.32
The objects of the FSCOD Act are amended to explicitly
acknowledge APRA’s role in collecting data for the purposes of
publishing information given to it by financial sector entities. [Schedule 3,
item 24, paragraph 3(1)(aa)]
APRA’s publication of superannuation data
3.33
APRA will be required to publish quarterly information in
relation to MySuper fees, costs and net returns at the product level. This
will provide a central source of information on MySuper products and will
help inform consumers and drive competition. [Schedule 3, item 41, paragraph
348A(1)(a), (b) and (c)]
3.34
APRA will also be required to publish any other information to
be prescribed by the regulations. This allows flexibility to specify
additional information which APRA will be required to publish. [Schedule
3, item 41, paragraph 348A(1)(d)]
3.35
APRA must not publish information that would identify the
beneficiary of a regulated superannuation fund. [Schedule 3, item 41,
subsection 348A(2)]
3.36
APRA will also not be able to publish information to the extent
it would result in the acquisition of property without just terms, which is
not permitted by section 51(xxxi) of the Constitution. [Schedule 3, item 41,
subsection 348A(3)]
33
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
Product dashboard and other disclosure
Product Dashboard
3.37
RSE licensees will be required to publish a product dashboard
for each of the fund’s MySuper and choice products. This should be made
available a part of their website that is accessible to the public at all times.
The product dashboard will include key information, useful for both new
and existing members. Standardised disclosure of key information will
allow members to easily compare products and thus make informed
choices.
3.38
Trustees of regulated superannuation funds must ensure that
each product dashboard is available publicly on their website, kept
up-to-date and contains the right information. [Schedule 3, item 6, paragraphs
1017BA(1)(a), (b) and (c)]
3.39
A product dashboard for a choice or a MySuper product will be
required to include the investment return target, the number of times the
target has been met in the last ten years (or for the period the product has
been offered if it has been offered for less than ten years), the level of
investment risk, a statement about the liquidity, and the average amount of
fees, excluding activity fees, charged on a per member basis. [Schedule 3,
item 6, subsections 1017BA(2) and(3)]
3.40
It is important that the way information is displayed on a product
dashboard enable members to be make comparisons between products.
Therefore, regulations may be prescribed on how the information in the
product dashboard must be displayed. [Schedule 3, item 6, paragraph
1017BA(1)(d)]
3.41
For the purposes of the product dashboard, the terms choice
product, fee, member, MySuper product, and regulated superannuation
fund are defined as having the same meaning as in the SIS Act as these
terms are used with the same underlying concepts and are superannuation
specific. [Schedule 3, item 6, subsection 1017BA(4)]
3.42
ASIC will be able to issue a stop order if information in the
product dashboard is defective. This power could be used where the
product dashboard contains misleading or deceptive information, there is
an omission, or it is not up-to-date. In this situation ASIC may order
specific conduct in respect of the product which the defective product
dashboard relates to in order to remedy the situation. ASIC already has
these stop order powers for other disclosure documents. [Schedule 3, item 7,
paragraph 1020E(1)(c), item 8, paragraph1020E(2)(c), item 9 paragraph 1020E(7)(a),
item 10, paragraphs 1020E(11)(c)]
34
Collection and disclosure of information
3.43
The product dashboard is a key reform to the superannuation
disclosure regime, and to ensure that the product dashboard is published
and available to members it will be an offence for a trustee, who is
required to publish a product dashboard, not to do so. [Schedule 3, item 12,
subsection 1021NA(1)]
3.44
It will also be an offence for a trustee to publish a product
dashboard containing defective information. This will apply if the trustee
knows that the information is not up-to-date, contains misleading or
deceptive information or there is an omission. This will ensure that all
elements of the product dashboard are relevant, accurate and available to
members. [Schedule 3, item 12, subsections 1021NA(2) and(3)]
3.45
Strict liability will also apply to failure to keep the product
dashboard up-to-date and where there is an omission from the product
dashboard. This will apply whether or not the trustee knew or did not
know the information was not up-to-date or there was an omission. It is
important for trustees to provide the product dashboard and keep it
up-to-date for the product dashboard to have any effect. Strict liability is
imposed with regard to the product dashboard disclosure requirements to
reflect the benefit of these disclosures for consumers and the importance
that trustees maintain a level of vigilance to ensure that the information is
provided in an accurate and timely manner. The strict liability offence
mirrors similar offences that apply to other important disclosures, such as
a product disclosure statement. [Schedule 3, item 12, subsection 1021NA(4)]
3.46
The trustee will have a defence where it has taken reasonable
steps to ensure that the dashboard was up to date, not misleading or
deceptive, and contained no omissions. This is consistent with defences
available in relation to other disclosure offences. [Schedule 3, item 12,
subsection 1021NA(5)]
3.47
Civil action against the trustee will be able to be taken by a
person who suffers loss or damage as a result of the trustee’s product
dashboard not containing information as required by the 1017BA, not
being up-to-date, containing misleading or deceptive information, or if
there is an omission. The trustee is not liable for civil action if the trustee
took reasonable steps to ensure that the information is not misleading or
deceptive or there would not be an omission from the information. This is
consistent with the other civil liability disclosure offences in 1022B.
[Schedule 3, item 13, paragraph 1022B(1)(f) and Schedule 3, item 14, paragraph 1022B
(2)(f) and Schedule 3, item 16, paragraph 1022B(3)(e) and Schedule 3, item 17,
subsection 1022B(7B)]
3.48
The MySuper Core Provisions Bill defines a choice product as a
product which is not a MySuper product. This definition is being
amended to define a choice product as a class of beneficial interest in a
regulated superannuation fund unless all the members of the fund who
35
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
hold the class of beneficial interest in the fund are defined benefit
members or the class of beneficial interest is a MySuper product. This
ensures that the product dashboard will not apply to defined benefit
arrangements. [Schedule 3, item 38, subsection 10(1)]
Remuneration and other information
3.49
An RSE licensee will have a new requirement to disclose the
details of remuneration of each director or other executive office if the
RSE licensee is a body corporate or each trustee if the RSE licensee is a
group of individual trustees. The details of this disclosure will be
prescribed by regulations. It is intended that these requirements will be
modelled on the existing requirements for listed companies at section
300A of the Corporations Act. [Schedule 3, item 40, paragraph 29QB(1)(a)]
3.50
Currently a large amount of information is only available to
members through request or on the member only section of the website.
Therefore, regulations will be able to prescribe certain superannuation
specific documents that will have to be published on the public section of
the fund’s website. [Schedule 3, item 40, paragraph 29QB(1)(b)]
3.51
It is intended that regulations will specify the following
documents to be published:
• The net returns of all MySuper and choice products for the
past ten years;
• The fund's trust deed(s) and any amending or supplemental
deeds;
• The fund's most recent audited financial report;
• The fund's most recent actuarial report (if applicable);
• The fund's product disclosure statements;
• The fund's annual report;
• The fund's financial services guide (if applicable);
• Each significant event or material change notification made
by the fund to any members;
• The names of all outsourced service providers;
• The name and a brief biography of each director or trustee, or
person involved in the trusteeship of the fund;
36
Collection and disclosure of information
• Details of board meeting attendance by directors; and
• The fund's proxy voting policies and procedures as well as
voting behaviour.
3.52
ASIC will be the responsible regulator for this new provision in
the SIS Act. A failure to publish up-to-date information on the fund’s
website at all times will be a strict liability offence carrying a penalty of
50 penalty units. A strict liability offence is necessary to ensure effective
enforcement of this provisions by ASIC. Superannuation is a compulsory
system of retirement savings, therefore, it is appropriate that RSE
licensees do everything that they can reasonably do to ensure that there is
complete transparency on the financial products members have an
equitable interest in. However, recognising that this obligation will
extend to a wide range of information, a lower penalty will apply
compared to other disclosure-related offences. [Schedule 3, item 40,
subsections29QB(2) and (3) and Schedule 3, item 37, subparagraph 6(1)(c)(ia)]
Obligation to give consistent information
3.53
To improve comparability of superannuation products, there will
be a requirement for consistency in how information is calculated. An
RSE licensee will be required to give any person, other than an agency of
the Commonwealth, information that is calculated in the same way as
required under a reporting standard made by APRA. [Schedule 3, item 40,
subsection 29QC(1)]
3.54
ASIC will be the responsible regulator for this new provision in
the SIS Act. Failure to provide information calculated on the same basis
will be an offence of strict liability carrying a penalty of 50 penalty units.
Inconsistent information provided through multiple means can cause
significant damage to members of superannuation funds and inhibit
informed decision-making. Superannuation is a compulsory system of
retirement savings, therefore, it is appropriate that RSE licensees do
everything that they can reasonably do to ensure that there is complete
transparency on the financial products members have an equitable interest
in. However, recognising that this obligation will extend to a wide range
of information provided to many individuals, a lower penalty will apply
compared to other disclosure-related offences. [Schedule 3, item 40,
subsections 29QC(2) and (3) and Schedule 3, item 37, subparagraph 6(1)(c)(ia)]]
Portfolio holdings
Trustees must publish details of portfolio holdings
3.55
RSE licensees will have an obligation to publish details of their
portfolio holdings as at each reporting day, which will be 30 June and
37
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
31 December each year, on the fund’s website within 60 days. It is
considered that a 60 day period will ensure commercially sensitive
information will not have to be released, however, the Government will
give further consideration to whether this is an appropriate period.
[Schedule 3, item 6, section 1017BB]
3.56
The details published must cover information sufficient to
identify each financial product or other property, and the value of the
RSE’s investment in each financial product or other property. The
regulations may prescribe the format in which the information must be
published. It is intended that the information must be organised by each
MySuper option and choice option to which the financial products and
other property relate. [Schedule 3, item 6, subsections 1017BB(1) and (3)]
3.57
For example, the fund website must list each share held by the
RSE, or held by another party for the ultimate benefit of the RSE, the
number of shares held and the price of each share at the end of the
reporting day.
3.58
The portfolio holdings information must remain on the fund
website until updated with information from the next reporting day. The
fund’s website will, therefore, always contain details of the RSE’s
portfolio holdings that relate to the most recent reporting day. [Schedule 3,
item 6, subsection 1017BB(2)]
3.59
The publishing requirement extends to financial products in
which ‘assets derived from assets’ of the RSE are invested. The concept
of ‘assets derived from assets’ is intended to capture situations where
assets are invested through intermediaries; for example, where assets are
invested through fund of funds structures such as multiple levels of pooled
investments, including managed investment schemes.
3.60
In other words, an RSE licensee may invest and in return acquire
an interest in an entity. That entity may then in turn use the assets
contributed by the RSE, or perhaps part of those assets, pooled with the
assets contributed by other investors, to invest and in return acquire an
interest in a third party. At the point that the pooled assets are invested by
the entity in the third party they are ‘assets derived from assets’ of the
RSE. [Schedule 3, item 6, paragraphs 1017BB(1)(a) and (b)]
Other parties must provide relevant information to the RSE licensee
3.61
To enable an RSE licensee to obtain the required information for
disclosure of their portfolio holdings, obligations will be imposed on
parties to contracts and arrangements that invest assets, or assets derived
from the assets, of an RSE to notify the other party who must provide
relevant information to the RSE licensee.
38
Collection and disclosure of information
3.62
Specifically, where a person (the first party) enters into a
contract or other arrangement with another person (the second party), who
invests assets, or assets derived from assets of an RSE, then the first party
must notify the second party to that contract or arrangement that they will
be required to provide relevant information on the financial products to
the RSE licensee. [Schedule 3, item 6, subsections 1017BC(1) and (2)]
3.63
The first party must also provide details of the RSE licensee to
the second party. For example, the name of the RSE licensee and a
mailing address to which to send the required information. [Schedule 3, item
6, paragraph 1017BC(2)(b)]
3.64
where:
This requirement will only apply to contracts or arrangements
• the first party acquires a financial product from the second
party;
• the second party provides a custodial arrangement to which
the first party is a client; or
• the second party is acting on behalf of the first party in
relation to a particular asset and the second party reasonably
ought to know that the asset will ultimately be subject to a
contract or arrangement for the acquisition of a financial
property or that is a custodial arrangement. [Schedule 3, item 6,
subsection 1017BC(1)]
3.65
If notified, the second party must provide to the RSE licensee all
of the information about the financial product that they acquire with the
assets of the RSE, or assets derived from the assets of the RSE, so that the
RSE licensee is able to comply with its obligation to publish portfolio
holdings. [Schedule 3, item 6, subsection 1017BC(2)]
3.66
These requirements may apply to several contracts or
arrangements that invest the assets, or assets derived from the assets, of an
RSE licensee through several parties as set out in example 3.2.
Example 3.2
An RSE licensee (ABC Super) invests assets of their fund through a
custodian. The custodian must invest as directed by ABC Super. The
custodian, at the direction of ABC Super, invests assets in a financial
product provided by Managed Investment scheme 1.
Managed Investment Scheme 1 makes investments into other managed
investment schemes. It is a fund of funds.
39
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
Managed Investment Scheme 1 invests in a financial product offered
by Managed Investment Scheme 2 by purchasing units in that scheme.
In this example, ABC Super must notify the custodian the assets are
those of ABC Super.
The custodian must then notify Managed Investment Scheme 1 that the
assets invested are those of ABC Super as it is an investment in a
financial product.
Managed Investment Scheme 1 must subsequently notify Managed
Investment Scheme 2 that it is investing assets derived from the assets
of ABC Super as it is investing in another financial product.
Managed Investment Scheme 2 will have an obligation to provide
information directly to ABC Super that is sufficient to identify its
financial product and the value of ABC Super’s investment.
The steps involved are set out in Diagram 3.2.
Diagram 3.2
ABC Super
Custodian
Providing the
required
information
Investment of
assets that require
notification
Managed investment
scheme 1
Managed Investment
Scheme 2
3.67
These obligations will only apply to contracts or arrangements
entered into from the day of Royal Assent. [Schedule 3, item 20, section 1541]
3.68
Currently, this Bill only covers a requirement for a second party
to provide information about financial products in which the assets, or
assets derived from the assets of an RSE are invested. It is intended that
an additional obligation will be included in the Bill for a first party, which
invests assets or assets derived from the assets of an RSE, in other
property sold by a second party to provide information to the RSE
licensee.
40
Collection and disclosure of information
3.69
This would be different to the current provisions as it would
place a requirement on the first party itself to provide information for
acquisition of other property whereas the requirement currently in the Bill
imposes the requirement to provide information on the second party itself
and only in respect of financial products. Therefore, this would permit an
RSE licensee to comply with their requirements to publish portfolio
holdings in respect of other property.
3.70
Parties entering into contracts or arrangements which cover
assets of an RSE, or assets derived from assets, of an RSE, who have not
been notified that the contract or arrangement covers such assets, or the
details of the RSE licensee, will not be required to provide the necessary
information. [Schedule 3, item 6, subsections 1017BC(2) and (3)]
Offences relating to publication of information
3.71
RSE licensees who fail to publish the details of their portfolio
holdings on the fund’s website commit an offence with a penalty of 100
penalty units or imprisonment for 2 years, or both. It is a defence to show
that the RSE licensee would have published the information, but for the
fact that the trustee was not provided with the required information. That
is, it is a defence to show that the details of an RSE’s portfolio holdings
were not published because the information was not provided. [Schedule 3,
item 12, subsections 1021NB(1) and (5)]
3.72
There will be a separate defence for an RSE licensee who omits
information where the information would have been published except for
the fact that the information was not provided because the requirement for
another party to provide the relevant information did not apply because
the contract or arrangements was entered into prior to the day of Royal
Assent. [Schedule 3, item 20, subsection 1541(3)]
3.73
RSE licensees who knowingly publish misleading or deceptive
information, or information containing omissions, commit an offence.
This offence carries a penalty of 200 penalty units or imprisonment for 5
years, or both. [Schedule 3, item 12, subsection 1021NB(2)]
3.74
A corresponding strict liability offence exists for whether the
RSE licensee knew or did not know whether the information was
misleading or deceptive or contained an omission. This offence carries a
penalty of 100 penalty units or imprisonment for 2 years, or both.
[Schedule 3, item 12, subsection 1021NB(3)]
3.75
A strict liability offence is necessary to ensure effective
enforcement of this provisions by ASIC. Superannuation is a compulsory
system of retirement savings, therefore, it is appropriate that RSE
licensees do everything that they can reasonably do to ensure that there is
41
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
complete transparency on the financial products members have an
equitable interest in.
3.76
However, where portfolio holdings information is published that
contains an omission, it is a defence to show that a trustee took reasonable
steps to ensure there would not be an omission, or that necessary
information to meet the requirement was not provided to the RSE licensee
by other parties or that the information was omitted because it would have
been misleading and deceptive and a trustee took reasonable steps to
obtain information that would not have been misleading or deceptive.
[Schedule 3, item 12, subsection 1021NB(6)]
3.77
An additional defence exists solely for the strict liability offence
in relation to publishing misleading or deceptive information, that is the
RSE licensee took reasonable steps to ensure that the information
published would not be misleading or deceptive. [Schedule 3, item 12,
subsection 1021NB(7)]
Offences relating to requirements to provide relevant information
3.78
Parties who do not notify another party that a contract or
arrangement invests assets of an RSE, or assets derived from the assets of
an RSE, or who fail to notify other parties of the details of the RSE
licensee commit an offence. This offence carries a penalty of 100 penalty
units or imprisonment for 2 years, or both. [Schedule 3, item 12, subsection
1021NC(1)]
3.79
A party to a contract or arrangement who invests assets of an
RSE, or assets derived from assets of an RSE, and who is notified by the
investing party but who fails to provide the relevant information to the
RSE licensee commits an offence. This offence also carries a penalty of
100 penalty units or imprisonment for 2 years, or both. [Schedule 3, item 12,
subsection 1021NC(2)]
3.80
Parties commit an offence when they knowingly omit, or
knowingly provide misleading or deceptive, information when either:
notifying another party that a contract or arrangement invests assets, or
assets derived from assets, of an RSE, or notifying another party of the
details of the trustee, or who have been so notified and do not provide the
relevant information to the RSE licensee. This offence carries a penalty
of 200 penalty units or imprisonment for 5 years, or both. [Schedule 3, item
12, subsection 1021NC(3)]
3.81
A corresponding strict liability offence exists for whether or not
the person knew the information provided was misleading or deceptive or
omitted information. This offence carries a penalty of 100 penalty units
or imprisonment for 2 years, or both. [Schedule 3, item 12, subsections
1021NC(4) and (5)]
42
Collection and disclosure of information
3.82
A strict liability offence is necessary to ensure effective
enforcement of this provisions by ASIC. Superannuation is a compulsory
system of retirement savings, therefore, it is appropriate that RSE
licensees do everything that they can reasonably do to ensure that there is
complete transparency on the financial products members have an
equitable interest in.
3.83
Where a person has committed an offence by omitting to
provide relevant information to the RSE licensee, it is a defence to show
that the person took reasonable steps to ensure there would not be an
omission in providing the information. In the alternative, it is a defence to
show that the information was omitted because it would have been
misleading or deceptive, and that the person took reasonable steps to
obtain information that would not have been misleading or deceptive.
[Schedule 3, item 12, subsection 1021NC(6)]
3.84
Where a person has committed an offence because that person
provided misleading or deceptive information to the RSE licensee under
these provisions, it is a defence to the strict liability offence only that the
person took reasonable steps to ensure the information provided would not
be misleading or deceptive. [Schedule 3, item 12, subsection 1021NC(7)]
Application and transitional provisions
3.85
A consultation undertaken in respect of the existing section 57
will be valid for the purposes of APRA making a determination for the
amended section 57. Representations made by interested parties also are
valid for the amended section 57. [Schedule 3, item 42]
3.86
The requirement for RSE licensees to provide APRA with
information through an implied term in contracts will apply to both new
and existing contracts. The exception to this where the contract was
entered into before the commencement of the Bill and the disclosure of
this information would result in an acquisition of property on unjust terms.
If there is an acquisition of property on unjust terms then the RSE is not
required to comply with the reporting standard to the extent that it relates
to this information. [Schedule 3, item 43]
3.87
APRA will be able to publish quarterly data on MySuper
products beginning on 1 July 2013. [Schedule 3, item 44]
3.88
The obligation to publish a MySuper product dashboard will
apply from 1 July 2013. The obligation to publish a choice product
dashboard will apply from 1 July 2014. The longer lead in time for choice
products is due to the more complex nature of some choice products.
[Schedule 3, item 20, section 1539]
43
Chapter 4
Modern awards and enterprise
agreements
Outline of chapter
4.1
This chapter explains amendments to the FW Act relating to the
nomination of default superannuation funds in modern awards and
enterprise agreements. The amendments generally provide that only funds
offering a MySuper product can be included in modern awards and
enterprise agreements.
Context of amendments
4.2
From 1 October 2013, employers will generally only be able to
avoid penalties under the choice of fund provisions in the SG Act by
making superannuation contributions, on behalf of those employees who
have not chosen their fund, to a superannuation fund that is authorised to
offer a MySuper product.
4.3
Most modern awards specify a particular fund or funds to which
employers must make compulsory superannuation contributions for the
benefit of employees covered by the award who have not chosen a fund
(‘default funds’). A failure to make contributions for such employees to a
default fund listed in the award constitutes a contravention of the award
and exposes the employer to penalties.
4.4
These amendments introduce a new requirement that, subject to
limited exceptions, default funds listed in modern awards must offer a
MySuper product. This requirement is intended to ensure that employers
are not obligated to make compulsory superannuation contributions twice,
that are to both to a fund that offers a MySuper product, in order to satisfy
their superannuation guarantee obligation, and to a default fund listed in a
modern award that does not offer a MySuper product.
4.5
Enterprise agreements can also nominate a fund to which an
employer must make compulsory superannuation contributions for the
benefit of employees who are covered by the agreement. In the case of
enterprise agreements, generally the nominated fund is effectively the
‘chosen’ fund for all employees covered by the agreement. However, an
enterprise agreement may also nominate a fund as the default fund the
45
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
employer will use that allows employees with the ability to still make a
choice of fund.
4.6
The SG Act deems the nomination of a superannuation fund in
an enterprise agreement to be the choice of each employee under that
agreement, and exempts the employer from providing those employees
with a standard choice form. An employee who did not support that fund
being included in the enterprise agreement, or who joined the employer
after the enterprise agreement was made, will have their superannuation
contributions sent to the nominated fund.
4.7
In practice, many of the employees covered by an enterprise
agreement, whether they voted for the agreement or not, are unlikely to be
aware of their fund or to have actively considered their needs. It is
intended that, in general, these employees should have their
superannuation contributions made to a fund that offers a MySuper
product.
Summary of new law
4.8
Modern awards will generally only be permitted to nominate a
default fund, which is a fund to which employers are to make compulsory
contributions for employees that do not have a chosen fund, if the fund
offers a MySuper product.
4.9
An exception to this rule is that an ‘exempt public sector
superannuation scheme’ (within the meaning given by the SIS Act) will
also be permitted to be included as a default fund in a modern award.
These schemes will not be able to offer MySuper products.
4.10
A term of a modern award will be invalid to the extent that it
does not comply with these criteria.
4.11
Despite a term of a modern award being invalid to the extent
that it nominates a non-compliant default fund, such terms may remain in
the text of a modern award and cause confusion for employers and
employees. For this reason, FWA will be required to conduct a ‘one-off’
process to ensure, as far as possible, that on 31 October 2013 modern
awards do not purport to nominate any default funds that do not comply
with the new requirements.
4.12
The FW Act will also be amended to provide that an enterprise
agreement will only be able to nominate a fund (or scheme) that is either:
• a fund that offers a MySuper product;
46
Modern awards and enterprise agreements
• a fund that only receives contributions in respect of
employees who have not chosen a fund if such employees are
defined benefit members; or
• an exempt public sector superannuation scheme.
4.13
Any term of an enterprise agreement that does not comply with
these criteria will an unlawful term and will therefore be invalid.
4.14
Under the SG Act, contributions made to superannuation funds
in accordance with the terms of certain industrial instruments are deemed
to comply with the choice of fund requirements. Contributions made
under two further types of transitional instrument will be deemed
compliant with the choice of fund requirements. The effect of these
amendments is that funds listed in such instruments will not be required to
offer a MySuper product.
Comparison of key features of new law and current law
New law
From 1 October 2013, a term of a
modern award cannot nominate a
default fund, unless the fund:
a) offers a MySuper
product;
b) is an ‘exempt
public sector
superannuation
scheme’.
A term of a modern award is
invalid to the extent that it does not
comply with these criteria.
Enterprise agreements approved by
FWA on or after 1 October 2013
are not permitted to nominate a
default fund for employees covered
by the agreement unless the fund:
Current law
The FW Act currently provides that
modern awards may include terms
about superannuation (s 139(1)(i)
FW Act).
Modern awards generally provide
that where an employee has not
chosen a superannuation fund,
employers are required to pay
compulsory contributions into a
default fund listed in the award (or
a default fund or successor fund
which the employer was making
contributions to before 12
September 2008, provided the fund
is an eligible choice fund).
Enterprise agreements may include
terms dealing with superannuation
but are not required to do so (s 172
FW Act).
If an enterprise agreement
47
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
a) offers a MySuper product;
b) only receives contributions
in respect of employees
who have not chosen a
fund if such employees are
‘defined benefit members’;
or
nominates a superannuation fund,
that fund is deemed to comply with
the choice of fund requirements in
the SG Act, provided the fund is an
‘eligible choice fund’.
c) is an ‘exempt public sector
superannuation scheme’.
A term of an enterprise agreement
will be an unlawful term and
therefore invalid to the extent that
it does not comply with these
criteria.
FWA must conduct a ‘one-off’
process to ensure that by
31 October 2013, modern awards
do not purport to include any
non-compliant default funds that
would not have been compliant
immediately before the new
requirements were introduced on
30 September 2013.
While any such terms would have
no effect, this process will ensure
that they do not continue to be
included in the text of a modern
award.
Contributions under two further
award-based transitional
instruments are deemed to be
compliant with the choice of fund
requirements under the SG Act.
Default funds listed in these
instruments will therefore not be
48
Under the FW Act, while terms that
are not permitted to be included in
modern awards have no effect (s
137), there are no specific
provisions requiring FWA to ‘clean
up’ the face of modern awards by
removing any invalid terms.
However, there are a range of
existing mechanisms allowing
modern awards to be reviewed or
varied which could be used for this
purpose (see sections 156-158 and
160 of the FW Act). It is intended
that these provisions could be relied
upon to remove any references in
modern awards to a default fund
that ceases to be compliant with the
new requirements on or after 1
October 2013.
The SG Act currently deems
contributions made under certain
award and agreement-based
transitional instruments to be
compliant with the choice of fund
requirements. These instruments
include, for example, enterprise
Modern awards and enterprise agreements
required to offer a ‘MySuper
product’ or otherwise comply with
the new requirements.
The relevant instruments are
‘awards’ (often referred to as ‘prereform federal awards’) and ‘State
reference transitional awards or
common rules’. These industrial
were made under the former
federal workplace relations system
before being preserved for a
limited duration under Schedule 3
to the TPCA Act.
While the majority of these
instruments have been terminated,
it is expected that there will be
some residual instruments that
continue to operate on 1 October
2013, when the new requirements
commence.
agreements, pre-reform certified
agreements, AWAs, workplace
determinations and Division 2B
State instruments. Contributions
made in accordance with ‘notional
agreements preserving State
awards’ are also deemed compliant
with the choice of fund
requirements if the contributions
were made in respect of salary or
wages paid before 1 July 2006.
Because contributions made under
these instruments are deemed
compliant with the choice of fund
requirements, such contributions
will not be required to be made to a
fund that offers a MySuper product.
Detailed explanation of new law
4.15
Definitions for the terms ‘defined benefit member’, ‘exempt
public sector superannuation scheme’ and ‘MySuper product’ will be
inserted into the FW Act as they are relevant to interpreting these
amendments. The terms are to take the meaning ascribed to them by
relevant superannuation legislation. [Schedule 4, items 1, 2, 3 and 4, section 12].
4.16
Modern awards must not include a term that requires or permits
superannuation contributions to be made to a default fund, which is a fund
to which contributions are to be made for the benefit of employees who
have not chosen a superannuation fund, unless the fund is:
• a fund that offers a MySuper product; or
• a fund that is an exempt public sector superannuation
scheme.
[Schedule 4, item 5, subsection 155A(1)].
4.17
Allowing exempt public sector superannuation schemes to be
named in a modern award is required because such funds or schemes are
49
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
not APRA-regulated and therefore, cannot be authorised to offer a
MySuper product. [Schedule 4, item 5, paragraph 155A(1)(b)].
4.18
The requirements will apply to both existing modern awards and
any new modern awards from 1 October 2013. [Schedule 4, item 7, schedule 1,
section 10].
4.19
This will exclude from awards any fund that does not obtain
authorisation to offer a MySuper product but that could otherwise be used
by an employer for the contributions of employees that are defined benefit
members of the fund. This assumes that all funds currently listed in an
Award will satisfy one of the other two criteria, either by being authorised
to offer a MySuper product or because it is an exempt public sector
superannuation scheme. However, the Government seeks submissions
from any funds that might be adversely affected by this approach.
4.20
Section 137 of the FW Act means that a term of a modern award
will have no effect to the extent that it does not comply with these criteria.
For example, if the authorisation of a fund to offer a MySuper product is
cancelled and is not an exempt public sector superannuation scheme, a
term in a modern award will be invalid to the extent that it nominates that
fund as a default fund from the time of the cancellation. This will ensure
that employers are not exposed to double-jeopardy in circumstances
where a default fund listed in a modern award ceases to comply with these
criteria. Employers should not be obligated to make contributions to a
fund under the terms of a modern award when they would be subject to
penalties under the SG Act for doing so. [Schedule 4, item 5, subsection
155A(1)].
4.21
Similarly, a term of an enterprise agreement that requires or
permits superannuation contributions to be made to a default fund (i.e. a
fund to which contributions are to be made for the benefit of employees
who have not chosen a superannuation fund), is an ‘unlawful term’, unless
the fund is:
• a fund that offers a MySuper product;
• a fund or scheme to which all employees who are covered by
the agreement, who have no chosen fund, and in respect of
whom contributions are made to the fund are defined benefit
members’
• a fund that is an exempt public sector superannuation
scheme.
[Schedule 4, item 6, paragraph 194(h)].
50
Modern awards and enterprise agreements
4.22
The requirements will apply to enterprise agreements that are
approved by FWA on or after 1 October 2013. [Schedule 4, item 7, section 11].
4.23
Section 253 of the FW Act means that a term of an enterprise
agreement has no effect to the extent that it does not comply with these
criteria.
4.24
Also, FWA may not approve an enterprise agreement, under
subsection 186(4) of the FW Act, unless it is satisfied that the agreement
does not include a term that requires or permits contributions, foe an
employee covered by the agreement to a fund that does not satisfy the
criteria.
4.25
The definition of ‘amended Act’ means the FW Act as amended
by this Bill. [Schedule 4, item 7, section 8].
4.26
The requirements in relation to default funds nominated in
modern awards apply to both existing and any new modern awards from
1 October 2013. [Schedule 4, item 7, section 9].
4.27
FWA must conduct a ‘one-off’ process to ensure that by
31 October 2013, modern awards do not purport to include any noncompliant default funds that would not have been compliant with the new
requirements immediately before the requirements were introduced on
30 September 2013. [Schedule 4, item 7, section 10].
4.28
While any such terms would have no effect, this process will
ensure that they do not continue to be included on the face of a modern
award, and is intended to avoid confusion for employers and employees.
4.29
More specifically, FWA is required to ensure that by
31 October 2013, the text of each modern award does not include any
term to the extent that it contravenes the criteria where:
• the award was made before 1 October 2013;
• the award was in operation on 1 October 2013; and
• immediately before 1 October 2013, the award included a
term that nominates a fund that does not meet the criteria.
[Schedule 4, item 7, section 10].
4.30
For example, FWA would be required to remove a reference to a
default fund from a modern award if on 30 September 2013 a modern
award includes a term permitting superannuation contributions to be made
in respect of employees with no chosen fund to four different funds. One
51
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
of the funds does not, at this time, meet the criteria because the fund is not
authorised to offer a MySuper product and is not an exempt public sector
superannuation scheme. FWA has until 31 October 2013 to remove the
term of the modern award. [Schedule 4, item 7, section 10].
4.31
If a default fund listed in a modern award ceases to meet the
criteria on or after 1 October 2013, the ‘one-off’ process will not apply.
In these circumstances, it is intended that existing mechanisms in the FW
Act will be relied upon to ensure the purported reference to the fund is
removed from the text of the modern award. These mechanisms include
the following:

an ongoing system of four year reviews of modern awards, the
first of which will occur in 2014;

FWA may vary modern awards, either on application or on its
own motion, if it considers the variation is necessary to
achieve the modern awards objective. Applications to vary
modern awards under section 157 of the FW Act can be made
by an employee or employer covered by the modern award, or
by an organisation entitlement to represent their industrial
interests;

FWA may also vary modern awards, either on application by a
party to the award, or on its own initiative, to remove an
ambiguity or uncertainty, or to correct an error.
4.32
The requirements will only apply to enterprise agreements
approved by FWA on or after 1 October 2013. Therefore, a term that
nominates a fund in an enterprise agreement approved by FWA before
1 October 2013 that does not meet the criteria still remains a lawful term.
[Schedule 4, item 7, section 11].
4.33
To ensure that an RSE licensee may accept the contributions for
employees that do not have a chosen fund under these agreements and
have not specified that their contributions to a specified choice product,
section 29WA of the MySuper Core Provisions Bill will not apply to
contributions made in accordance with an enterprise agreement approved
before 1 October 2013 and the fund specified does not meet one of the
criteria. [Schedule 4, item 10].
4.34
Contributions made to default funds nominated in two types of
award-based transitional instruments will be deemed compliant with the
choice of fund requirement, therefore, will also not be required to offer a
MySuper product. The effect of this amendment is that a contribution to a
fund by an employer for the benefit of an employee is deemed to have
been made in compliance with the choice of fund requirements if the
52
Modern awards and enterprise agreements
contribution, or a part of the contribution, is made under or in accordance
with such instruments. The contribution will therefore not have to be
made to a MySuper product. [Schedule 4, item 8, subsection 12A(1) and Schedule
4, item 9, subsection 32C(6)].
4.35
The agreements covered are ‘awards’ (often referred to as ‘prereform federal awards’) and State reference transitional awards or
common rules. These instruments were made under the former federal
workplace relations system and have been preserved for a limited duration
under Schedule 3 to the TPCA Act. [Schedule 4, item 8, subsection 12A(1) and
Schedule 4, item 9, subsection 32C(6)].
4.36
While the majority of these instruments have been terminated, it
is expected that there will be some residual instruments that continue to
operate on 1 October 2013. FWA is required to terminate or modernise
such instruments either as soon as practicable or by 1 January 2014 in the
case of certain subsets of the instruments, such as ‘enterprise instruments’
and State reference transitional awards or common rules that apply
exclusively to State public sector employees.
4.37
To give effect to this, a reference to the expression ‘State
reference transitional award or common rule’ is included in the SG Act.
This amendment ensures that the expression has the same meaning as in
the TPCA Act. [Schedule 4, item 8, subsection 12A(1))
53
Chapter 5
Defined benefit members
Outline of chapter
5.1
This chapter explains amendments that will allow for defined
benefit arrangements to be used by an employer as a default fund
regardless of whether the fund offers a MySuper product and which
exclude defined benefit members from the 500 employees for which an
employer must contribute to the fund to qualify for a separate MySuper
product.
Context of amendments
5.2
Defined benefit funds and schemes provide members with a
specified benefit on retirement that is calculated by a formula or other
process.
5.3
Defined benefit members are entitled, in whole or in part, to a
specified benefit on retirement that is calculated by reference to their
salary or a specified amount regardless of investment earnings or costs
incurred by the fund. If the accumulated amount in the fund is insufficient
to meet the specified benefit, in most cases, this shortfall must be met by
the contributing employer. The member’s retirement benefit will not
usually be exposed to investment risk.
5.4
A defined contribution fund will provide a member with the
accumulated amount, of contributions and investment earnings, when
withdrawn by the member. The member bears the investment risk on
their retirement benefit.
5.5
The MySuper regime will lift standards in relation to defined
contribution products that are provided as the default option for
employees that do not have a chosen fund. In particular, it will ensure that
there will be certain rules for charging of fees, additional duties for
trustees and that an appropriate investment strategy is adopted in relation
to members who do not make active choices.
5.6
In contrast, defined benefit members will be entitled to a benefit
that is not altered by the charging of fees or the investment strategy
adopted. Therefore, the MySuper regime is not designed to apply to
defined benefit arrangements.
55
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
Summary of new law
5.7
Defined benefit funds and schemes will be able to continue to be
used by employers for the contributions of employees that do not have a
chosen fund.
5.8
An exemption will apply to the requirement that employers must
make contributions to a fund that offers a MySuper product for an
employee that does not have a chosen fund for any employee that is a
defined benefit member of the fund to which the employer is contributing.
5.9
An exemption will also apply in respect of defined benefit
members to the trustee’s obligation to pay contributions into a MySuper
product for members that have not given the trustee an election in writing
that their contributions are to be paid into a specified choice product.
5.10
This will apply to any contribution on behalf of a defined benefit
member whether it supports the defined benefits of the member or is held
on a defined contribution basis.
5.11
Defined benefit members will not be able to be counted in
working out whether an employer contributes to the fund for 500 or more
employees and hence qualifies the trustee of that fund to apply for
authorisation of a MySuper product that is open to the employees of that
employer.
Comparison of key features of new law and current law
56
New law
Current law
Employers may make contributions
to a fund for employees that do not
have a chosen fund but are a
defined benefit member of that
fund regardless of whether it offers
a MySuper product.
The MySuper Core Provisions Bill
will require employers to make
contributions for employees that do
not have a chosen fund to a fund
that offers a MySuper product.
Defined benefit members will not
be able to be counted in working
out whether an employer is a large
employer for the purposes of
authorisation of a MySuper product
under section 29TB of the
MySuper Core Provisions Bill.
The MySuper Core Provisions Bill
allows any employee that the
employer contributes to the fund for
to be counted in working out
whether an employer is a large
employer for the purposes of
authorisation of a MySuper product
Defined benefit members
under section 29TB.
Detailed explanation of new law
5.12
Employers will be able to make contributions for employees that
do not have a chosen fund to a fund that provides defined benefits to that
employee if that fund does not offer a MySuper product but meets the
other requirements in subsection 32C(2) of the SG Act. For example, that
the fund is an eligible choice fund for the employee. In effect, this
maintains the current operation of the SG Act in respect of contributions
for employees that are defined benefit members of a superannuation fund.
[Schedule 5, item 3, subsection 19(2CA)]
5.13
A defined benefit member is a member who is entitled to a
benefit that is defined, wholly or in part, by reference to the member’s
salary at the date of retirement, an earlier date or averaged over a period
before retirement, or is defined as a specified amount. This definition,
therefore, excludes members that may otherwise be a defined benefit
member for the purposes of the SIS Act because they are entitled to a
specified benefit at termination of employment. These members must
have contributions made to a MySuper product for the accumulation
benefits they will receive on retirement.
5.14
The MySuper Core Provisions Bill requires trustees to pay a
contribution into a MySuper product unless the member has elected that it
be paid into a specified choice product. The requirement will now
exclude contributions made on behalf of a defined benefit member.
Therefore, trustees will not be restrained to which product they pay
contributions for defined benefit members. Contributions that support the
defined benefit can be made to the pool supporting those defined benefits.
Contributions that are to be held on an accumulation basis can be made to
either a MySuper product or a choice product in the fund. This permits
trustees to hold accumulation contributions for defined benefit members
outside of the MySuper regime. [Schedule 5, item 10, paragraph 29WA(1)(a)]
5.15
A defined benefit member may have an accumulation interest in
connection with their defined benefit interest. It will often be appropriate
for the fees, services and investment strategy for accumulation benefits of
a defined benefit member to be treated differently to the benefits of
members that only have accumulation benefits. For example, the fees
charged to a defined benefit member may be paid out of the pool held to
support the defined benefits. Therefore, this may permit the trustee to
charge a lower fee on the accumulation amount of a defined benefit
member than they would otherwise have to charge on a balance in a
MySuper product. Therefore, as MySuper products must charge members
57
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
the same fees (except in limited circumstances), trustees will be allowed
to pay accumulation contributions of defined benefit members into a
product that is best suited to the member and has an appropriate fee
structure, services and investment strategy to complement these members’
entitlements to a defined benefit.
5.16
The MySuper Core Provisions Bill allows for a trustee to apply
for authorisation in respect of a MySuper product to be established for the
benefit of the employees of a particular employer if that employer
contributes to the fund for 500 or more employees. This will be amended
to exclude defined benefit members from the employees that are counted
in working out whether an employer qualifies. Defined benefit members
will generally not have any contributions held within a MySuper product
under any circumstances, and therefore, should not be counted for the
purposes of working out whether an employer can be offered a separate
MySuper product. [Schedule 5, item 7, subparagraph 29TB(1)(d)(i) and Schedule 5,
item 6, subparagraph 29TB(1)(d)(ii)]
5.17
A power to make regulations will allow for regulations to
prescribe whether a member of a superannuation fund is, or is not, a
defined benefit member for the purpose of certain provisions of the SG
Act or the SIS Act to ensure that these exemptions apply in the intended
circumstances. [Schedule 5, item 2, section 6AA and Schedule 5, item 8, subsection
10(1A)]
5.18
Firstly, regulations may prescribe circumstances in which a
member of a fund is not a defined benefit member. For example, the
exemption is primarily intended to deal with members for whom a
significant proportion of their retirement benefit is specified by reference
to salary or is a specified amount. It is not intended to allow trustees to
avoid the requirement to place contributions into a MySuper product by
having a defined benefit that is an insignificant specified amount, such as
$100 paid on retirement, for a class of members. In these circumstances,
regulations could be made to ensure that members in this type of
arrangement are not excluded from the protections of MySuper by
prescribing that these members are not defined benefit members for Part
2C of the SIS Act and section 32C of the SG Act.
5.19
Secondly, regulations may prescribe circumstances in which a
member of a superannuation fund who is not otherwise a defined benefit
member is taken to be a defined benefit member. This will be used to
ensure that where public sector employees have interests in two
superannuation entities, one of which is a fully unfunded scheme that
provides a defined benefit to the member, then the regulations will
prescribe that they are deemed to be a defined benefit member across both
schemes. This is necessary to ensure that the member is not
disadvantaged by having to meet higher costs in a MySuper product
58
Defined benefit members
simply because it must be paid into a different scheme than their defined
benefit interest.
5.20
A savings provision will ensure that the existing definition of
defined benefit member in the SIS Regulations continues in force and is
incorporated into the new definition of defined benefit member to be
inserted into subsection 10(1) of the SIS Act. [Schedule 5, item 5]
59
Chapter 6
Transition to MySuper
Outline of chapter
6.1
This chapter explains the requirements for certain existing
member balances to be moved to MySuper products and the transitional
rules applying to these requirements
Context of amendments
6.2
In responding to the Review, the Government noted that existing
default funds will be required to transition to MySuper after an
appropriate period.
6.3
The Government subsequently announced that the trustees of
superannuation funds offering MySuper products will need to transfer
certain existing balances of their members to a MySuper product by 1 July
2017. Trustees that do not seek authorisation to offer a MySuper product
will also be required to transfer certain balances to a MySuper product in
another fund by 1 July 2017.
Summary of new law
6.4
Amendments to the SIS Act will introduce a new concept of an
‘accrued default amount’. This concept defines those parts of a member’s
interest in a fund which must be moved to a MySuper product. In
essence, these are amounts where a member has not exercised an
investment choice or amounts held in a default investment option of the
fund.
6.5
An application by an RSE licensee to APRA for authorisation to
offer a MySuper product will need to be accompanied by an election to
transfer accrued default amounts held in all funds for which the RSE
licensee is trustee to one or more MySuper products. Where the RSE
licensee fails to give effect to its election, APRA will be able to cancel the
RSE licensee’s authority to offer a MySuper product.
6.6
Provisions in the SIS Act will apply to this election to require
the transfer of all accrued default amounts to MySuper products so that:
61
Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
• by 1 July 2017, all accrued default amounts in the fund must
be transferred to an authorised MySuper product offered by
the fund; and
• where a member in the fund is not eligible to hold a MySuper
product in the fund, or where accrued default amounts are
held for members in other funds for which the RSE licensee
is trustee, the RSE licensee must take the action required
under the relevant prudential standard to move these amounts
to a MySuper product by 1 July 2017.
6.7
RSE licensees will also have to make a separate election that
will also require the trustee to take action in accordance with the
prudential standards to transfer amounts held in a MySuper product in
circumstances where authorisation for a MySuper product is subsequently
cancelled.
6.8
To remove impediments to the transfer of accrued default
amounts, any trustee that transfers an accrued default amount in
accordance with these amendments will not have any liability to a
member of their fund in relation to that transfer. In addition, any
governing rules that prevent an accrued default amount from being
transferred will be void.
6.9
The Bill also ensures that APRA is able to make prudential
standards dealing with matters relating to accrued default amounts and
SIS Act matters of a transitional nature relating to the Stronger Super
reforms.
Comparison of key features of new law and current law
New law
Accrued default amounts are
defined as amounts in respect of
which the member has not given a
direction as to the investment
strategy to be followed, other than
any direction to invest in a default
investment option.
Certain interests within a fund are
specifically excluded from the
meaning of accrued default
62
Current law
The concept of accrued default
amount is not used in the SIS Act.
Transition to MySuper
New law
Current law
The requirements for an application
by an RSE licensee for
authorisation to offer a MySuper
product include an election by the
RSE licensee to transfer accrued
default amounts to a MySuper
product.
RSE licensees will need to apply to
APRA for authorisation to offer a
MySuper product (section 29S,
inserted by the MySuper Core
Provisions Bill).
All RSE licensees will have until
1 July 2017 to transfer all accrued
default amounts to a MySuper
product.
There is currently no equivalent in
the SIS Act.
The RSE licensee elects, in writing
and in the approved form, to
transfer accrued default amounts
held within all funds for which it is
trustee, to a MySuper product by 1
July 2017 (or within 30 days with
respect to elections outside the
transitional period).
This election not currently required
under SIS Act.
An RSE licensee will not be
subject to any liability to a member
of the fund for an action taken to
give effect to a requirement to
transfer accrued default amounts or
amounts on the cancellation of a
MySuper authorisation.
There is currently no equivalent in
the SIS Act.
Any provision of the governing
rules of a fund that would prevent
an RSE licensee from giving effect
to a requirement to transfer accrued
default amounts, or amounts on the
cancellation of a MySuper
authorisation, is void.
There is currently no equivalent in
the SIS Act.
APRA will be able to make
prudential standards dealing with
transitional matters.
Part 3A in the Trustee Obligations
and Prudential Standards Bill will
provide APRA with the ability to
make prudential standards in
amount.
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
2012
New law
Current law
relation to prudential matters.
Detailed explanation of new law
Amounts to be moved to MySuper products
6.10
Amendments to the SIS Act will introduce a new concept of an
‘accrued default amount’. [Schedule 6, item 1, subsection 10(1)]
6.11
The accrued default amount for a member includes an amount
that is attributed to the member of the fund in respect of which the
member has not given a direction as to the investment option in which it is
to be invested. [Schedule 6, item 2, subparagraph 20B(1)(b)(i)]
6.12
The definition of accrued default amounts also includes all
amounts invested in the investment option used by a trustee to invest
amounts in respect of which no direction is received. The term therefore
captures amounts where the member has either explicitly or implicitly
directed that the amount be invested in the fund’s default investment
option. In this way, members who have explicitly chosen to delegate
responsibility for investment decisions to the trustee will also be placed in
a MySuper product. This will also mean funds will not need to operate
duplicate investment options – one for MySuper members and one for
members wishing to choose the same investment allocation that applies
under MySuper. [Schedule 6, item 2, subparagraph 20B(1)(b)(ii)]
6.13
The meaning of accrued default amount specifically excludes
certain amounts. These include:
• amounts already attributed to a MySuper product;
• amounts that belong to defined benefit members;
• amounts held in an authorised eligible rollover fund;
• amounts that are invested in one or more of the following:
–
64
a capital guaranteed life insurance policy where
the contributions and accumulated earnings
may not be reduced by negative investment
returns or any reduction in the value of assets
in which the policy is invested;
Transition to MySuper
–
a life policy providing benefits based solely on
the realisation of a risk, and not related to the
performance of an investment; and
–
an investment account contract that is held
solely for the benefits of that member, and
relatives and dependants of that member – to
cover legacy products such as endowment and
whole of life policies.
• amounts that support the payment of a pension (these cannot
be part of a MySuper product under paragraph 29TC(1)(i) of
the MySuper Core Provisions Bill);
[Schedule 6, item 2, subsections 20B(2), (3) and (4)]
Application to include election to move ‘accrued default amounts’
6.14
An application by an RSE licensee for authority to offer a
MySuper product will require an election that the RSE licensee will
attribute to a MySuper product each accrued default amount in each fund
for which the RSE licensee is the trustee.
6.15
An RSE licensee may attribute an amount to a MySuper product
by obtaining authorisation for their existing default investment option as a
MySuper product. In other cases, to attribute an accrued default amount
to a MySuper product will require the amount to be transferred.
6.16
This election must accompany an RSE licensee’s application for
authorisation to offer a MySuper product, in writing and in the approved
form. [Schedule 6, item 4, paragraph 29S(2)(f)]
6.17
For accrued default amounts in the fund for which the RSE
licensee has applied for authorisation of a MySuper product then in the
transition to MySuper the RSE licensee will have until the later of 1 July
2017 to transfer the amounts or within 30 days of receiving notice of
authority to offer a MySuper product or notice of refusal of authority
unless otherwise directed by the member in writing not to. [Schedule 6,
item 11, paragraph 387(1)(a)]
6.18
The transitional period that postpones the transfer of accrued
default amounts until 1 July 2017 is given effect to by applying provisions
of the SIS Act that will apply to any election that is made before 1 July
2017. A transitional period is provided to allow RSE licensees to prepare
for and manage the transfer of accrued default amounts from existing
superannuation arrangements to the new MySuper environment.
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6.19
Beyond the transitional period, the transfers must be made
within 30 days of receiving notice of authority to offer a MySuper
product, unless otherwise directed by the member. [Schedule 6, item 5,
section 29SAA]
6.20
The election of the RSE licensee will also be to comply with
relevant prudential standards before the later of 1 July 2017 and 90 days
after notice of authorisation of a MySuper product has been given or
refused in respect of:
• each accrued default amount for a member of the fund who is
not eligible to hold an interest in a MySuper product offered
by the fund; and
• each accrued default amount for members of any regulated
superannuation fund for which the RSE licensee is trustee,
and which does not offer a MySuper product.
[Schedule 6, item 11, paragraph 387(1)(b) and subsection 387(2)]
6.21
It is intended that the prudential standards or the regulations will
similarly allow for a member to direct the RSE licensee in writing not to
transfer these amounts.
6.22
APRA may cancel an authority to offer a MySuper product
where it is satisfied the RSE licensee has failed to give effect to its
election to transfer accrued default amounts to a MySuper product.
[Schedule 6, item 6, paragraph 29U(2)(j)]
6.23
If the RSE licensee makes this election it will also be a condition
of their license to give effect to this election. [Schedule 6, item 3,
subsection 29E(6B)]
6.24
An RSE licensee’s actions in giving effect to an election under
new section 29SAA will not give rise to a liability to a member.
[Schedule 6, item 7, section 29XA]
6.25
A provision of the governing rules of a superannuation fund that
prevents an RSE licensee giving effect to an election to transfer an amount
in an accrued default amount to a MySuper product is void to the extent it
would prevent the RSE licensee from giving effect to the election.
[Schedule 6, item 8, section 55B]
6.26
The transfer of a member’s accrued default amount to a
MySuper product would generally constitute a significant material change
to members’ rights in relation to the fund and require a significant event
notification as required by the Corporations Act. However, in some cases,
there may be only immaterial changes to members’ rights as a result of the
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Transition to MySuper
RSE licensee being authorised to offer a MySuper product, for example, if
an existing default investment option is simply able to be converted into a
MySuper product.
Election to transfer amounts if MySuper authorisation cancelled
6.27
An RSE licensee’s application for authorisation for a MySuper
product must also be accompanied by a second election. The RSE
licensee must elect that they will transfer assets that were attributed to a
MySuper product if the MySuper product authorisation is ever
subsequently cancelled. [Schedule 6, item 5, section 29SAB]
6.28
The transfer must be taken in accordance with the actions
required by the prudential standards that set out arrangements in relation
to the transfer of these amounts. [Schedule 6, item 5, paragraph 29SAB(a)]
6.29
The RSE licensee will be required, by this election, to transfer
amounts within 90 days of receiving a notice of cancellation of
authorisation of that MySuper product. [Schedule 6, item 5, paragraph
29SAB(a)]
6.30
If the RSE licensee makes this election it will be a condition of
their license to give effect to this election. [Schedule 6, item 3,
subsection 29E(6B)]
6.31
The election must be in writing and in the approved form.
[Schedule 6, item 5, paragraphs 29SAB(b) and (c)]
6.32
A provision of the governing rules of a superannuation fund that
prevents a trustee giving effect to this election to transfer amounts in a
MySuper product if authorisation is cancelled is also void to the extent it
would prevent the RSE licensee from giving effect to the election.
[Schedule 6, item 8, section 55B]
Requirement to transfer amounts to MySuper product
6.33
Any RSE licensee who does not make an application for
MySuper authorisation, and therefore does not make an election to
transfer accrued default amounts, will still be required to transfer amounts
to a MySuper product by 1 July 2017 under a new civil penalty provision.
[Schedule 6, item 11, section 388 and Schedule 6, item 10, paragraph 193(l)]
6.34
RSE licensees which are required to transfer accrued default
amounts to another superannuation fund will have to comply with
requirements set out in regulations and relevant APRA prudential
standards. It is expected that the arrangements to transfer accrued default
amounts will include a requirement for RSE licensees to advise each
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affected member of the intention to transfer the amounts to a MySuper
product, and of the member’s right to opt out of the process. [Schedule 6,
item 11, subsection 388(1)]
6.35
To put beyond doubt the application of these provisions
regarding the transfer of accrued default amounts to a MySuper product, if
the RSE licensee has not made an election, the requirement to transfer
accrued default amounts will not apply to the extent that it would not be
permitted by section 51(xxxi) of the Constitution. [Schedule 6, item 11,
subsection 388(3)]
6.36
A trustee’s actions in giving effect to the civil penalty provision
will not give rise to a liability to a member. [Schedule 6, item 11,
subsection 388(2)]
6.37
Contravention of the civil penalty provision will mean that
Part 21 of the SIS Act will apply.
Application of framework to inter-fund consolidation
6.38
It is proposed that a similar framework would apply to the
transfer of balances that are required under the inter-fund consolidation
regime. Inter-fund consolidation would rely on a requirement to transfer
an amount where notified to do so that would impose strict liability
criminal penalties for failing to comply.
6.39
Inter-fund consolidation and the transition to MySuper,
therefore, have requirements to transfer amounts that have the same legal
effect. It is expected that this approach is unlikely to require the transfer
of an amount that would result in the acquisition of property without just
terms that is not permitted by section 51(xxxi) of the Constitution.
6.40
In particular, in relation to inter-fund consolidation, it is
expected that most insurance arrangements that attach to these amounts
would already cease at the point a member leaves the fund. Therefore, the
effect of consolidation would not be to cancel insurance as premiums and
coverage would cease when a member leaves.
6.41
However, to avoid any doubt, it is proposed to have a similar
read-down provision whereby the requirement to transfer would have no
effect to the extent it would be an acquisition of property without just
terms.
Prudential standards and regulations on transition
6.42
Prudential standards will be able to be made in relation to the
transfer of accrued default amounts that are held by the member of the
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Transition to MySuper
fund that is not eligible to hold a MySuper product offered by the fund or
for members of a fund for which that RSE licensee does not offer a
MySuper product. These prudential standards apply to both where the
RSE licensee has elected to transfer these amounts and where the RSE
licensee is required to transfer the amounts under the civil penalty
provision. [Schedule 6, item 7, section 29X]
6.43
The prudential standards may set out requirements that must be
met in relation to the transfer of the amounts and any other matters that
relate to the amount. [Schedule 6, item 7, paragraphs 29X(b) and (c)]
6.44
APRA will be able to make prudential standards dealing with
matters of a transitional nature relating to the Superannuation Legislation
Amendment (MySuper Core Provisions) Act 2012, the Superannuation
Legislation Amendment (Trustee Obligations and Prudential Standards)
Act 2012, and the Superannuation Legislation Amendment (Further
MySuper and Transparency Measures) Act 2012. The specific provisions
relating to prudential standards are set out in Part 3A of the Trustee
Obligations and Prudential Standards Bill. [Schedule 6, item 11, section 389]
6.45
These prudential standards on transition will deal with matters
such as processes for identifying accrued default amounts, selecting a
MySuper product to transfer certain amounts to and other actions required
by the trustee in relation to the transfer of accrued default amounts.
6.46
Provision is made to enable regulations to be made dealing with
transitional, saving and application matters related to amendments made
by the Superannuation Legislation Amendment (MySuper Core
Provisions) Act 2012, the Superannuation Legislation Amendment
(Trustee Obligations and Prudential Standards) Act 2012, and the
Superannuation Legislation Amendment (Further MySuper and
Transparency Measures) Act 2012. [Schedule 6, item 11, section 390]
Other amendments
6.47
Definitions of ‘MySuper interest’ and ‘MySuper member’ are
inserted into the definitions at subsection 10(1) of the SIS Act. A member
has a MySuper interest in the fund if the member holds a beneficial
interest in a class of interest that is authorised as a MySuper product.
Similarly, a MySuper member is a member that holds a MySuper interest
in the fund. [Schedule 8, items 1 and 2, subsection 10(1)]
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Chapter 7
Eligible rollover funds
Outline of chapter
7.1
This chapter explains the new regime by which RSE licensees
must be authorised to operate a specified superannuation fund as an
eligible rollover fund (ERF).
7.2
This chapter also outlines the enhanced director obligations and
enhanced trustee obligations for RSE licensees that operate an ERF and
transitional arrangements for existing ERFs that are not authorised before
the commencement of the new regime.
Context of amendments
7.3
ERFs are maintained for the single purpose of being a temporary
repository for the interests of members who have lost connection with
their superannuation accounts. ERFs are intended to hold these
superannuation interests and generally preserve their value until they can
be reconnected with the member.
7.4
ERFs are required to accept rollovers and transfers of
superannuation from all other regulated superannuation funds.
7.5
The amounts transferred to ERFs are typically small inactive
amounts or other amounts for members that cannot continue to be a
member of their original fund (for example, non-member spouse, in
circumstances connected with the division of superannuation).
7.6
Members of ERFs have lost connection with their
superannuation and rely on the trustee to protect their interests and
preserve their retirement benefit.
7.7
However, the Review found that ERFs were not effectively
fulfilling their function as they failed to reconnect amounts with members
and that member protection was not adequately protecting members’
interests. Lost accounts can materially impact on the adequacy of many
individuals’ retirement incomes, particularly where accounts remain
unclaimed at retirement, are eroded by unnecessary fees or charges, or
receive poorer investment returns than other retirement savings.
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Summary of new law
7.8
Schedule 7 of this Bill amends the SIS Act to require trustees to
obtain authorisation from APRA to operate an ERF.
7.9
APRA will be able to accept applications for authorisation to
operate a regulated superannuation fund as an ERF from any RSE
licensee.
7.10
On 1 January 2014, if an application for authorisation has not
been made or if APRA has refused authorisation, all balances in an
existing ERF are required to be transferred into an authorised ERF or a
fund that offers a MySuper product.
7.11
New enhanced trustee obligations will apply to a trustee of an
RSE that has been authorised by APRA to offer an ERF as members fully
rely on the trustee to make judgments about managing their
superannuation. These enhanced trustee obligations require trustees to
comply with a duty to promote the financial interests of members of the
fund.
Comparison of key features of new law and current law
72
New law
Current law
RSE licensees must be authorised by
APRA to operate an ERF. Only an
RSE that is a regulated
superannuation fund can operate as
an ERF. Approved deposit funds
(ADFs) cannot operate as an ERF.
A trustee of a regulated
superannuation fund or ADF must
give to APRA a notice in the
approved form stating that the fund or
ADF is an ERF.
Each trustee of an ERF must promote
the financial interests of the
beneficiaries of the fund, in particular
returns to those beneficiaries (after
the deduction of fees, costs and
taxes).
Existing duties for trustees of ERFs
are contained in current section 52 of
the SIS Act and regulation 10.06 and
10.07 of the SIS Regulations.
A director of a corporate trustee of an
ERF must exercise a reasonable
degree of care and diligence for the
purpose of ensuring that the corporate
trustee carries out the obligation to
promote the financial interests of the
beneficiaries of the fund.
A director of a corporate trustee is
required to exercise a reasonable
degree of care and due diligence (to
the standard of a reasonable person)
for the purpose of ensuring that the
corporate trustee carries out its
covenants in current section 52.
Eligible rollover funds
Detailed explanation of new law
Definition of eligible rollover fund
7.12
An eligible rollover fund is defined as a regulated
superannuation fund if the RSE licensee has been authorised by APRA to
operate a specified superannuation fund as an eligible rollover fund.
[Schedule 7, item 1, subsection 10(1)].
Application process
7.13
To ensure that APRA is provided with sufficient relevant
information to be able to adequately assess applications from RSE
licensees, information must be provided in the approved form. This
includes the RSE licensee’s and the fund’s ABNs and other information
required by the approved form. [Schedule 7, item 13, division 2, subsections
242A(1) and 242A(2)].
7.14
If an existing ERF intends to continue operating as an ERF, the
RSE licensee should lodge their applications by 1 July 2013, or as soon as
possible after that date, in order to avoid the possibility that APRA has not
decided their application before 1 January 2014. A late application means
the trustee runs the risk that the application is not decided and the trustee
would be obliged to transfer amounts to an authorised ERF or MySuper
product. [Schedule 7, item 14, division 3, subsection 395].
7.15
If any information contained in the application ceases to be
correct between when the application was submitted to APRA and before
APRA has made a decision, the RSE licensee will be required to provide
APRA with the correct information as soon as practicable. An application
is taken not to comply with this section if this requirement is contravened.
[Schedule 7, item 13, division 2, subsections 242A(3) and 242A(4)].
7.16
An application for authority lapses if it was made by an RSE
licensee and the RSE licensee ceases to be an RSE licensee before APRA
makes a decision on the application, or if APRA’s decision is subject to
review, before the review is finally determined or otherwise disposed of.
[Schedule 7, item 13, division 2, subsection 242A(5)].
7.17
APRA may request an RSE licensee to provide additional
information before making a decision on the application. [Schedule 7,
item 13, division 2, section 242B].
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Time period for deciding applications
7.18
APRA must decide an application by an RSE licensee for
authority to operate a regulated superannuation fund as an ERF within 60
days of the application being received, subject to certain provisions
allowing this period to be extended. This is the same period that is
allowed for a decision on an application for authorisation to offer a
MySuper product. The 60 day period starts on 1 July 2013 or the date of
APRA’s receipt of the application, whichever is the later. [Schedule 7,
item 13, division 2, paragraph 242C(1)(a) and subsection 242C(2)].
7.19
Should APRA request an RSE licensee to provide additional
information in relation to its application, APRA will have an additional 60
days from when it receives this information in which to decide the
application. The period of 60 days restarts if further information is
requested. [Schedule 7, item 13, division 2, paragraph 242C(1)(b)].
7.20
Additionally, APRA may extend the period for making a
decision on an application to operate an ERF by an RSE licensee by a
further 60 days, providing it notifies the RSE licensee in writing and
within the period they would otherwise have to decide the application.
[Schedule 7, item 13, division 2, subsection 242C(2)].
7.21
Should APRA not have made a decision within the time period
required, the application is deemed to be refused by APRA and the RSE
licensee is not authorised to operate an ERF. This is the same process that
occurs should APRA not have decided on an application for an RSE
licence or MySuper authorisation within the required time. [Schedule 7,
item 13, division 2, subsection 242C(4)].
Authorisation process
7.22
APRA must authorise an RSE licensee to operate an ERF if:
• the application is in the approved form and otherwise
complies with section 242A;
• the RSE licensee provides all of the information required by
APRA to approve the authority;
• the fund is a registered fund under Part 2B of the Act;
• APRA is satisfied the governing rules require that the fund
meets the purposes of an ERF and that a single diversified
investment strategy is to be adopted in relation to all the
assets of the fund;
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Eligible rollover funds
• APRA is satisfied that the RSE licensee or each individual
trustee is likely to comply with the enhanced trustee
obligations for ERFs;
• APRA is satisfied that the directors of the RSE licensee are
likely to comply with the enhanced director obligations for
ERFs;
• APRA is satisfied that the RSE licensee is likely to comply
with the general fee rules; and
• APRA is satisfied that the RSE licensee is not likely to
represent a product as an ERF when they are not authorised
to do so.
[Schedule 7, item 13, subdivision B, section 242D].
7.23
It is intended that a further condition will be added to be
authorised to operate an ERF that will be the RSE licensee must hold a
public offer class of RSE licence.
7.24
APRA must refuse an RSE licensee’s application for
authorisation to operate an ERF if it is not satisfied of any of these
elements. APRA’s decision to refuse an application is a reviewable
decision. [Schedule 7, item 13, subdivision B, subsection 242D(2) and Schedule 7,
item 4, paragraph 10(1)(ua)].
7.25
If APRA authorises an RSE licensee to operate a regulated
superannuation fund as an ERF, APRA must notify the RSE licensee in
writing of the authority. For a notice given before 1 January 2014, the
authority takes effect on 1 January 2014. [Schedule 7, item 13, subdivision B,
section 242E and Schedule 7, item 15, part 34, subsection 392].
7.26
If APRA refuses an application by an RSE licensee for authority
to operate a regulated superannuation fund as an ERF, APRA must take
all reasonable steps to ensure that the RSE licensee is given a notice
informing it of APRA’s refusal of the application and setting out the
reasons for the refusal. [Schedule 7, item 13, subdivision B, section 242F].
Cancellation of authorisation
7.27
APRA may cancel the authorisation to operate an ERF where:
• APRA ceases to be satisfied that the governing rules of the
fund meet the purpose of an ERF or that a single diversified
investment strategy is to be adopted in relation to all the
assets of the fund;
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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill
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• it ceases to be satisfied that the RSE licensee or each
individual trustee is likely to comply with the enhanced
trustee obligations for ERFs;
• it ceases to be satisfied that the directors of the RSE licensee
are likely to comply with the enhanced trustee obligations for
ERFs;
• it ceases to be satisfied that the RSE licensee is likely to
comply with the general fee rules;
• it ceases to be satisfied that the RSE licensee is not likely to
represent a product as an ERF when they are not authorised
to do so;
• the fund ceases to be registered under Part 2B of the Act; or
• the RSE licensee contravenes a governing rule of the ERF.
[Schedule 7, item 13, subdivision C, subsections 242G(1) and 242G(2)].
7.28
If APRA decides to cancel an authority to operate a regulated
superannuation fund as an ERF, it is required to take all reasonable steps
to notify the RSE licensee in writing of the reasons for their decision.
[Schedule 7, item 13, subdivision C, subsection 242G(3)].
Trustee obligations relating to eligible rollover funds
Enhanced trustee obligations
7.29
Each trustee of an ERF must promote the financial interests of
the beneficiaries of the fund. These duties should be equal to
requirements for a MySuper product as trustees have full responsibility for
managing the members’ balances. [Schedule 7, item 13, subdivision D, section
242H].
7.30
The enhanced trustee obligations for RSE licensees of ERFs are
the obligations imposed by the covenants in section 52, as enhanced by
the additional obligation to promote the financial interests of members of
the ERF. The obligations also include any covenants prescribed under
section 54A that are specified in the regulations as forming part of the
enhanced trustee obligations for ERFs. [Schedule 7, item 3, paragraph 10(1)(b)].
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Eligible rollover funds
Enhanced director obligations
7.31
Each director of a corporate trustee of an ERF is required to
exercise a reasonable degree of care and due diligence that a
superannuation entity director would exercise in the corporate trustee’s
circumstance for the purpose of ensuring that the corporate trustee
complies with its duty to promote the financial interests of beneficiaries of
the fund. [Schedule 7, item 13, subdivision D, section 242J].
7.32
The enhanced director obligations in relation to ERFs comprise
this obligation and any covenants prescribed under section 54A that are
specified in the regulations as forming part of the enhanced director
obligations for ERFs. [Schedule 7, item 2, paragraph 10(1)(b)].
Contravention of trustee obligations relating to eligible rollover funds
7.33
There is a civil penalty provision for contravention of the
additional obligations of a trustee or director of a corporate trustee in
relation to an ERF where a trustee or a director of a corporate trustee has
breached their obligations. Accordingly, the consequences set out in Part
21 of the Act will apply. [Schedule 7, item 13, subdivision D, subsection 242K(2)].
7.34
This is appropriate as (in addition to the potential for the court to
order a civil penalty or, if certain fault requirements are satisfied, a
criminal penalty), it gives the court power to order a person to pay
compensation in relation to a contravention of the provision. A civil
penalty provision can be escalated to a criminal offence if it is breached
and there has been dishonesty or an intention to deceive or defraud.
Governing rules
7.35
The governing rules of an ERF are void to the extent that they
are inconsistent with the additional obligations of a trustee or director of a
corporate trustee in relation to an ERF. [Schedule 7, item 13, subdivision D,
section 242L].
Misrepresentation of eligible rollover funds
7.36
All persons will be prohibited from being able to offer an ERF
unless they are authorised to do so by APRA. It is an offence of strict
liability if a person represents that they offer an ERF when they are not
authorised. A penalty of 60 penalty units will apply. This penalty is
consistent with similar offences for MySuper products and RSE licensees.
[Schedule 7, item 13, subdivision E, section 242M].
7.37
A strict liability offence is appropriate as APRA will provide a
written notice upon the authorisation or refusal of authorisation and hence
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RSE licensees will always know whether they are authorised to operate a
specified superannuation fund as an ERF.
7.38
Furthermore, ERFs play a specialised role in the superannuation
system as a temporary repository for the interests of members who have
lost connection with their superannuation accounts. These members are
most vulnerable and require their interests to be protected.
7.39
Misrepresentation that a fund is an ERF could inadvertently
reduce the level of protection for members in relation to the enhanced
trustee and director obligations when they otherwise would be in an
authorised ERF or a MySuper product.
Transitional provisions relating to eligible rollover funds
7.40
The RSE licensee of an existing ERF that has not been
authorised to operate as an ERF must take the action required under the
prudential standards in relation to the amount before the end of a period of
90 days beginning 1 January 2014. [Schedule 7, item 15, part 34, subsection
395(1)].
7.41
From 1 January 2014, existing ERFs can no longer accept
contributions unless they are newly authorised. Balances will need to be
transferred to an authorised ERF or to a MySuper product. This date is
consistent with the inter-fund consolidation regime. [Schedule 7, item 15, part
34, paragraph 395(2)(a)].
7.42
This provision ensures the amount is moved under inter-fund
consolidation or to an authorised ERF or MySuper product. This will
mean members will either be reconnected with their balances or remain
with the heightened protections of ERFs or MySuper products.
7.43
Transitional arrangements will allow RSE licensees to continue
to receive contributions to the existing product for which an application
has been made prior to 1 July 2013 until APRA has decided that
application. [Schedule 7, item 15, part 34, subsection 393].
7.44
An existing ERF is taken to be an ERF for the purposes of
Division 3 of Part 24 during the period beginning on the day the
amendments commence and ending on 31 December 2013. [Schedule 7,
item 15, part 34, subsection 394].
7.45
APRA will be able to make prudential standards on the
movement of amounts held in existing ERFs that may include provisions
requiring an RSE licensee of an existing ERF that is not authorised to
operate as an ERF to transfer the amount to a regulated superannuation
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Eligible rollover funds
fund that is an ERF or offers a MySuper product; setting out the
requirements that must be met in relation to the transfer of such an
amount; and dealing with other matters relating to such an amount.
[Schedule 7, item 15, part 34, subsection 395(2)].
7.46
It is intended that amendments to the Corporations Act or
Corporations Regulations will require trustees to contact members, where
possible, and provide them with the ability to opt-out from having their
balances transferred.
7.47
The RSE licensee is not subject to any liability to any member
of the fund for an action taken in accordance with moving amounts held in
existing ERFs. [Schedule 7, item 15, part 34, subsection 395(3)].
7.48
A read-down provision will only require transfers to take place
if it does not represent an acquisition of property on other than just terms
under section 51(xxxi) of the Constitution. However, it is unlikely that an
acquisition of property will occur when balances from existing ERFs are
transferred into a newly authorised ERF or a MySuper product. [Schedule
7, item 15, part 34, subsection 395(4)].
79
81