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Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2013

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2010-2011-2012-2013

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Superannuation legislation amendment (service providers and other governance measures) Bill 2012

 

 

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

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

 



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               Explanation of amendments.............................................. 5

Chapter 2               Statement of Compatibility with Human Rights.............. 9

 

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

Abbreviation

Definition

Bill

Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012

SIS Act

Superannuation Industry (Supervision) Act 1993



On 29 November 2012, the Minister for Superannuation and Financial Services, the Hon Bill Shorten MP, introduced the Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012 (Bill).

The Bill is the fourth tranche of legislation implementing the Government’s MySuper and governance reforms.

In addition to the first schedule of amendments made in response to the Parliamentary Joint Committee on Corporations and Financial Services’ (PJC) recommendations and to clarify the legislation, there are a number of additional amendments. 

The amendments address industry concerns and include a number of measures to: clarify that the legislation is not intended to prohibit the use of related parties, provided the trustee complies with the trustee covenants and other relevant legislation; carve out certain existing products (for example, risk and capital guaranteed products) from the direction of contributions requirements; include a regulation making power to prescribe circumstances in which a direction given to the trustee of another fund can be relied upon by the trustee of a successor fund; and amend the existing direction arrangements so that after 31 March 2013 a direction has to be given in writing.

Date of effect The amendments to sections 29WA and 29WB commence the day after Royal Assent.  The new section 58B will commence on Royal Assent.

Proposal announced On 16 December 2010, the then 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 Nil

Human rights implications :  This Bill does not raise any human rights issues. 

Compliance cost impact Nil

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Chapter 1          

Explanation of amendments

Outline of chapter

1.1                   The amendments to the Bill:

•        clarify that the legislation (and in particular the tied service provider override in section 58A) is not intended to prohibit the use of related parties, provided the trustee complies with the trustee covenants and other relevant legislation as specified in a new section 58B;

•        carve out certain products (held as at 31 March 2013) from the direction of contributions requirements in sections 29WA and 29WB;

•        include a regulation making power in the direction of contributions provisions so that a direction given to the trustee of another fund can be relied upon by the trustee of a successor fund; and

•        amend the existing direction of contributions provisions so that only directions given after 31 March 2013 are required to be in writing.

Service Providers

1.2                   Concerns have been raised that, as currently drafted, section 58A which is to be inserted into the Superannuation Industry (Supervision) Act 1993 (SIS Act) could inadvertently prohibit trustees from using related service providers, even where this is in the best interests of members.  The basis for this concern is that, on one view, the general law on conflicts of interest may require a trustee to avoid dealing with a related party at all (even where the outcome is favourable to beneficiaries of the fund) if the trustee or its directors have a conflict of interest under general law.  Some funds address this by including a provision in the trust deed authorising the trustee to deal with the related party, but there is concern that section 58A will render such a provision void.

1.3                   The amendments insert a new section 58B into the SIS Act which will make it clear that, provided a trustee complies with all relevant Acts, legislative instruments, prudential and operational standards, governing rules and statutory covenants, the trustee may enter into service provider and investment arrangements (and undertake the preliminary dealings necessary to do so) even though this might otherwise breach general law conflict of interest prohibitions.  It will not be necessary, therefore, for the trust deed to expressly authorise the trustee to engage in dealings with the related party.  The words ‘general law relating to conflict of interest’ are intended to be construed broadly so as to cover general law relating to both trustees and directors and to cover conflicts between duties to beneficiaries and the interests of beneficiaries, on the one hand, and duties to other persons and the interests of other persons, on the other.  [Amendment 8]

1.4                   New section 58B will commence on Royal Assent and apply in relation to things done on and after 1 July 2013.  [Amendments 1 and 9]

Direction of contributions provisions

1.5                   The amendments insert new subsections (4), (5) and (6) into section 29WA of the SIS Act, and add new subsections (4), (5) and (6) into the new section 29WB which is to be inserted into the SIS Act.  These subsections will have the following effects.

Investment direction ‘in writing’

1.6                   Current section 29WA of the SIS Act, and the new section 29WB to be inserted by the Bill, provide that a direction given by a member to a trustee that contributions be invested in a specified investment option, must be in writing.  Amendments (2), (3), (5) and (6), remove from paragraph 29WA(1)(c) and new paragraph 29WB(1)(d), the general requirement for the direction to be ‘in writing’.  [ Amendments 2, 3, 5 and 6]

1.7                   New subsections 29WA(4) and 29WB(4), will ensure that the requirement to have directions given to the trustee in writing will only apply to directions given after 31 March 2013.  A copy of a direction given after 31 March must also be held by or on behalf of the trustee of the fund.  [Amendment 4, subsection 29WA(4) and Amendment 7, subsection 29WB(4)] .

Recognising Previous Directions

1.8                   New subsections 29WA(5) and 29WB(5) will provide regulation making powers to prescribe the circumstances in which a direction, relating to the investment of contributions, given to the trustee of one regulated superannuation fund is to be taken to be a direction given to the trustee of another regulated superannuation fund for the purposes of the relevant sections.  [Amendment 4, subsection 29WA(5), and Amendment 7, subsection 29WB(5)]

1.9                   It is intended that the regulations to be made under these subsections will address the circumstances where a member has been moved from one fund to another under a successor fund transfer.

Existing products

1.10               New subsections 29WA(6) and 29WB(6) will provide exceptions from the direction of contributions requirements for certain products.  The exceptions will apply to the extent the contribution relates to a life product, investment account contract or cash investment option that is held by a person as at 31 March 2013.  The exception applies to the same categories of products that are excluded from the application of paragraph 20B(3)(c) of the SIS Act (in respect of the definition of accrued default amounts).  [Amendment 4, subsection 29WA(6), and Amendment 7, subsection 29WB(6)] .

1.11               The amendments will ensure that future contributions can continue to be directed to these products; that is, the contributions will not have to be paid into a MySuper product and the trustee will not have to secure a formal direction from the member to continue the payment of the contributions into the relevant product. 

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Chapter 2          

Statement of Compatibility with Human Rights

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

Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012

2.1                   These amendments 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:

•        clarify that the legislation (and in particular the tied service provider override in section 58A) is not intended to prohibit the use of related parties, provided the trustee complies with the trustee covenants and other relevant legislation as specified in a new section 58B;

•        carve out certain products (held as at 31 March 2013) from the direction of contributions requirements in sections 29WA and 29WB;

•        include a regulation making power in the direction of contributions provisions so that a direction given to the trustee of another fund can be relied upon by the trustee of a successor fund; and

•        amend the existing direction of contributions provisions so that only directions given after 31 March 2013 are required to be in writing.

Human rights implications

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

Conclusion

2.4                   These amendments are compatible with human rights as they do not raise any human rights issues.

Minister for Financial Services and Superannuation and Minister for Employment and Workplace Relations, the Hon Bill Shorten.

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