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Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012

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2010-2011-2012

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

SUPERANNUATION LEGISLATION amendment (further mysuper and transparency measures) Bill 2012

 

 

 

 

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............... 14

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

SIS Act

Superannuation Industry (Supervision) Act 1993





Outline

On 19 September 2012, the Minister for Superannuation and Financial Services, the Hon Bill Shorten MP, introduced the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012 (Bill).

The Bill is the third tranche of legislation implementing the Government’s MySuper and governance reforms, as part of Stronger Super.

There are several amendments to the Bill.

The definition of accrued default amounts is amended to be       the total amount attributed by the trustee to a member of the fund (ie, the member’s total balance) where the member has given the trustee (or trustees) of the fund no direction on investment or the amount is invested in the current default investment option. The definition is also amended to exclude amounts to the extent that they are invested in investment options that are held in cash and amounts in relation to which a member has given an investment direction to a trustee of a previous fund and that amount is transferred to an equivalent investment option in the current fund. 

A further amendment excludes the provision of risk insurance from the general requirement of a MySuper product that members are provided with equal access to options, benefits and facilities.

An associated amendment ensures provisions of this Bill or the Superannuation Industry (Supervision) Act 1993 (SIS Act) do not apply to the extent they would result in an acquisition of property without just terms.

Finally, amendments are made to the Bill to: clarify that intra-fund advice can only be provided in relation to cash management facilities within the fund, permit funds to require members to opt-out of TPD insurance if they opt-out of life insurance, and amend the requirements in relation to the product dashboard that must be published on a fund’s website.

Date of effect The amendments have various commencement dates.

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 nil 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.

 



Chapter 1          

Explanation of amendments

Outline of chapter

1.1                   This chapter explains amendments to the Bill that amend the definition of accrued default amounts that are required to be attributed to a MySuper product by 1 July 2017.  An associated amendment ensures that to the extent a provision of this Bill or the Superannuation Industry (Supervision) Act 1993 (SIS Act) would result in an acquisition of property without just terms then the provision has no effect.

1.2                   This chapter also explains amendments to clarify that intra-fund advice can only be provided in relation to cash management facilities within the fund and permit funds to require members to opt-out of TPD insurance if they opt-out of life insurance.

Accrued default amounts and related issues

1.3                   The Bill defines accrued default amounts that must be moved to a MySuper product by 1 July 2017.  Trustees that apply to offer a MySuper product must elect to move accrued default amounts to a MySuper product and trustees that do not apply will have a statutory obligation to move accrued default amounts by taking the action required by prudential standards. 

1.4                   Amendments to the Bill will define an accrued default amount for a member as the total amount attributed by the trustee to a member of the fund (ie, the member’s total balance) where:

•                the member has given the trustee (or trustees) of the fund no direction on investment; or

•                the amount is invested in the investment option which, under the current governing rules of the fund, is the investment option for new members if no investment direction is given (ie, the current default investment option).  [Amendment 6]

1.5                   One effect of this amendment is that if a member makes a direction to invest their entire balance in the current default investment option relevant to that member then the entire amount will be an accrued default amount.  However, if a member makes a direction to invest part of their balance in an investment option other than the current default investment option then the entire balance of that member, even though part may be invested in the current default investment option, will not be an accrued default amount.   [Amendment 6]

1.6                   To be clear, a member that has given a direction to have their entire balance invested in the current default investment option will be within the scope of the definition of accrued default amounts.  The current default investment option is that option to which the contributions of new members of the fund would be paid if they made no direction.  [Amendment 6]

1.7                   The definition of accrued default amounts is also amended to exclude amounts to the extent that they are held in investment options in which all assets invested under the option are held as cash.  For example, the investment option may be invested in transaction accounts or term deposits offered by an authorised deposit taking institution.  This amendment will, for example, ensure the definition of accrued default amounts does not capture contributions or earnings invested in cash investment options in a superannuation wrap product.  [Amendments 7, 8 and 9]

1.8                   The definition of accrued default amounts is further amended so that where a member has provided an investment direction to a trustee of a previous fund, and that member’s benefits are transferred under the successor fund transfer rules to an equivalent investment option in the later fund, they are deemed to have given an investment direction to be invested in the equivalent investment option to the trustee of the later fund.  [Amendment 10]

1.9                   This particular amendment allows for the situation where a member’s benefits have been transferred more than once between funds.  For example, if a member made an investment direction to the trustee of their original fund and is transferred to an equivalent investment option in a receiving fund, that member is taken to have given a direction to the trustee of the receiving fund.  If that same member is further transferred from that receiving fund to an equivalent investment option in their current fund, they are still taken to have given an investment direction to the trustee of the current fund to be invested in the equivalent investment option. [Amendment 10]

1.10               A trustee is not required to have a physical copy of the investment direction to be satisfied the member has given an investment direction in relation to an amount.  For example, where a trustee is able to show that a member would only be able to be invested in their current investment option by having given an investment direction to a trustee of a previous fund, then the amount so invested would be outside the definition of accrued default amounts.  [Amendment 10]

1.11               To facilitate the transition to MySuper products, trustees will have discretion to move amounts in an investment option in which the member’s assets would be invested if no direction were given to a MySuper product, even if the amount is not an accrued default amount.  This is achieved by making void any governing rules that would prevent a trustee from moving these amounts to a MySuper product and ensuring that moving these amounts will not give rise to a liability to a member.  This discretion will permit funds to convert their existing default investment option to a MySuper product where the definition of accrued default amounts does not capture all amounts invested in the current default investment option.  [Amendments 12 and 13]    

1.12               A further amendment excises the provision of risk insurance from the general requirement that a MySuper trustee must provide equal access to options, benefits and facilities.  This will permit different insurance cover to be provided within a single MySuper product.  In particular, this will ensure members need not lose insurance cover when an accrued default amount is moved to a MySuper product as trustees will be able to continue the member’s existing insurance (so long as the cover is provided on an opt out basis).  [Amendment 11]    

1.13               Despite insurance being excluded from this general requirement in relation to MySuper products, the trustee of the fund must still comply with other requirements relating to insurance.  In particular, life and TPD insurance must still be provided to each member that holds the MySuper product and the cover must only be subject to conditions that are reasonable.  Furthermore, provision of insurance benefits must comply with the trustee covenants, including the best interests covenant. 

1.14               Currently, the Bill includes rules which ensure certain provisions do not apply to the extent they would result in an acquisition of property, within the meaning of paragraph 51(xxxi) the Constitution, without just terms.  To address any circumstance where an acquisition of property may arise, these specific reading-down provisions are removed and new general reading-down provision will be inserted to cover the provisions of this Bill and provisions in the SIS Act more generally.  The amendment clarifies that particular actions that would otherwise be required by the SIS Act are not required if the action would result in an acquisition of property without just terms.  [Amendments 1, 2, 5, 14, 15, 16 and 17]        

Intrafund advice

1.15               The Bill provides that the trustee, or the trustees, of a regulated superannuation fund must not directly or indirectly pass the cost of providing certain types of financial product advice to a member of the fund onto any other member of the fund. This means trustees cannot collectively charge their members for providing financial advice in certain circumstances. The types of personal advice for which a superannuation trustee will not be able to charge across the membership of the fund are those types of advice that are likely to be more complex in nature and therefore more costly to provide.         

 

1.16               Subparagraph 99F(1)(c)(ii) of the Bill currently provides that the trustee cannot collectively charge members for providing advice that relates to a financial product that is not a beneficial interest in the fund, a related pension fund for the member and the fund, a related insurance product for the member and the fund, or a cash management facility.

 

1.17               Subparagraph 99F(1)(c)(ii) is amended to clarify that a trustee can only collectively charge for advice about a cash management facility that is within the fund. This avoids an interpretation that intrafund advice could be provided on cash management facilities outside of the fund, for example, a basic deposit product issued by the trustee but unrelated to the fund.   [Amendment 3]       

 

Opt-out requirements for life and TPD insurance

1.18               Currently, the Bill provides that each member that holds the MySuper product must be provided with life and TPD insurance.  A member may elect to opt-out of being provided with either life or TPD insurance.  However, the Bill also allows a trustee to require a member that wishes to opt-out of the provision of insurance to opt-out of both the life and TPD insurance cover.

1.19               An amendment to the Bill will allow trustees to require members that hold the MySuper product wishing to opt-out of TPD insurance to also opt-out of life insurance at the same time.  This allows a trustee to provide members with the flexibility to opt-out of TPD insurance and retain life insurance, whilst at the same time not allowing members to opt-out of life insurance and retain TPD insurance.  This reflects the existing practice of many funds that want to provide members with appropriate flexibility to choose their insurance arrangements but consider that it is not possible to offer TPD insurance at the same premium rate if the member opts-out of life insurance due to anti-selection risks.  [Amendment 4]       

 



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 (Further MySuper and Transparency Measures) Bill 2012 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:

•                amend the definition of accrued default amounts;

•                ensures that a provision of this Bill or the Superannuation Industry (Supervision) Act 1993 (SIS Act) does not apply to the extent it would result in an acquisition of property without just terms;

•                clarify that intra-fund advice can only be provided in relation to cash management facilities within the fund; and

•                permit funds to require members to opt-out of TPD insurance if they opt-out of life insurance.

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.