The Government has introduced the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012 (Bill) into the House of Representatives. The reforms under the Bill will complement the Government's low-cost default superannuation product, MySuper.
The Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012 (Bill)) implements the third tranche of the Stronger Super reforms. This follows the introduction of the first tranche of legislation (Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011) and the Royal Assent of the second tranche of legislation (Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012).
The Bill introduces the next stage of the reforms, including:
The provisions of the Bill relating to fees, costs and intrafund advice will generally commence after the commencement of the MySuper Core Provisions Bill on 1 January 2013.
The Government has designed MySuper as a commission free superannuation fund. As a result, an RSE licensee that applies for authorisation to offer a MySuper product must elect not to charge members any fee that relates to commission payments. This election also effectively prohibits a trustee from deducting any amounts from a MySuper product that relates to commission payments to a financial adviser.
New criteria will apply to performance based fees payable to an investment manager in relation to assets of a fund attributable to a MySuper product. There are five criteria that must be contained in the terms of arrangement with the investment manager if a performance based fee is given. These include:
A performance based fee to a trustee may not need to meet all of the above criteria if it can be shown that the arrangement promotes the financial interests of MySuper members.
Superannuation trustees will now have restrictions on their ability to charge for personal advice collectively across their membership. Trustees cannot charge the membership of the fund for personal advice given to an individual member that is likely to be more complex in nature and costly to provide.
The Bill introduces the restriction that the membership of the fund can only be charged for personal advice that is of a one-off or transactional nature.
Further, the cost of personal financial product advice to an employer of one or more members of the fund cannot be recovered through a fee charged to members of the fund. This aims to prevent commissions and other costs being deducted from the balances of the employees for any advice the employer receives.
The Bill prohibits entry fees being charged, and limits exit fees, switching fees and buy-sell spreads to the amount charged on a cost-recovery basis.
For MySuper products, activity fees and insurance fees will also be limited to the amount charged on a cost-recovery basis.
The insurance provisions of the Bill will generally commence on 1 July 2013.
Under the Bill, a trustee of a superannuation fund must provide MySuper members with insurance benefits for death and permanent incapacity on an opt-out basis. The amount of life insurance given must be at least the minimum set out in the Superannuation Guarantee (Administration) Regulations 1993 (Cth).
These insurance arrangements have been designed to provide a safety net to MySuper members who may not actively consider their insurance needs. If the superannuation trustee fails to provide their MySuper members with life or TPD insurance, this will be in breach of a standard condition of the trustee’s RSE licence.
Under the Bill, APRA will have new powers to collect and publish data from RSE licensees. APRA will be required to publish information on the returns, fees and costs of all MySuper products quarterly.
RSE licensees, related bodies corporate, custodians of an RSE licensee and other RSE licensee related parties will also have an obligation to provide relevant data to APRA. RSE licensees will be required to publish a product dashboard on their website.
The product dashboard should contain information on their investment return target and their achievements of this target, level of investment risk, a statement on the liquidity of the product and a measure of the average fees and costs of the product. The remuneration of directors and executive officers is also required for disclosure, as these new provisions aim to promote the transparency of superannuation funds.
The Bill requires RSE licensees to publish information regarding their portfolio holdings on their website once every six months on 30 June and 31 December, within 90 days after each reporting day.
A person who acquires an asset, or enters into a custodial arrangement using the asset, of an RSE licensee must also notify the provider of the financial product that they are required to provide information to the RSE Licencee to satisfy its publication obligations under the Bill.
The Bill will amend the Fair Work Act 2009 (Cth) (FWA) so that modern awards and enterprise agreements can only nominate funds that offer a MySuper product as a “default fund”. Public sector superannuation schemes will be exempt from this rule. This requirement is projected to take effect from 1 January 2014.
The FWA will be required to conduct a “one-off” process to ensure that on 1 January 2014, modern awards will only nominate default funds that offer a MySuper product. There will also be ongoing obligations on the FWA to remove any invalid references to a non compliant fund as soon as reasonably practicable after it receives notice from APRA.
However, from 1 January 2014 onwards, modern awards may permit an employer to make contributions to a superannuation fund for default fund employees who are “defined benefit members”, regardless of whether the fund offers a MySuper product.
The Bill introduces exemptions for defined benefits funds and defined benefit arrangements from the MySuper regime. This allows defined benefit funds to continue to be used as a default fund by employees who do not have a chosen fund.
Defined benefit members will not be counted in working out whether an employer is a large employer for the purposes of authorisation of a MySuper product under the MySuper Core Provisions Bill.
Under the Bill, trustees of superannuation funds will need to transfer the accrued default amounts of members to a MySuper product by 1 July 2017. Accrued default amounts are amounts for which the member has not exercised an investment choice or amounts that are held in a default investment option of the fund.
Transferring the accrued default amounts will allow members to obtain the benefits of MySuper for their existing superannuation balance and their future contributions. All members will be notified before a transfer occurs and members will have the right to opt out of the transfer. Superannuation trustees have four years to communicate with members about their options under this Bill.
RSE licensees must also include an election to transfer the accrued default amounts to one or more MySuper products in their application to APRA for MySuper authorisation.
The Bill requires RSE licensees to obtain authorisation from APRA to operate an eligible rollover fund ERFs. Only an RSE that is a regulated superannuation fund can operate as an ERF. It is expected that the regulations will only allow RSE licensees with a public offer class of licence or an extended public offer class of licence to be eligible for authorisation of an ERF.
If an RSE licensee does not have APRA’s authorisation to operate an ERF by 1 January 2014, then all balances in the existing ERF must be transferred into an authorised ERF or a fund that offers a MySuper product within 90 days.
The Bill represents the third tranche of Stronger Super reforms. The majority of the Bill's provisions will take effect after the commencement of the MySuper Core Provisions Bill or the Trustee Obligations and Prudential Standards Act. This has been generally set for 1 July 2013.
Corrs has a financial services team with the skills and expertise to help you assess the impact that this Bill and the Stronger Super reforms will have on your operations. For further information, please contact a member of the team set out below.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.