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Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012

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2010-2011-2012

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

Superannuation legislation amendment (mysuper core provisions) bill 2012

 

 

 

REVISED 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)



THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE HOUSE OF REPRESENTATIVES TO THE BILL AS INTRODUCED





T able of contents

Glossary.............................................................................................................. v

General outline and financial impact.......................................................... vii

Chapter 1               Overview of MySuper........................................................... 1

Chapter 2               Default contributions must be placed in MySuper products           7

Chapter 3               Authorisation of MySuper products................................ 11

Chapter 4               Characteristics of MySuper products.............................. 27

Chapter 5               Permitted fees for MySuper products............................. 35

Chapter 6               Fee charging rules for MySuper products..................... 41

Index................................................................................................................. 47

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The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

APRA

Australian Prudential Regulation Authority

ASIC

Australian Securities and Investments Commission

Bill

Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012

Corporations Act

Corporations Act 2001

RIS

regulation impact statement

RSE

registrable superannuation entity

SG Act

Superannuation Guarantee (Administration) Act 1992

SIS Act

Superannuation Industry (Supervision) Act 1993

SIS Regulations

Superannuation Industry (Supervision) Regulations 1994



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.

The reforms include MySuper, a new, simple and cost-effective superannuation product that will replace existing default products.  MySuper products will have a simple set of product features, irrespective of who provides them.  This will enable members, employers and market analysts to compare funds more easily based on a few key differences.  It will also ensure members do not pay for any unnecessary ‘bells and whistles’ they do not need or use.

The Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012 (the Bill) implements some of the key aspects of the Stronger Super reforms relating to MySuper.

To this end, the Bill:

•        defines a MySuper product;

•        limits a regulated superannuation fund to offering only one MySuper product, except in certain circumstances;

•        allows registrable superannuation entity (RSE) licensees to apply to the Australian Prudential Regulation Authority (APRA) for authorisation to offer a MySuper product;

•        sets out rules on the payment of contributions and account transfers for MySuper products; and

•        sets out the fees that can be charged and the basis on which those fees can be charged to members of a MySuper product.

Date of effect: The provisions amending the Superannuation Industry (Supervision) Act 1993 (SIS Act) commence on 1 January 2013 or an earlier day fixed by Proclamation.  The provision amending the Superannuation Guarantee (Administration) Act 1992 (SG Act) commences on 1 January 2014, from which date employers must make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product. 

Proposal announced: On 16 December 2010, the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP, announced the Stronger Super reforms.  On 21 September 2011, he 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

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 lifecycle investment options, multiple brands and permitted fees in MySuper products.  A RIS exemption was granted for the authorisation of large employer tailored MySuper products.  This and other elements of this Bill will be subject to a post-implementation review. 

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Chapter 1          

Overview of MySuper

Outline of chapter

1.1                   This chapter outlines the rationale for MySuper products, the core framework for MySuper products contained in this Bill and measures to be contained in subsequent tranches of legislation.

Context

1.2                   Superannuation is a key pillar of Australia’s retirement income system.  For many Australians it will be their only substantial source of private saving for retirement, apart from the family home.

1.3                   The importance of the superannuation system to the retirement incomes of Australians means there is a strong public interest in ensuring it operates effectively to invest retirement savings with the ultimate goal of providing adequate benefits to members in their retirement. 

1.4                   Despite this, there is evidence that many Australians do not take an active interest in managing their superannuation.  Around 60 per cent of members do not make active choices in relation to their superannuation. 

1.5                   For many employees, retirement is considered remote and they may not have the time, interest or expertise to engage with their superannuation.  Some employees fear they may make the wrong choice, so will adopt the default option offered through their employer. 

1.6                   Superannuation is also a complex financial product.  Therefore, it is currently difficult for ordinary Australians to make comparisons of superannuation products.  There is also a wide array of choices that can overwhelm and discourage individuals from protecting their own interests. 

1.7                   It is clear that the superannuation system already adequately caters for those who wish to make choices about their retirement savings.  Importantly, MySuper products will not reduce the level of choice that is available within superannuation.  For individuals that wish to choose an alternative product they will be free to do so.

1.8                   The introduction of MySuper products will improve the experience of those members that accept the default option by placing them in a product that is appropriate and ensures their financial interests are protected.

1.9                   First, MySuper will lift the standards that apply to default superannuation funds.  RSE licensees will have a heightened obligation to act in the best financial interests of members that accept the default option.  RSE licensees will also need to actively consider whether their MySuper product has access to sufficient scale to provide net returns that are in the best financial interests of members.  MySuper products will also be appropriate for members that do not require or generally do not request additional services.  Importantly, MySuper products will not allow commissions to be paid from the product.

1.10               Second, MySuper will simplify and standardise the default superannuation product available to Australians.  Funds will be limited in the number of MySuper products that they will be able to offer.  This will make comparisons more manageable by having a well-known and distinct cohort of MySuper products. 

1.11               MySuper products will also have common characteristics meaning that they will be able to be compared based on a few key differences — cost, investment performance and the level of insurance coverage.  MySuper products will be restricted to charging fees that are described in the same way so that they can be directly compared.  Members of a particular MySuper product will also be generally charged the same fees, except in limited circumstances.  This will enable members, employers and market analysts to make comparisons across MySuper products based on the actual fees paid and investment returns received by members.  In addition, APRA will collect and publish data on MySuper products to ensure they are transparent and comparable. 

Core framework for MySuper products

1.12               This Bill establishes the core framework for MySuper products.

1.13               The Bill establishes a process for APRA to authorise RSE licensees to offer a MySuper product.  Authorisation is important as only MySuper products will be able to accept superannuation guarantee contributions made by or on behalf of members who do not have a chosen fund or have not elected in writing to have contributions paid to a specified choice product or products.  The Bill also provides for circumstances where an RSE licensee will be able to apply for authorisation for more than one MySuper product per fund.

1.14               The Bill also provides that a MySuper product must meet core criteria.  These include that for each MySuper product:

•        there is a single diversified or lifecycle investment strategy;

•        all members have access to the same options and facilities;

•        the same processes are adopted in crediting or debiting member accounts;

•        the only limits placed on the source or kind of contributions to a MySuper product are those prescribed by regulations or imposed under the general law or a law of the Commonwealth;

•        a member’s interest cannot be transferred without the member’s consent except as required or permitted under a law of the Commonwealth;

•        the MySuper product is only for the pre-retirement phase;

•        only permitted fees can be deducted from member accounts; and

•        the permitted fees are the same for all members in the MySuper product, with the exception of the administration fee.

Measures to be contained in subsequent tranches of legislation

1.15               The Stronger Super reforms will be implemented in several tranches of legislation.

1.16               MySuper provisions that are not contained in this Bill and will be addressed by the subsequent tranches of legislation are:

•        specific trustee duties in relation to a MySuper product including:

-       to manage the MySuper product at an overall cost aimed at optimising the best financial interests of members, as reflected in the net return over the long term;

-       to clearly articulate an investment return target (over a rolling 10-year period) and level of risk appropriate to members of the MySuper product; and

-       to actively examine and conclude whether the MySuper product has access to sufficient scale (with respect to both assets and number of members) to continue to provide net returns that are in the best financial interests of members.

•        trustee duties for eligible rollover fund licensees that are similar to the specific trustee duties in relation to MySuper products;

•        the power for APRA to make prudential standards in relation to superannuation and issue directions to RSE licensees;

•        allowing defined benefit funds and schemes to continue to be a default superannuation product;

•        rules for the charging of financial advice deducted from member accounts and charging for intra-fund advice;

•        prohibition on deduction of commissions from member accounts;

•        rules for the payment of performance-based fees by RSE licensees to investment managers in relation to the assets of a MySuper product;

•        trustee obligations in respect of insurance;

•        limitation of certain fees to cost-recovery;

•        a rule for the fair and reasonable allocation of costs between each MySuper product and each choice product within a fund;

•        enhanced data collection and data publication powers for APRA;

•        specific disclosure requirements in relation to MySuper products, including a product dashboard;

•        consequential amendments to deal with the nomination of superannuation funds in modern awards and enterprise agreements;

•        consequential amendments to the Corporations Act 2001 ( Corporations Act) that ensure the necessary obligations of that Act apply to MySuper products; and

•        arrangements for the transition of member accounts from existing default superannuation products to MySuper products. 



Outline of chapter

2.1                   This chapter explains the new obligations for employers and RSE licensees that will ensure MySuper products will be the default superannuation product for all employees that have not chosen a fund or choice product within a fund. 

Summary

Process by which default contributions must be placed in MySuper products

2.2                   A two-step process will ensure that all superannuation guarantee contributions made by employers on behalf of employees that do not have a chosen fund and have not elected in writing to the RSE licensee to have their contributions made to a specified choice product will be paid into a MySuper product. 

2.3                   First, employers must make superannuation guarantee contributions on behalf of employees that do not have a chosen fund to a superannuation fund that offers a MySuper product. 

2.4                   This will be a minimal change to employers’ current obligations.  For most employers, it is expected their existing default superannuation fund will offer a MySuper product so they will not have to change their arrangements for making superannuation guarantee contributions.  New employers, and employers making contributions to a fund that does not offer a MySuper product, will have to select a default fund that offers a MySuper product. 

2.5                   It is intended that APRA will publish on its website a list of all funds that are authorised to offer a MySuper product.



 

2.6                   Second, all RSE licensees will have an obligation to pay the contributions of members to a MySuper product unless a member has elected, in writing, for contributions made on their behalf to be paid to a specified choice product or products.

Exemption for defined benefit funds

2.7                   Currently, superannuation guarantee contributions made in relation to an employee’s interest in a defined benefit fund or scheme do not have to comply with the choice of fund requirements.  This will not be changed. 

2.8                   Later tranches of legislation will include an exemption to the obligation on RSE licensees to pay contributions to a MySuper product for contributions that relate to a member’s entitlement to a defined benefit.  Further, it is intended that where an employer fully meets their superannuation guarantee obligation with a notional benefit certificate from a defined benefit fund or scheme then they will be able to make additional contributions that the RSE licensee will not have to pay to a MySuper product.  That is, those additional contributions could be paid to a choice product.

Detailed explanation of new law

2.9                   Employers will have to make contributions on behalf of employees that do not have a chosen fund to a fund that is authorised by APRA to offer a MySuper product.  [Schedule 1, item 1, paragraph 32C(2)(c)]

2.10               The current subsection 32C(2) of the SG Act outlines how an employer must meet their choice of fund requirements for superannuation guarantee contributions that are on behalf of employees that do not have a chosen fund.  One of the existing requirements is that the employer contributes to a fund that complies with the regulations in relation to offering insurance in respect of death.  This requirement will not be changed; however, rules on insurance for MySuper and choice products will be included in later tranches of legislation.  [Schedule 1, item 1, paragraph 32C(2)(c)]

2.11               RSE licensees will be required to pay the contributions of all members into a MySuper product that they offer unless the member elects in writing that the contribution is to be paid into a specified choice product or more than one specified choice product.  A member may elect in writing by completing an online form or selecting a check box on a written form.  An election made in writing continues to remain in effect until a contrary election is made by the member.  If a member made an election to have contributions paid to a specified product prior to the commencement of these provisions then that election will allow for contributions to continue to be paid into that product.  [Schedule 1, item 9, division 6, section 29WA]

2.12               Employees that have a chosen fund may have superannuation guarantee contributions made to a fund whose trustee is not authorised to offer a MySuper product.  A trustee of this type of fund will not be able to pay these contributions into a choice product in their fund until the employee has elected in writing to have the contributions paid into a specified choice product.  [Schedule 1, item 9, division 6, section 29WA]

2.13               RSE licensees that offer more than one MySuper product will be able to pay contributions to any of those MySuper products to satisfy this obligation subject to any governing rules of the fund that require contributions to be placed in a given MySuper product.  It will also be possible for a member to elect to have part of their contributions made to the MySuper product and part of their contributions to a choice product in the fund if they elect in writing.  [Schedule 1, item 9, division 6, section 29WA]

2.14               Contravention of the requirement noted in paragraph 2.11 will be an offence of strict liability.  A penalty of 50 penalty units will apply.  A strict liability offence is necessary as the consequences of an RSE licensee contravening this requirement could have a detrimental impact on the retirement savings of the employees affected.  It is a reasonable expectation that RSE licensees have appropriate administrative processes in place to ensure that contributions are placed in either the MySuper product, or in a choice product where a member has made an election in writing.  [Schedule 1, item 9, division 6, section 29WA]

2.15               Later tranches of legislation will clarify that this offence will not apply to RSE licensees of funds that only provide defined benefits or to other RSE licensees in respect of contributions that are made to a defined benefit fund or scheme.  

Application and transitional provisions

2.16               These provisions will apply from 1 January 2014.  [Schedule 1, item 13]

2.17               Transitional arrangements will allow employers to make contributions on behalf of employees that do not have a chosen fund to a fund that operates an existing product for the benefit of that employer that is the subject of an application, made prior to 1 July 2013, for a MySuper product for a large employer.  RSE licensees will be able to pay these contributions to the existing product for which an application has been made prior to 1 July 2013 until APRA has decided that application.  [Schedule 1, item 12]

2.18               Should APRA refuse an application made prior to 1 July 2013 for authorisation of an existing employer plan as a MySuper product, employers will have a three month grace period in which they will be able to continue to make contributions to that fund and ensure that they can continue to satisfy their obligations to pay these contributions to a fund that offers a MySuper product.  Within the three month grace period, RSE licensees will also be able to place contributions from that employer into the existing employer plan that APRA has refused an application for a MySuper product.  [Schedule 1, item 12, subsections (5) and (6)]

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Chapter 3          

Authorisation of MySuper products

Outline of chapter

3.1                   This chapter explains the process by which RSE licensees will be authorised to offer MySuper products and an associated offence for a person misrepresenting that a fund offers a MySuper product when they are not authorised by APRA.

Summary

Application process

3.2                   APRA will be able to accept applications for authorisation to offer a MySuper product from any RSE licensee that wishes to offer a MySuper product.  RSE licensees will need to apply for authorisation for each MySuper product they wish to offer.  However, APRA cannot authorise a MySuper product for a fund that has fewer than five members or is an eligible rollover fund.  This excludes trustees of self-managed superannuation funds and small APRA-regulated funds from being able to offer MySuper products.  Pooled superannuation trusts and approved deposit funds cannot accept superannuation guarantee obligations, so will also not be able to offer a MySuper product.

3.3                   Applications are required to:

•        be in an approved form;

•        contain the information required on the approved form;

•        state the RSE licensee’s and the superannuation fund’s Australian Business Numbers (ABN); and

•        be accompanied by an up-to-date copy of the trust deed and governing rules of the fund. 

3.4                   APRA may provide a notice requesting additional information from an RSE licensee that has applied for authorisation to offer a MySuper product.

Period for deciding applications

3.5                   APRA must decide an application to offer a MySuper product within 60 days of receiving an application by the fund.  This is the same period that is allowed for a decision on an application for an RSE licence. 

3.6                   Should APRA request an RSE licensee to provide additional information in relation to its application, APRA will have a further 60 days from when it receives this information in which to decide the application.

3.7                   APRA may extend the period for making a decision on an application to offer a MySuper product by an RSE licensee by a further 60 days, providing it notifies the RSE licensee in writing of its intention.  This also includes cases where RSE licensees are requested by APRA to provide additional information.  Should APRA not have made a decision within the extended time period, the application is deemed to be refused by APRA and the RSE licensee is not authorised to offer the MySuper product. 

Authority

3.8                   Authorisation will allow an RSE licensee to accept contributions for the benefit of employees who do not have a chosen fund.

3.9                   APRA will authorise an RSE licensee to offer a MySuper product if it is satisfied that:

•        the proposed product complies with the MySuper characteristics (explained in Chapter 4 of this Explanatory Memorandum);

•        the RSE licensee is likely to comply with the MySuper fee rules (explained in Chapters 5 and 6 of this Explanatory Memorandum); and

•        the RSE licensee is likely to comply with the enhanced trustee obligations (to be contained in a later tranche of legislation). 

3.10               APRA must refuse an RSE licensee’s application for authorisation for a MySuper product if it is not satisfied of any of the elements in paragraph 3.9.  APRA’s decision to refuse an application is a reviewable decision.



 

3.11               Generally, an RSE licensee will only be authorised to offer one ‘generic’ MySuper product in a fund.  In limited circumstances, RSE licensees may apply for authorisation to offer additional MySuper products that must satisfy additional requirements described in paragraphs 3.12 to 3.14.

Product in another fund in which there is already material goodwill

3.12               An RSE licensee can apply for authorisation for a ‘separately branded’ MySuper product where there is already goodwill in that product prior to it being transferred to the fund.

3.13               APRA will have discretion to approve RSE licensees to offer more than one MySuper product within a fund in order to preserve a pre-existing brand being transferred to the fund where goodwill could not be maintained unless the RSE licensee was authorised to offer the additional MySuper product in the fund.  This will ensure that funds are not precluded from deriving any administrative or other efficiencies from operating more than one MySuper product within a fund.  Limiting authorisation of a separately branded MySuper product to cases of transfers will ensure that there is not a proliferation in MySuper products being offered within a single fund. 

MySuper products for large employers

3.14               An RSE licensee may apply to APRA for authorisation of a ‘tailored’ MySuper product that is established for a large employer and its associates that contribute to the fund on behalf of least 500 members who are either employees of the large employer or associates of that large employer.  This will enable RSE licensees to offer a tailored MySuper product to large employers where it is viable to offer a distinct product to suit the particular needs of the workplace.

Cancellation of authority

3.15               APRA will be able to cancel the authorisation to offer a MySuper product if:

•        it is not satisfied that the MySuper product continues to meet the criteria for a MySuper product;

•        an RSE licensee was authorised to offer a tailored MySuper product to a large employer and its associates that contribute to the fund for at least 500 members and this criteria is not met in respect of that tailored MySuper product at the end of its annual reporting period;

•        an RSE licensee was authorised to offer a tailored MySuper product on the expectation that a large employer and its associates would contribute to the fund for at least 500 members and this criteria is not satisfied at the end of the period specified by APRA in the authority;

•        it is no longer satisfied that the RSE licensee is likely to comply with the enhanced trustee obligations or fee rules;

•        it ceases to be satisfied that the RSE licensee is not likely to represent a product as a MySuper product when they are not authorised to do so;

•        it ceases to be satisfied that the RSE licensee will pay to a MySuper product the contributions of members who have not elected in writing to have contributions paid to a specified choice product;

•        the fund ceases to have five or more members;

•        an RSE licensee was authorised to offer a MySuper product on the expectation that the fund would have five or more members and this criteria is not met by the end of a period specified by APRA;

•        it ceases to be satisfied that the fund is not an eligible rollover fund; or

•        it is satisfied that the RSE licensee or one of the individual trustees of an RSE licensee has contravened a provision of the governing rules of the fund relating to the MySuper product.

3.16               Later tranches of legislation may also enable APRA to cancel authorisation to offer a MySuper product if an RSE licensee contravenes any of the rules to be contained in those tranches of legislation.  For example, rules relating to enhanced trustee obligations, insurance or disclosure requirements. 

Offence for offering a MySuper product without being authorised

3.17               A person cannot make representations that a product in a fund is a MySuper product unless the fund is authorised by APRA to offer that product as a MySuper product.  A breach of this provision is an offence of strict liability and subject to a penalty of 60 penalty units.

Detailed explanation of new law

Definition of MySuper product

3.18               A MySuper product is defined as a class of beneficial interest if the RSE licensee has been authorised by APRA to offer that class of beneficial interest in the fund as a MySuper product in that fund.  This definition is not intended to imply that a MySuper product is a separate financial product under the Corporations Act.  The class of beneficial interest is simply the rights and obligations that attach to that part of the member’s interest in the superannuation fund.  It most cases, the interest in the superannuation fund will be the relevant financial product.  [Schedule 1, item 6, subsection 10(1))]

3.19               A class of beneficial interest in a fund that is not a MySuper product is defined as a choice product.  [Schedule 1, item 4, subsection 10(1)]

Application process

3.20               APRA will be able to accept applications for authorisation to offer a MySuper product in a fund from any RSE licensee who wishes to offer a MySuper product.  RSE licensees will need to apply for authorisation for each MySuper product they wish to offer.  During 2012, APRA will provide guidance that will outline the information expected to be provided in an RSE licensee’s application.  [Schedule 1, item 9, division 2, subsection 29S(1))]

3.21               However, APRA cannot authorise a MySuper product for a fund with fewer than five members.  This will exclude self managed superannuation funds and small APRA-regulated funds from being able to offer a MySuper product.  The existing choice of fund requirements in the SG Act will prevent pooled superannuation trusts and approved deposit funds from accepting contributions and hence these will not be able to offer a MySuper product.  [Schedule 1, item 9, division 3, paragraph 29T(1)(d)]

3.22               To ensure that APRA is provided with detailed, 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 ABN, as well as an up-to-date copy of the trust deed and governing rules of the fund.  [Schedule 1, item 9, division 2, subsection 29S(2)]



3.23                

3.24               When an RSE licensee provides APRA with a copy of the trust deed and governing rules of the fund as part of its application, these are to already contain the amendments required for the fund to be able to offer a MySuper product.  This will ensure that APRA has all of the information that it requires when assessing an RSE licensee’s application to be able to offer a MySuper product.  [Schedule 1, item 9, division 2, subsection 29S(2)]

3.25               If any of the information provided in an application ceases to be correct or the trust deed or governing rules of the fund have been varied 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 or the amended governing rules or trust deed as soon as practicable.  [Schedule 1, item 9, division 2, subsections 29S(3), (4) and (5)]

3.26                APRA may request an RSE licensee to provide additional information before making a decision on the application.  This may occur if the information provided by an RSE licensee was insufficient to enable APRA to make a decision.  [Schedule 1, item 9, division 2, section 29SA]

Time period for deciding applications

3.27               APRA must decide an application for authorisation to offer a MySuper product within 60 days of receiving an application by an RSE licensee.  Given the extensive information required to be assessed by APRA, it is important that it be given an appropriate period of time to be able to assess each application.  [Schedule 1, item 9, division 2, paragraph 29SB(1)(a))]

3.28               However, APRA may request additional information and the initial 60 day period will restart once the RSE licensee has provided the requested information.  Any delay by the RSE licensee in providing the requested information delays the day by which APRA must make a decision.  This is the same arrangement that applies for requests for additional information in respect of RSE licence applications.  [Schedule 1, item 9, division 2, paragraph 29SB(1)(b)]

3.29               APRA may extend the period for deciding an application for authority for an RSE licensee to offer a MySuper product, provided it notifies the RSE licensee in writing, within the initial 60 day period.  APRA may only extend the initial 60 day period once.  [Schedule 1, item 9, division 2, subsections 29SB(2) and (3)]

3.30               To ensure that APRA has sufficient time in which to approve applications from RSE licensees wishing to offer a generic MySuper product before 1 July 2013, APRA will be provided with additional time to process applications for tailored MySuper products made before 1 July 2013.  APRA will have 120 days in which to consider these applications with the option of extending that period by a further 60 days.  This period will commence on 1 July 2013 if the application is made prior to that date.  RSE licensees will not be required to place member contributions from employers being considered for a tailored MySuper product into a MySuper product until APRA has made a decision on the application.  Any application received by APRA after 1 July 2013 will mean that APRA does not have the extended period to make a decision but also means the RSE licensee will not have the transitional arrangements to continue to pay contributions to that product after 1 January 2014 until a decision is made by APRA.  [Schedule 1, item 12, subsections (1) — (4)]

3.31               Where APRA has not decided on an application for authority by then end of the required period, APRA is taken to have refused the application.  This is the same process that occurs should APRA not have decided on an application for an RSE licence within the required time.  RSE licensees are not to offer MySuper products unless they have been authorised by APRA.  [Schedule 1, item 9, division 2, subsection 29SB(4)]

Authorisation process

3.32               APRA must authorise an RSE licensee to offer a MySuper product if:

•        the application is in the approved form;

•        the RSE licensee provides all of the information required by APRA to approve the authority;

•        the fund is registered, has five or more members (or is expected to have five or more members within a time period specified by APRA) and is not an eligible rollover fund;

•        the proposed product will be the only MySuper product in the fund unless it meets one of the criteria explained in paragraph 3.33;

•        it is satisfied the governing rules require that the product meets the characteristics of a MySuper product;

•        it is satisfied that the RSE licensee is likely to comply with the fee charging rules in relation to MySuper products;

•        it is satisfied that the RSE licensee is likely to comply with the enhanced trustee obligations explained in paragraph 3.32;

•        it is satisfied that the RSE licensee is not likely to represent a product as a MySuper product when they are not authorised to do so; and

•        it is satisfied that the RSE licensee is not likely to place contributions of a member that does not have a chosen product into a product that is not a MySuper product. 

[Schedule 1, item 9, division 3, subsection 29T(1)]

3.33               The enhanced trustee obligations in relation to MySuper products will be defined in subsequent tranches of legislation, including:

•        to manage the MySuper product at an overall cost aimed at optimising the best financial interests of members, as reflected in the net return over the long term;

•        to clearly articulate an investment return target (over a rolling 10-year period) and level of risk appropriate to members of the MySuper product; and

•         actively examine and conclude whether the MySuper product has access to sufficient scale (with respect to both assets and number of members) to continue to provide net returns that are in the best financial interests of members.  [Schedule 1, item 9, division 3, paragraph 29T(1)(g)]

3.34               In addition to the criteria noted in paragraph 3.31, an RSE licensee may offer more than one MySuper product in a fund if one of the following criteria is met:

•        the RSE licensee is already authorised to offer a generic MySuper product in the fund, however, the proposed MySuper product satisfies either the goodwill or large employer requirements;

•        the RSE licensee is seeking to apply for authorisation of a generic MySuper product and is already authorised to offer one or more MySuper products in the fund but each of those authorised products would satisfy either of the goodwill or large employer requirements. 

[Schedule 1, item 9, division 3, paragraph 29T(1)(f)]

3.35               If APRA is satisfied that all of the requirements noted in paragraph 3.31 are satisfied, it must authorise an RSE licensee to offer that MySuper product.  It must notify the RSE licensee in writing that their application has been approved.  [Schedule 1, item 9, division 3, sections 29T and 29TD]

3.36               RSE licensees may only offer MySuper products from 1 July 2013.  Should an RSE licensee be authorised to offer a MySuper product before this date, the authority will not take effect until 1 July 2013.  [Schedule 1, item 11]

3.37               An RSE licensee that receives authority from APRA to offer one or more MySuper products must only offer an authorised product and no other product as a MySuper product in the fund or in another fund operated by the RSE licensee.  RSE licensees are required to be authorised by APRA for each MySuper product they wish to offer.  [Schedule 1, item 9, division 6, section 29W]

3.38               If the requirements noted in paragraph 3.31 are not satisfied, then APRA is required to refuse an application to offer a MySuper product.  [Schedule 1, item 9, division 3, subsection 29T(2)]

3.39               APRA must notify an RSE licensee in writing whether their product has been authorised or refused authorisation.  In the event that authorisation is refused, APRA must provide the RSE licensee with reasons as soon as practicable after the decision is made.  [Schedule 1, item 9, division 3, sections 29TD and 29TE)]

3.40               Should APRA refuse an application from an RSE licensee for authorisation to offer a MySuper product, this will be a reviewable decision.  [Schedule 1, item 7, paragraph 10(1)(doa)]

3.41               Additional standard licence conditions will exist for all RSE licensees that are authorised to offer a MySuper product.  The RSE licensee must ensure the governing rules of the fund are not changed such that the MySuper product no longer satisfies the characteristics required for a MySuper product.  The RSE licensee must also ensure they do not contravene any of the governing rules of the fund in relation to the MySuper product.  [Schedule 1, item 8, subsection 29E(6A)]

Product in another fund in which there is already material goodwill

3.42               An exception will allow RSE licensees to apply to APRA for authorisation to be able to offer more than one MySuper product per fund in order to preserve a corporate brand if APRA is satisfied of several factors: 

•        the new proposed MySuper product is similar to the product from the original fund from which members are being transferred, for example with respect to the investment strategy, insurance and fees.  The product must be maintained to ensure that it is sufficiently similar so that the goodwill in that product will continue (goodwill is an intangible asset which is already a well understood concept).  If the product was changed significantly, this would remove the justification for a separately branded MySuper product;

•        there is material goodwill in the product of the original fund and that goodwill could not be maintained unless the RSE licensee is authorised to offer the proposed new MySuper product; and 

•        it would be in the best interest of all members of the fund to maintain the distinction between the proposed MySuper product and the existing MySuper product already authorised.  [Schedule 1, item 9, division 3, section 29TA]

3.43               For the avoidance of doubt, this Bill will not prevent RSE licensees from having more than one product disclosure statement for a MySuper product.  This includes using employer names to label a MySuper product or using an RSE licensee’s different brand names to label a MySuper product.  However, this does not permit any variation in the features of the underlying product that is offered under a different label.  Therefore, for example, two members that enter a MySuper product under different labels will have the same investment strategy and will be charged the same fee structure.

3.44               Where an RSE licensee labels or badges a MySuper product they must continue to meet the obligations of Part 7.10 of the Corporations Act.  Therefore, to ensure that product disclosure statement documentation is not misleading, the name of the underlying MySuper product should be clearly stated.

MySuper authorisation for large employers

3.45               RSE licensees will be able to apply to APRA for authorisation to offer a tailored MySuper product to large employers for their employees.  As a matter of practice, APRA may not accept applications from RSE licensees for authorisation of a tailored MySuper product until there is evidence of an employer’s intention to contribute to the fund.  Therefore, an RSE licensee participating in a tender process should not submit an application until they have been selected by that process and have evidence supporting this, for example a letter of intent or an executed contract.  [Schedule 1, item 9, division 3, section 29TB]

3.46               A tailored MySuper product could be fundamentally different to a fund’s generic MySuper product, including with respect to its investment strategy, services and fees.  Therefore, separate authorisation of tailored MySuper products provides certainty to employers and their employees that the product meets all of the relevant legislative criteria and will not be disallowed by APRA after it has been put in place and started to receive contributions. 

3.47               However, recognising that tailored MySuper products are likely to often be based on a fund’s generic MySuper product, or previously authorised tailored products, APRA will only assess tailored MySuper products for any differences from a MySuper product that has already been authorised.  Therefore, where there are few differences in a tailored MySuper product, it can be expected the authorisation process will be quicker and require less effort by the RSE licensee.

3.48               This approach to the authorisation process aims to ensure there are no unnecessary constraints on employers who may wish to consider switching their default fund by conducting an open tender process.

3.49               The Treasury will conduct a review of the authorisation process within two years of the commencement of the MySuper regime on 1 July 2013 to assess the efficiency of the authorisation process.  The review will examine any impacts on commercial tender processes and the time taken by APRA to assess and decide applications for tailored MySuper products. 

3.50               To qualify as a large employer, an employer or associate of that employer must contribute or would, apart from a temporary cessation of contributions, contribute to the fund for the benefit of at least 500 members who are either employees of that employer or employees of associates of that employer.  For an employer that is not currently contributing to that fund, they may qualify if APRA expects that the employer and its associates will contribute for 500 members by the end of a time period specified by APRA.  This excludes any employee of the employer or associate in respect of whom the employer or its associates does not make contributions on their behalf to the fund as well as employees that have a chosen fund different to the fund offering the tailored MySuper product.  Associate is defined at section 12 of the SIS Act and is broadly consistent with the definition of associate in the Corporations Act.  [Schedule 1, item 9, division 3, paragraph 29TB(1)(b) and subsection 29TB(2)]

3.51               Later tranches of legislation will also clarify that contributions made to the fund that offers the tailored MySuper product by a large employer for employees that only relate to a member’s entitlement to a defined benefit do not count towards the 500 members required for a tailored MySuper product.

3.52               Under the governing rules of the fund, the tailored MySuper product may only be open to:

•        an employee or a former employee of the large employer;

•        an employee or a former employee of an associate of that large employer; or

•        relatives or dependants of an employee or former employee of the large employer and relatives or dependants of an employee or former employee of an associate of the specified employer. 

[Schedule 1, item 9, division 3, paragraph 29TB(1)(c)]

3.53               However, under the governing rules of the fund, the tailored MySuper product must be open to:

•        all employees of the large employer where that large employer or an associate of that large employer contributes to the fund or would, apart from a temporary cessation of contributions, contribute to the fund for at least one employee of that large employer; and

•        all employees of an associate of that large employer where the large employer or an associate of that large employer contributes to or would, apart from a temporary cessation of contributions, contribute for at least one employee of that associate. 

[Schedule 1, item 9, division 3, paragraph 29TB(1)(a)]

3.54               An employer may be required by a modern Award to make contributions to a specified fund or one of a group of specified funds for employees that are employed under that Award and do not have a chosen fund.  Employers may contribute to a tailored MySuper product in another fund for other employees that are not employed under the Award.  However, the tailored MySuper product must still be open to all employees even though default contributions cannot be made to the fund for the employees that are employed under the modern Award.  [Schedule 1, item 9, division 3, paragraph 29TB(c)]

3.55               If a member of a tailored MySuper product was to no longer meet the requirements to remain a member of that particular product under the governing rules of the fund, then the RSE licensee will be able to transfer that member into another MySuper product within the same fund or to an eligible rollover fund.  For some tailored MySuper products a member may no longer be eligible to remain in the product if they ceased being an employee of the large employer, whereas in other tailored MySuper products former employees may be able to remain within the product.  [Schedule 1, item 9, division 3, paragraph 29TB(1)(h)]

Cancellation of authorisation

3.56               APRA will be able to cancel the authorisation of a MySuper product if:

•        it ceases to be satisfied that the governing rules of the fund  meets the required characteristics of a MySuper product;

•        the RSE licensee was authorised to provide a tailored MySuper product to a large employer and that large employer either no longer meets the requirements to be offered this product on the last day before the annual reporting period or did not meet the 500 member test by the end of the period specified in the authority;

•        it ceases to be satisfied that the RSE licensee is likely to comply with the enhanced trustee obligations in relation to MySuper products;

•        it ceases to be satisfied that the RSE licensee will satisfy the fee rules in relation to MySuper products;

•        it ceases to be satisfied that the RSE licensee is not likely to represent a product as a MySuper product when they are not authorised to do so;

•        the fund no longer has five or more members, or was granted authorisation on the basis that the fund is expected to have five or more members within a time period specified by APRA and that fund does not have five or more members by the end of that time period;

•        it ceases to be satisfied that the fund is not an eligible rollover fund;

•        the RSE licensee contravenes a governing rule of the fund in relation to the MySuper product; or

•        the fund ceases to be registered. 

[Schedule 1, item 9, division 4, subsection 29U(2)]

3.57               If APRA decides to cancel the authorisation of an RSE licensee to offer a MySuper product, it is required to notify the RSE licensee in writing of the reasons for their decision.  [Schedule 1, item 9, division 4, subsections 29U(1) and (3)]

3.58               APRA will be required to consult with the Australian Securities and Investments Commission (ASIC) before deciding to cancel an authorisation to offer a MySuper product for an RSE licensee that is also a financial services licensee if it believes that the cancellation will affect the RSE licensee’s ability to offer one or more financial services.  Further, if APRA cancels the licence of an RSE licensee that is also a financial services licensee, it is required to notify ASIC within one week of the cancellation.  However, failing either of these requirements will not invalidate the cancellation of the authorisation.  [Schedule 1, item 9, division 4, section 29UA]

3.59               APRA may specify in its notice of cancellation of an authorisation to offer a MySuper product that the authority may continue in effect as if the cancellation had not occurred for specified provisions of the SIS Act or Superannuation Industry (Supervision) Regulations 1994 ( SIS Regulations), or any other law of the Commonwealth.  In relation to specified matters or for a specific period of time or both.  For example, APRA may allow a MySuper authorisation to continue for a specified period of time for a tailored MySuper product if the authorisation is cancelled due to the employer no longer meeting the specified requirements, to allow sufficient time to transfer member interests to another MySuper product.  [Schedule 1, item 9, division 4, section 29UB]

3.60               It is intended that later tranches of legislation may also enable APRA to cancel authority for an RSE licensee to be able to offer a MySuper product if it breaches any of the conditions around insurance or disclosure requirements. 

3.61               It is also intended that a cancellation of authority to offer a particular MySuper product will require the RSE licensee to transfer the accrued balances of the members of that product to an authorised MySuper product.  This will be clarified in later tranches of legislation in conjunction with provisions dealing with transition of accrued balances.

3.62               A decision by APRA to cancel an RSE licensee’s authorisation of a MySuper product will be a reviewable decision.  [Schedule 1, item 7, paragraph 10(1)(dob)]

Misrepresentation of MySuper products

3.63               All persons will be prohibited from being able to offer MySuper products unless they are authorised by APRA.  If a person represents that they offer a MySuper product when they are not authorised, this is an offence of strict liability.  A penalty of 60 penalty units will apply.  [Schedule 1, item 9, division 6, section 29W]

3.64               A strict liability offence is necessary as the consequences of an RSE licensee contravening this provision could inadvertently cause an employer contributing superannuation benefits for their employees to the fund to be in breach of its requirements under the SG Act , which may cause that employer to incur a superannuation guarantee shortfall charge.  [Schedule 1, item 9, division 6, subsection 29W(2)]

Application and transitional provisions

3.65               These provisions will commence from 1 January 2013 or a single day to be fixed by Proclamation.  An earlier day may be set by Proclamation for the commencement of these provisions if APRA is able to begin accepting applications for authorisation.  [Item 2, subsection (2)]

3.66               Commencing the provisions from 1 January 2013 provides certainty to industry that applications for authorisation to offer a MySuper product will be accepted from this date.  However, if APRA has issued prudential standards and is able to begin accepting applications prior to 1 January 2013, allowing an earlier day to be fixed by Proclamation means that applications could be made earlier providing a longer lead time for both funds and APRA.

3.67               This will allow RSE licensees to apply for authorisation to offer a MySuper product prior to being able to offer the product on 1 July 2013.  [Schedule 1, item 11]

Do not remove section break.



Chapter 4          

Characteristics of MySuper products

Outline of chapter

4.1                   This chapter explains the key characteristics of MySuper products. 

Summary

4.2                   To offer a MySuper product, a fund’s governing rules must set out the rights, obligations and rules relating to the MySuper product. 

4.3                   To authorise an RSE licensee to offer a MySuper product, APRA must be satisfied that the governing rules of the fund ensure that the MySuper product will have certain characteristics.  These characteristics are that the class of beneficial interest that is a MySuper product has:

•        a single, diversified investment strategy;

•        equal access to options, benefits and facilities for all members of the MySuper product;

•        processes for amounts to be attributed to members in a way that does not stream gains or losses to only some members of the MySuper product, with an exemption for lifecycle investment strategies;

•        no differences in the extent of fee subsidisation of employees of a certain employer if fee subsidisation is allowed by employers;

•        no limits on the source or kinds of contributions made by or on behalf of members;

•        a prohibition on replacing a member’s interest in that MySuper product with another beneficial interest unless the member consents in writing to the replacement no more than 30 days before the replacement occurs or the replacement is permitted, or is required, by a law of the Commonwealth; or

•        no pension benefits paid from the assets of the MySuper product to members in retirement.

Detailed explanation of new law

Single, diversified investment strategy

4.4                   For an RSE licensee to be authorised to offer a MySuper product, APRA must be satisfied that the fund has governing rules (including the trust deed) that has a class of interest that meets the characteristics of a MySuper product.  [Schedule 1, item 9, division 3, paragraph 29T(1)(g)]

4.5                   MySuper products must have a single, diversified investment strategy in relation to those assets that are attributable to the MySuper product.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)]

4.6                   RSE licensees must be able to clearly identify those assets which are attributable to each MySuper product they offer.  This will be necessary for the RSE licensee to satisfy the requirement that they adopt a single diversified investment strategy in relation to the assets of the MySuper product.  In addition, it will be necessary for the RSE licensee to be able to identify the assets attributable to each MySuper product for reporting to APRA.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)]

4.7                   An RSE licensee can separately identify assets by separately accounting for those assets thereby allowing MySuper products to fit within an existing fund.  Assets that underpin a MySuper product do not have to be physically segregated from assets that underpin choice products within the fund.  Hence, underlying assets of MySuper products and choice products may be pooled for investment purposes.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)]

4.8                   RSE licensees that are authorised to offer more than one MySuper product may have a separate investment strategy for each MySuper product they offer, although the same investment strategy could be used for two or more MySuper products that they offer.  As noted by paragraph 4.6, in this case, an RSE licensee must be able to identify the assets attributed to each MySuper product that use the same investment strategy.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)]

4.9                   A lifecycle investment strategy will be able to be adopted as the single diversified investment strategy of the MySuper product.  RSE licensees that offer a lifecycle investment strategy for their MySuper product may vary the method of crediting investment returns to a member’s account, on the basis of:

•        the member’s age;

•        on the basis of the age of the member and other factors prescribed by regulations; or

•        on the basis of the age of the member and other factors in circumstances prescribed by the regulations. 

[Schedule 1, item 9, division 3, subsection 29TC(2)]

4.10                However, the lifecycle investment strategy must be the same for all members of that MySuper product.  For example, two members with the same characteristics taken into consideration by the RSE licensee in determining the lifecycle strategy must have the same investment returns credited to their accounts.  [Schedule 1, item 9, division 3, subsection 29TC(2)]

Access to options, benefits and facilities

4.11               The same options, benefits and facilities must be available to all members of a MySuper product.  This includes, but is not limited to, access to call centres, member education, intra-fund advice if offered, the capacity to make death benefit nominations, online account information or other services that may be provided by the RSE licensee for members of the MySuper product.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(b)]

4.12               This rule applies to each MySuper product.  For example, an RSE licensee could provide a member education seminar if it was open to all members of their MySuper product.  The fund could not restrict the availability of that seminar to only the employees of a certain employer.  However, an RSE licensee that offers a tailored MySuper product that only has members that are employees of a large employer could provide a member education seminar only for the benefit of the employees of that employer.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(b)]

4.13               Providing access to the same options, benefits and facilities does not require services to be delivered in an identical way to all members.  For example, education seminars may not be able to be provided in person to all members of the fund.  If that is the case, an RSE licensee may provide equal access to education seminars by offering them in a few key locations and provide access to members unable to attend in person by placing the educational material used in the seminars on the fund’s website.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(b)]

4.14               Any service or activity provided by an RSE licensee that is organised, and is directly paid for in full, by a particular employer and not paid for from fund assets can be made available to certain employees only.  This is a service provided by an employer and should not be considered a MySuper product feature, irrespective of whether it is associated with employees of the particular employer who are members of a MySuper product in a fund operated by that RSE licensee.

4.15               Later tranches of legislation will clarify that access to insurance cover may differ for members as a result of their age, medical status, occupation or other factors. 

Attributing gains and losses to member accounts

4.16               The same process must be adopted in attributing gains and losses to the accounts of members of a MySuper product.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(c)]

4.17               With respect to investment returns, preference will not be able to be given to certain members by attributing gains and losses over a different period for those members.  The only exception is for lifecycle investment strategies that will allow the investment returns of certain assets to be allocated to members based on their age and, if used by the RSE licensee, other factors prescribed by regulations.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(c)]

4.18               Similarly, with respect to fees, the timing and process for charging these fees from member accounts must be the same.  If an investment fee is deducted from member accounts, this must be applied to all member accounts at the same time.  For example, an investment fee cannot be deducted monthly from a certain subgroup of members and annually from another subgroup of members.  [Schedule 1, item 9, division 5, subsection 29VA(1)]

4.19               To the extent that an employer chooses to directly subsidise the fees of their employees that are members of a MySuper product, a different process may be adopted to accommodate the fee subsidisation.  If an employer chooses to subsidise the fees of employees through increased contributions then there would be no basis for a differentiation in the process used to deduct fees from member accounts.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(d) and (e)]

4.20               For example, the MySuper product may provide for an investment fee to be deducted monthly.  While the investment fee must be the same for each member and calculated on the same basis for all members, an RSE licensee could invoice an employer for the fees they choose to subsidise and allow for this to be paid at the end of the financial year rather than at the same time the member would otherwise pay that fee.  

4.21               Employers that subsidise fees will not be able to subsidise their employees differently.  If the employer subsidises a flat fee, then the amount by which that flat fee is reduced by fee subsidisation must be the same for all employees of that employer who are members of the MySuper product.  If the employer subsidises a percentage-based fee, then the amount by which the percentage is reduced by fee subsidisation must be the same for all employees of that employer.  Similarly, if the employer subsidises a fee that is a combination of a flat fee and a percentage-based fee, then the amount that the flat fee and percentage-based fee is reduced must be the same for all employees of that employer who are members of the MySuper product.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(e)]

Contributions

4.22               The governing rules in relation to a MySuper product will not be able to impose any limitation on the source of contributions by, or on behalf of, members of the MySuper product.  Contributions must be accepted to a MySuper product whether they are made by an employer or the member directly.  However, this does not require contributions to be accepted by a non-public offer fund from any individual.  The governing rules of the fund may limit who may become a member of the fund.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(f)]

4.23               There will also be no limitation to the kind of contributions made by or on behalf of members, unless those contributions are of a kind prescribed by the regulations.  The kinds of contributions that may be made by or on behalf of members include, but are not limited to superannuation guarantee contributions, salary sacrifice contributions, after-tax contributions and spouse contributions.  RSE licensees must also not limit roll-overs or transfers to a MySuper product unless they are permitted to refuse acceptance of a rollover or transfer in respect of members of the MySuper product as set out in the SIS Regulations.  The regulations may provide, for example, that RSE licensees will not be required to accept in-specie contributions and contributions in foreign currencies, however, RSE licensees will be able to accept these contributions if they elect to do so.  RSE licensees will also not have to accept any source or kind of contribution where a limitation is imposed under a law of the Commonwealth or the general law.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(f)]

Transfers

4.24               An RSE licensee may only transfer a member’s interest in a MySuper product to any other product in the fund, whether it is another MySuper product or a choice product, where the member provides the RSE licensee with consent to the transfer.  An RSE licensee may only transfer a member’s interest in a MySuper product to another fund if the member provides consent, or where the transfer is required or permitted by a law of the Commonwealth.   Consent must be in writing and be given no more than 30 days before the transfer occurs.  [Schedule 1, item 9, division 3, paragraph 29TC(1)(g) and (h)]

4.25               Currently, section 1017B of the Corporations Act requires that where: there is a material event or significant change to a member’s interest that would require a change to the product disclosure statement; or any other change that is prescribed by the regulations; then that member must be provided with a notice explaining the nature of the change.  A notice of this type will now also have to be provided by RSE licensees where the regulations prescribe certain situations where an interest in a MySuper product is transferred.  In these circumstances, a notice may not have been required currently under section 1017B possibly because the nature of the change may have already been disclosed in the product disclosure statement.  These regulations may prescribe, for example, a notice to be given where a trustee recommends or offers to the member to transfer their interest in a MySuper product to any other product, whether it is another MySuper product or a choice product.  [Schedule 1, item 1A, paragraph 1017B(1A)(c)]

4.26               Under section 1017B of the Corporations Act, notice must be given 30 days prior to a change in fees or charges taking effect.  For consistency with these requirements, consent in writing must be given no more than 30 days before a transfer occurs.  This ensures that the member, prior to deciding to provide consent, has the benefit of a notice setting out the changes to their interest that will result from transferring to another MySuper product or to a choice product.  It is also appropriate that a member’s decision to transfer their interest is contemporaneous with the transfer actually occurring.

4.27               RSE licensees may transfer members without their consent to another superannuation fund if the transfer is permitted or required under a law of the Commonwealth.  This allows transfers to be made of a member’s interest to eligible rollover fund that is permitted under Part 24 of the SIS Act.  This will also permit an RSE licensee to transfer members to a successor fund.  However, it is intended that the SIS Regulations will be amended to make it clear that where a member’s interest in a MySuper product is being moved to another fund it will only satisfy the meaning of a successor fund if that member’s interest is placed in a MySuper product.  In other words, to comply with the equivalent rights test, it will be necessary for a member’s interest in a MySuper product to be moved to another MySuper product.  [Schedule 1, item 9, division 3, subparagraph 29TC(1)(h)(ii)]

4.28               This will also allow transfers to occur under any future law of the Commonwealth once enacted, such as the automatic consolidation of accounts that will not require the consent of the member.

MySuper products limited to pre-retirement phase

4.29               RSE licensees will not be permitted to brand any form of retirement pension product as a MySuper product.  For this reason, a pension will not be payable within a MySuper product to members on meeting a condition of release for retirement or reaching preservation age.  RSE licensees will still be able to pay pensions to retirees within the fund as is presently the case; however, they will be required to move these member’s interests into a separate choice product before commencing pension payments.   [Schedule 1, item 9, division 3, paragraph 29TC(1)(i)]

4.30                This is not intended to prevent the payment of an income stream benefit under an insurance policy where the member has ceased work on account of ill-health (whether physical or mental).  Allowing pension-style insurance benefits to be paid to a member while they are a member of the MySuper product will be clarified in later tranches of legislation.

4.31               Although a post-retirement option is not available within MySuper at the moment, the Government will consult with relevant stakeholders on whether MySuper products should be required to include a post-retirement offering at some time in the future and the framework that should apply.

Application and transitional provisions

4.32               These provisions will commence from 1 January 2013 or a single day to be fixed by Proclamation.  An earlier day may be set by Proclamation for the commencement of these provisions if APRA is able to begin accepting applications for authorisation.

4.33               Commencing the provisions from 1 January 2013 provides certainty to industry that applications for authorisation to offer a MySuper product will be accepted from this date.  However, if APRA has issued prudential standards and is able to begin accepting applications prior to 1 January 2013, allowing an earlier day to be fixed by Proclamation means that applications could be made earlier providing a longer lead time for both funds and APRA.

4.34               This will allow RSE licensees to apply for authorisation to offer a MySuper product prior to being able to offer the product on 1 July 2013.  [Schedule 1, item 11]

Do not remove section break.



Chapter 5          

Permitted fees for MySuper products

Outline of chapter

5.1                   This chapter outlines all of the fees that RSE licensees are able to charge members in relation to a MySuper product.

Summary

5.2                   RSE licensees will only be able to charge the following fees in relation to MySuper products:

•        an administration fee;

•        an investment fee;

•        a buy-sell spread;

•        a switching fee;

•        an exit fee; and

•        an activity fee(s).

5.3                   RSE licensees will be prohibited from charging any other fee types in relation to MySuper products.

5.4                   This will prevent RSE licensees from being able to deduct fees from member accounts that are not within the scope of the permitted fees in relation to MySuper products, for example entry fees. 

5.5                   The charging rules for each fee type in relation to MySuper products are described in more detail in Chapter 6 of this Explanatory Memorandum.

Detailed explanation of new law

5.6                   An RSE licensee will only be permitted to charge six types of fees to members in relation to a MySuper product.  These are: an administration fee; an investment fee; a buy-sell spread; a switching fee; an exit fee; and an activity fee(s).  [Schedule 1, item 9, division 5, subsection 29V(1)]

5.7                   RSE licensees are not required to charge any of the permitted fees, however, if they elect to charge a fee, they may only charge a permitted fee.

5.8                   Insurance premiums are not described as a permitted fee.  However, this is not intended to prevent an RSE licensee from deducting from member accounts an amount that reflects the premium that is attributable to each member.  That premium may reflect the characteristics of the member such as age and occupation, and may also reflect the member’s choice of coverage.  Later tranches of legislation will include rules in relation to insurance cover in MySuper products. 

5.9                   A member may be charged an administration fee for purposes that relate to the administration and operation of the fund.  An administration fee may include, but is not limited to, recovering costs of:

•        processing contributions and dealing with employer-sponsors;

•        providing member communication (for example, call centres);

•        administration of the trustee office;

•        levies required to be paid to APRA;

•        product development;

•        overheads, including accommodation and information technology; and

•        intra-fund advice (to be defined in more detail in a later tranche of legislation). 

 [Schedule 1, item 9, division 5, subsection 29V(2)]

5.10               A member may be charged an investment fee for costs that relate to the investment of the assets of the fund, including the payment for the care and expertise in the investment and choice of the assets and transaction costs incurred by the RSE licensee in relation to investment products.  An investment fee may include, but is not limited to, recovering costs of:

•        engaging investment managers;

•        performance based fees paid to investment managers;

•        directly managing investments;

•        transaction costs involved in the buying and selling of assets; and

•        asset consulting.

[Schedule 1, item 9, division 5, subsection 29V(3)]

5.11               Administration and investment fees must relate to the relevant costs of administration and operation of the fund and the investment of the assets of the fund respectively.  This does not restrict these fees to strictly recovering costs, but may also include a profit margin for the RSE licensee.  [Schedule 1, item 9, division 5, subsections 29V(2) and (3)]

5.12               This Bill does not restrain an RSE licensee to deducting only the fee disclosed in the product disclosure statement for the relevant period.  Rather, where costs vary from the disclosed fee, the variation in costs may be charged to members as part of the administration fee or investment fee.  For example, the variation may be charged to member accounts as an administration fee subsequent to the disclosed administration fee being charged.  However, these amounts that are charged must still comply with a fee charging rule at the point in time it is charged as explained at Chapter 6 of this explanatory memorandum.

5.13               All costs that an RSE licensee could properly incur in relation to a MySuper product should be able to be recovered under an administration fee or investment fee.  However, the RSE licensee may instead separately charge for certain costs in exit fee, switching fee, buy-sell spread or activity fee.  An RSE licensee may choose to do this to recover the costs of these actions from members in relation to which the relevant action is taken instead of charging for these costs across all members of the MySuper product.  [Schedule 1, item 9, division 5, sections 29V]

5.14               For superannuation funds that operate a unitised MySuper product, the buy-sell spread is the difference between the price at which a unit of the fund is valued and the price for which a unit may be purchased or sold.  A member may be charged a fee for the transaction costs incurred by the RSE licensee from the acquisition or disposal of assets should a member make a contribution to the fund, or redeem assets from the fund through leaving the fund or through changing their investment mix within the existing fund.  Buy-sell spreads will be limited to cost recovery.  [Schedule 1, item 9, division 5, subsection 29V(4)]

5.15               A member may only be charged a switching fee to recover the costs incurred by the RSE licensee if a member decides to move all or part of their interest in the fund to a different investment option.  This may be incurred if a member moves all or part of their interest to a different product within the fund including:

•        from a MySuper product to a choice product;

•        from a choice product to a MySuper product;

•        from a choice product to a choice product; or

•        from a MySuper product to a MySuper product. 

[Schedule 1, item 9, division 5, subsection 29V(5)]

5.16               RSE licensees will be able to waive switching fees if they elect to do so, however, if charged, these fees will be limited to cost recovery.  This will allow, for example, an RSE licensee to permit members to make a certain number of free switches in a given period.  [Schedule 1, item 9, division 5, subsection 29V(1)]

5.17               An exit fee may only be charged to a member to recover the direct costs incurred by the RSE licensee when that member withdraws all or part of their benefits from the fund.  Exit fees will be restricted to cost recovery.  An exit fee cannot be charged in relation to a member transferring to the pension product in the fund.  A switching fee could be charged in relation to this event.  However, as the costs of transferring a member to a pension product in the fund may be greater than an investment switch, an RSE licensee could choose to recover these costs as a separate fee in the pension product that will not be subject to the charging rules that apply to MySuper products.  [Schedule 1, item 9, division 5, subsection 29V(6)]

5.18               An activity fee may be charged to a member to recover the transaction costs incurred by RSE licensees that:

•        are directly related to an activity that the RSE licensee has engaged in, on the member’s request; or

•        that relates to the member as required by law.  [Schedule 1, item 9, division 5, subparagraph 29V(7)(a)(i)]

5.19               Activity fees will allow RSE licensees to recover costs incurred as a result of a one off transaction in relation to a member.  If an RSE licensee charges an activity fee for a transaction, they cannot recover the costs of that transaction as exit fees, switching fees or buy-sell spreads.  Examples of an activity fee include a family law fee, whereby a member is required to have their account split as a result of a family law settlement, or a death benefit nomination.  Activity fees will be limited to cost recovery in MySuper products.  [Schedule 1, item 9, division 5, paragraph 29V(7)(b)]

5.20               These definitions of fees will be used in later tranches of legislation to ensure that exit fees, switching fees and buy-sell spreads are limited to cost recovery.  Cost recovery is not intended to apply to each instance of the fee being charged to a member.  Rather, a fee limited to cost recovery must be equal to the average cost for the fund in undertaking that action.

5.21               Later tranches of legislation will also define those fees for financial advice that can be deducted from member accounts.  There will also be specific charging rules that, in certain circumstances, permit fees for financial advice to be charged differently to members.

Application and transitional provisions

5.22               These provisions commence on 1 January 2013.

5.23               However, an RSE licensee will only be authorised to offer a MySuper product from 1 July 2013 and must only charge the permitted fees in relation to a MySuper product from this date.  [Schedule 1, item 11]

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Chapter 6          

Fee charging rules for MySuper products

Outline of chapter

6.1                   This chapter outlines the rules for the charging of fees to members of a MySuper product.

Summary

6.2                   If an RSE licensee charges a fee to members of a MySuper product, it may only do so under one of the fee charging rules. 

6.3                   The fee charging rules apply to each of the fees that are permitted to be charged in relation to a MySuper product, explained in Chapter 5 of this Explanatory Memorandum.

6.4                   The fee charging rules will prohibit an RSE licensee from discriminating between members in relation to how they charge fees to members of a MySuper product.  This does not mean that members will necessarily be charged the same fees in terms of dollars, but rather members must be charged fees on a consistent basis. 

6.5                   The three charging rules under which a fee can be charged in relation to a MySuper product are:

•        a flat fee to all members, whereby each member pays the same fee for the product or service;

•        a percentage fee to all members, whereby each member is charged the same percentage of their account balance at a point in time for the service or product; or

•        a flat fee plus a percentage fee to all members, whereby each member of the MySuper product is charged the same flat fee and the same percentage of their account balance at a point in time for the service or product.

6.6                   If an RSE licensee charges a permitted fee to members of a MySuper product, they must use the same charging rule for each member of that MySuper product.

6.7                   There are two exceptions to these charging rules that allow different fees to apply to certain members. 

6.8                   First, a specific set of charging rules apply to the administration fee for employees of an employer that are members of the MySuper product if their employer has secured a discounted administration fee under the single employer exemption as described in paragraph 6.18. 

6.9                   Second, a specific set of charging rules apply to investment fees for RSE licensees charge different investment fees in a MySuper product if it has a lifecycle investment strategy, it charges no more than four investment fees and the investment fees for the age cohorts reflect a fair and reasonable attribution of the investment costs of the fund between the age cohorts

6.10               Other than where an RSE licensee is relying on one of these two exemptions than all other fees charged to members of a MySuper product are to be charged on a consistent basis. 

6.11               An RSE licensee that offers a tailored MySuper product must comply with the fee charging rules for each member of that tailored MySuper product.

Detailed explanation of new law

6.12               The intention of the new fee charging rules is to prevent RSE licensees from discriminating between members of a particular MySuper product in relation to the process by which they charge permitted fees.

6.13               If an RSE licensee elects to charge a permitted fee to members of a MySuper product, it must satisfy one of the charging rules.  The three charging rules under which a fee can be charged in relation to a MySuper product are:

•        each member of a particular MySuper product is to be charged the same flat fee over the same period of time; 

•        each member of a particular MySuper product is to be charged the same percentage of their account balance in relation to the MySuper product at a particular point in time, for a fee over the same period of time; and 

•        each member of a particular MySuper product is to be charged the same flat fee plus the same percentage of their account balance that relates to the MySuper product at a particular point in time, for a fee over the same period of time.  [Schedule 1, item 9, division 5, subsections 29VA(1) — (7)]

6.14               For any fee that applies to all members of the MySuper product, such as an administration fee or an investment fee, each member is to be charged the fee under the same charging rule.  For example, if one member is charged a percentage of their account balance in relation to the MySuper product as an administration fee, then each member of the MySuper product should be charged the same percentage of their account balance in relation to the MySuper product at the same point in time.  This is to avoid any discrimination on the process under which a member is charged a fee.  [Schedule 1, item 9, division 5, subsections 29VA(1) — (4)]

6.15               RSE licensees that offer a MySuper product with a lifecycle investment strategy will be required to charge all members the same investment fee, regardless of which stage of the lifecycle they belong to.

6.16               If an RSE licensee elects to charge a member-specific fee, such as a buy-sell spread, switching fee, exit fee or an activity fee, each member to which that fee relates must be charged the fee under the same charging rule.  For example, if one member is charged a flat fee in relation to switching between two different investment options, then each other member who switches between different investment options should be charged the same flat fee.  [Schedule 1, item 9, division 5, subsections 29VA(5) — (7)]

6.17               If an RSE licensees charges a percentage based fee for a buy-sell spread, switching fee, exit fee or activity fee, then the percentage fee must apply to that part of a member’s account to which the relevant action is taken action.  For example, should a member wish to transfer half of their account balance from a MySuper product to a choice product, the RSE licensee will be permitted to charge a fixed percentage fee on that half of the member’s account being transferred.  [Schedule 1, item 9, division 5, subsections 29VA(5) — (7)]

Single Employer Exemption for Administration Fee

6.18               RSE licensees will be able to offer to employers an arrangement that secures a discounted administration fee for their employees in relation to a generic MySuper product.  This will allow RSE licensee to pass on the lower costs from any administrative efficiency of dealing with an employer to the employees of that employer.  RSE licensees will not be permitted to provide discounts to employers in relation to any of the other permitted fee types within a MySuper product.  [Schedule 1, item 9, division 5, section 29VB]

6.19               Any RSE licensee that offers a discounted administration fee will be required to adhere to one of the charging rules.  No employee is to be given preference over another employee who is a member of the MySuper product under these charging rules.  The three permitted charging rules in relation to administration fees for employees whose employer has negotiated a discounted administration fee are:

•        each employee that holds an interest in a particular MySuper product, whose employer has secured a discounted administration fee in that product, must be charged the same flat administration fee; 

•        each employee that holds an interest in a particular MySuper product, whose employer has secured a discounted administration fee in that product, must be charged the same percentage of their account balance in relation to the MySuper product at a particular point in time, in relation to the administration fee; and 

•        each employee that holds an interest in a particular MySuper product, whose employer has secured a discounted administration fee in that product, must be charged the same flat fee plus the same percentage of their account balance that relates to the MySuper product for the administration fee.  [Schedule 1, item 9, division 5, subsections 29VB(2) — (4)]

6.20               Employees of employers that contribute to a tailored MySuper product are not entitled to any further administration fee discounts under this exemption.  A tailored MySuper product is established for a single large employer who will be the only employer sponsor for that MySuper product, so by definition, there is no capacity to provide a discount to the administration fee as there are no other employer sponsors within the MySuper product.  As no member of this product is to be given preference under the charging rules, it would not be possible to provide an administration fee discount to any subgroup of members within that MySuper product.

6.21               It is intended that later tranches of legislation will outline additional parameters with which an RSE licensee must comply in order to offer an employer an arrangement that secures a discounted administration fee for the employees of that employer.

Exemption for investment fees in lifecycle investment strategies

6.22               RSE licensees will be able to charge different investment fees to different age cohorts in a lifecycle investment strategy of a MySuper product if the investment fee charged complies with the following conditions:

•        the fees charged to each cohort must be the same percentage of assets for all members of the cohort; the same flat fee for all members of the cohort; or be charged as the same combination of a percentage of assets and flat fee to all members of the cohort;

•        there must be no more than four age cohorts with different investment fees charged; and

•        the investment fees for the age cohorts must reflect a fair and reasonable attribution of the investment costs of the fund between the age cohorts.  [Schedule 1, item 9, division 5, subsection 29VA(9)]

6.23               If these conditions are met, an RSE licensee will be able to charge a different investment fee for each age cohort in the lifecycle investment strategy.  However, an RSE licensee is limited to a maximum of four age cohorts, and therefore, a maximum of four different investment fees for a MySuper product.  [Schedule 1, item 9, division 5, paragraph 29VA(9)(c)]

6.24               An RSE licensee that operates a lifecycle investment strategy is not required to charge multiple investment fees.  The RSE licensee may elect to charge a single investment fee to all members of the MySuper product.  In this case, the investment fee charged would have to comply with the charging rules.

6.25               This exemption limits the number of possible investment fees that may be charged in the interests of simplicity as well as providing sufficient flexibility for RSE licensees that operate a lifecycle investment strategy in a MySuper product to prevent inappropriate cross-subsidisation between members. 

6.26               A contravention of the charging rules outlined in this chapter is a breach of a standard condition of an RSE licence under section 29E of the SIS Act.  If an RSE licensee fails to comply with a licence condition, APRA may issue a direction to comply.  Failure to comply with a direction may result in the cancellation of the RSE licence (under section 29G of the SIS Act) or prosecution for an offence (under section 29JB of the SIS Act).  APRA may also cancel the authority to offer the MySuper product.  [Schedule 1, item 9, division 4, paragraph 29U(2)(d)]

Application and transitional provisions

6.27               These provisions commence on 1 January 2013.

6.28               However, an RSE licensee will only be authorised to offer a MySuper product from 1 July 2013 and must comply with the charging rules applying to MySuper products from this date.  [Schedule 1, item 11]



Schedule 1: MySuper

Bill reference

Paragraph number

Item 1, paragraph 32C(2)(c)

2.9

Item 1, paragraph 32C(2)(c)

2.10

Item 1A, paragraph 1017B(1A)(c)

4.25

Item 4, subsection 10(1)

3.19

Item 6, subsection 10(1))

3.18

Item 7, paragraph 10(1)(dob)

3.62

Item 7, paragraph 10(1)(doa)

3.40

Item 8, subsection 29E(6A)

3.41

Item 9, division 2, subsections 29S(3), (4) and (5)

3.25

Item 9, division 2, section 29SA

3.26

Item 9, division 2, paragraph 29SB(1)(a))

3.27

Item 9, division 2, paragraph 29SB(1)(b)

3.28

Item 9, division 2, subsections 29SB(2) and (3)

3.29

Item 9, division 2, subsection 29SB(4)

3.31

Item 9, division 3, subsection 29T(1)

3.32

Item 9, division 3, paragraph 29T(1)(g)

3.33

Item 9, division 3, paragraph 29T(1)(f)

3.34, 4.4

Item 9, division 3, sections 29T and 29TD

3.35

Item 9, division 6, section 29W

3.37, 3.63

Item 9, division 3, subsection 29T(2)

3.38

Item 9, division 3, sections 29TD and 29TE)

3.39

Item 9, division 6, section 29WA

2.11, 2.12, 2.13, 2.14

Item 9, division 2, subsection 29S(1))

3.20

Item 9, division 3, section 29TA

3.42

Item 9, division 3, section 29TB

3.45

Item 9, division 3, paragraph 29TB(1)(b) and subsection 29TB(2)

3.50

Item 9, division 3, paragraph 29TB(1)(c)

3.52

Item 9, division 3, paragraph 29TB(1)(a)

3.53

Item 9, division 3, paragraph 29TB(c)

3.54

Item 9, division 3, paragraph 29TB(1)(h)

3.55

Item 9, division 4, subsection 29U(2)

3.56

Item 9, division 4, subsections 29U(1) and (3)

3.57

Item 9, division 4, section 29UA

3.58

Item 9, division 4, section 29UB

3.59

Item 9, division 3, paragraph 29T(1)(d)

3.21

Item 9, division 6, subsection 29W(2)

3.64

Item 9, division 3, paragraph 29T(1)(g)

4.4

Item 9, division 3, paragraph 29TC(1)(a)

4.5, 4.6, 4.7, 4.8

Item 9, division 3, subsection 29TC(2)

4.9, 4.10

Item 9, division 3, paragraph 29TC(1)(b)

4.11, 4.12, 4.13

Item 9, division 3, paragraph 29TC(1)(c)

4.16, 4.17

Item 9, division 5, subsection 29VA(1)

4.18

Item 9, division 3, paragraph 29TC(1)(d) and (e)

4.19

Item 9, division 3, paragraph 29TC(1)(e)

4.21

Item 9, division 3, paragraph 29TC(1)(f)

4.22, 4.23

Item 9, division 3, paragraph 29TC(1)(g) and (h)

4.24

Item 9, division 2, subsection 29S(2)

3.22, 3.24

Item 9, division 3, subparagraph 29TC(1)(h)(ii)

4.27

Item 9, division 3, paragraph 29TC(1)(i)

4.29

Item 9, division 5, subsection 29V(1)

5.6

Item 9, division 5, subsection 29V(2)

5.9

Item 9, division 5, subsection 29V(3)

5.10

Item 9, division 5, subsections 29V(2) and (3)

5.11

Item 9, division 5, sections 29V

5.13

Item 9, division 5, subsection 29V(4)

5.14

Item 9, division 5, subsection 29V(5)

5.15

Item 9, division 5, subsection 29V(1)

5.16

Item 9, division 5, subsection 29V(6)

5.17

Item 9, division 5, subparagraph 29V(7)(a)(i)

5.18

Item 9, division 5, paragraph 29V(7)(b)

5.19

Item 9, division 5, subsections 29VA(1) — (7)

6.13

Item 9, division 5, subsections 29VA(1) — (4)

6.14

Item 9, division 5, subsections 29VA(5) — (7)

6.16, 6.17

Item 9, division 5, section 29VB

6.18

Item 9, division 5, subsections 29VB(2) — (4)

6.19

Item 9, division 5, subsection 29VA(9)

6.22

Item 9, division 5, paragraph 29VA(9)(c)

6.23

Item 9, division 4, paragraph 29U(2)(d)

6.26

Item 11

3.36, 3.67, 4.34, 5.23, 6.28

Item 12, subsections (1) — (4)

3.30

Item 12

2.17

Item 12, subsections (5) and (6)

2.18

Item 13

2.16

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