Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2012

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

2010-2011-2012

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

SUPERANNUATION LEGISLATION amendment (MYSUPER CORE PROVISIONS) Bill 2011

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

Amendments to be moved on behalf of the Government

 

(Circulated by the authority of the

Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)



Table of contents

Glossary.............................................................................................................. 5

General outline and financial impact............................................................ 7

Chapter 1               Explanation of amendments.............................................. 9

Chapter 2               Statement of compatibility with human rights............... 13

Do not remove section break.





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

Abbreviation

Definition

APRA

Australian Prudential Regulation Authority

Bill

Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011

RSE

registrable superannuation entity

The Treasury

Department of the Treasury





Outline

On 3 November 2011, the Minister for Superannuation and Financial Services, the Hon Bill Shorten MP, introduced the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 (Bill).

The Bill establishes the framework for registrable superannuation entity (RSE) licensees to be authorised by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product.  Trustees may offer MySuper products from 1 July 2013.  However, employers are required to make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product from 1 October 2013.  This provides a three month transitional period from when MySuper products may commence to be offered, to the date it becomes mandatory for employers to make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product.

The Bill also generally requires that each member who holds a MySuper product must be charged the same fees. 

There are two amendments to the Bill.

The first amendment defers, from 1 October 2013 to 1 January 2014, the date from which an employer must make contributions for employees that do not have a chosen fund to a superannuation fund that offers a MySuper product.  A corresponding change will also defer, from 1 October 2013 to 1 January 2014, an RSE licensee’s obligation to pay member contributions 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.

The second amendment allows RSE licensees to 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. 

Date of effect 1 January 2014 for when employers must make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product.  1 January 2013 or an earlier day set by Proclamation for allowing RSE licensees to charge different investment fees in a MySuper product if it has a lifecycle investment strategy.

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 The amendments to the Bill have no significant financial impact on Commonwealth expenditure or revenue.

Human rights implications :  The amendments to the Bill do not engage any of the applicable rights or freedoms.

 



               

Explanation of amendments

Outline of chapter

1.1                   This chapter explains amendments to the Bill that defer, from 1 October 2013 to 1 January 2014, the commencement of the mandatory requirement on employers to make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product and allow APRA to authorise an RSE licensee to offer a MySuper product with a lifecycle investment strategy that has multiple investment fees.

1.2                   This chapter also provides further explanation of the authorisation process for MySuper products, in particular, the authorisation of tailored MySuper products for large employers.

Deferral of certain requirements

1.3                   The Bill requires employers to make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product.  Currently, this rule applies to contributions made from 1 October 2013.

1.4                   The amendment defers the commencement of this rule until 1 January 2014.  While RSE licensees will still be able to offer MySuper products from 1 July 2013, the amendment will provide an additional three month transitional period before it becomes mandatory for employers to make relevant contributions to a fund offering a MySuper product.  [Amendment 1]

1.5                   The amendment will also give funds until 1 January 2014 before they have to be authorised to offer a MySuper product in order to continue to receive contributions from employers on behalf of their employees that do not have a chosen fund.  [Amendment 1]

1.6                   A corresponding change will also defer, from 1 October 2013 to 1 January 2014, the RSE licensee’s obligation to pay the contributions of members to a MySuper product where a member has not elected, in writing, for contributions made on their behalf to be paid to a specified choice product or products.  [Amendment 6]

1.7                   The Bill provides transitional arrangements to allow contributions to be made to existing employer plans after 1 October 2013 if an application for authorisation of the employer plan as a tailored MySuper product was made prior to 1 July 2013.

1.8                   These transitional arrangements will now apply to contributions from 1 January 2014, in line with the deferral of the requirement for the employer to make contributions to a fund that offers a MySuper to this date.  [Amendments 3 — 5]

Investment fees for lifecycle investment strategies in MySuper products

1.9                   The Bill currently requires a single investment fee to be charged to all members in a MySuper product.  The Bill also allows a lifecycle investment strategy to be adopted for a MySuper product — that is, an investment strategy that varies the underlying investment mix for different age cohorts.

1.10               This amendment will allow an RSE licensee to charge different investment fees to different cohorts in a lifecycle investment strategy of a MySuper product.  In order to charge different investment fees, the following conditions must be met:

•        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.  [Amendment 2]

1.11               These criteria will form part of the fee rules for MySuper products.  APRA must be satisfied that an RSE licensee is likely to comply with the fee rules, including the rule introduced by this amendment, to authorise an RSE licensee to offer a MySuper product.  [Amendment 2]

1.12               This amendment will, in the interests of simplicity, limit the number of possible investment fees as well as prevent inappropriate cross-subsidisation between members in a lifecycle investment strategy.

Authorisation of tailored MySuper products

1.13               The Bill requires an RSE licensee to be authorised by APRA to offer a MySuper product.  An RSE licensee, while generally limited to a single (or ‘generic’) MySuper product, may also apply to be authorised to offer additional ‘tailored’ MySuper products that are broadly established for employees of large employers. 

1.14               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. 

1.15               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, authorisation by APRA will be timely and the process will require less effort by the RSE licensee.

1.16               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.

1.17               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. 



 



               

Statement of compatibility with human rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011

2.1                   The amendments to the Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011 are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.2                   The amendments to the Bill:

•                defers, from 1 October 2013 to 1 January 2014, the date from which an employer must make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product; and

•                allow RSE licensees to 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. 

Human rights implications

2.3                   The amendments to the Bill do not engage any of the applicable rights or freedoms.

Conclusion

2.4                   The amendments to the Bill are compatible with human rights as they do not raise any human rights issues.