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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 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........... 11

Index................................................................................................................. 13

 

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

Abbreviation

Definition

APRA

Australian Prudential Regulation Authority

Bill

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

Corporations Act

Corporations Act 2001

Further MySuper and Transparency Measures Act

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

PJC

Parliamentary Joint Committee on Corporations and Financial Services

RSE

Registrable Superannuation Entity

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.

There are several amendments to the Bill.

Four of the amendments were recommended by the Parliamentary Joint Committee on Corporations and Financial Services (PJC) in the report on its inquiry into the Bill.  These relate to the infringement notice and service provider provisions.

Additional amendments to MySuper measures are also necessary as a result of further industry consultation, clarification and to ensure the legislation functions as intended.  These amendments relate to the collection and disclosure of information, the MySuper administration fee rules, and the characteristics of a MySuper product.

There are also some consequential amendments that are necessary due to the renaming of Fair Work Australia to the Fair Work Commission.

Date of effect :  Amendments related to the collection and disclosure of information, and to the infringement notice and service provider provisions commence on 1 July 2013.  Amendments related to the renaming of Fair Work Australia will generally commence on 1 January 2014.  All other amendments commence the day after Royal Assent.

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 Nil.

Human rights implications :  Nil.

Compliance cost impact : Nil.

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Chapter 1          

Explanation of amendments

Outline of chapter

1.1                   The amendments to the Bill:

•        respond to recommendations of the PJC in relation to infringement notices and the use of service providers;

•        allow a single cap to be applied to percentage based administration fees for MySuper products, and clarify the application of the MySuper administration fee rules;

•        make changes to the product dashboard requirements and delay the commencement of portfolio holding disclosure requirements;

•        clarify that no member who holds a MySuper product can be precluded from holding a choice product, and vice versa; and

•        make consequential amendments to reflect the change in title of Fair Work Australia to the Fair Work Commission.

Infringement Notices

Detail to be included in an infringement notice

1.2                   The PJC inquiry into the Bill examined the provisions in Part 22 that will allow the Australian Prudential Regulation Authority (APRA) to issue infringement notices for certain alleged contraventions of the Superannuation Industry (Supervision) Act 1993 ( SIS Act).  In particular, the PJC noted that paragraph 224A(1)(e) to be inserted in the SIS Act would require that infringement notices give brief details of the alleged contravention.

1.3                   The PJC suggested that the level of detail to be included in the infringement notice should be broadened to include further details about the circumstances of the alleged breach.  The PJC suggested that the word ‘brief’ in the requirement that APRA ‘give brief details of the alleged contravention…’ should be omitted.

1.4                   The PJC suggested that if this is accepted, then as a complement, when further offences are made subject to an infringement notice by the regulations, the Bill should require APRA to include any additional information as required by the regulations.

1.5                   Paragraph 224A(1)(e) is amended to omit ‘brief’ and a new paragraph 224A(1)(o) is added to require that an infringement notice must contain any other information specified by the regulations.  [Amendments 23 and 24]

1.6                   These changes will enable more information to be included in an infringement notice, which will help recipients in understanding the nature of the problem.

Penalty amounts

1.7                   The PJC examined the amount payable under an infringement notice and suggested further consideration should be given to the penalties that would apply in the event civil penalty provisions are included in the infringement notice scheme in the future.

1.8                   The PJC noted that for contraventions of civil penalty provisions, the court may order a penalty that does not exceed 2,000 penalty units.  Whilst the PJC acknowledged that an infringement notice fine of an amount equal to one-fifth of the maximum penalty a court could impose for the contravention is appropriate for strict liability offences, it suggested that it is unlikely to be appropriate for civil penalties.

1.9                   Therefore, the PJC recommended that in the case of civil penalty provisions, the amount to be stated in an infringement notice should be equal to one-fortieth of the maximum penalty a court could impose for that contravention. 

1.10               Subsection 224A(2) to be inserted in the SIS Act is amended to provide that for civil penalty provisions, the amount to be stated in an infringement notice must be equal to one-fortieth of the maximum penalty a court could impose for that contravention.  [Amendment 25]

1.11               This change will limit the maximum amount of fines in civil penalty cases and will be consistent with other legislation such as the National Consumer Credit Protection Act 2009 .

Updated reference

1.12               The PJC identified a typographical error in the provisions of the Bill that establish the infringement notice regime. 

1.13               Accordingly, subparagraph 223A(1)(i) to be inserted in the SIS Act is amended by omitting ‘subsection 242M(1)’ and substituting ‘subsection 242P(1)’.  [Amendment 22]

Service Providers

1.14               The PJC inquiry examined section 58A which will void any provisions in a fund’s governing rules that require the trustee to use a specified service provider, investment entity or financial product.

1.15               The PJC recommended better targeting of section 58A to ensure only the rules which contravene the service provider provisions are rendered void.

1.16               The amendment limits section 58A so that a governing rule is only void to the extent it is contrary to that section.  That is, to the extent it provides that the trustee may or must use a particular service provider or investment entity, or invest in a particular financial product.   [Amendments 19 to 21]

Administration fee rules

1.17               The MySuper fee rules in section 29VA of the SIS Act require that where a fee is charged, in whole or in part, as a percentage of each member’s account balance, all members of the MySuper product must be charged the same percentage.

1.18               Following consultation with industry a change is being made to the MySuper fee rules where percentage administration fees are applied.  New section 29VE to be inserted in the SIS Act allows trustees to have a single cap on percentage based administration fees.  The amount of the administration fee can be capped at a specified amount, and must be the same for all members of that MySuper product.  [Amendments 17 and 27]

1.19               The amendments also clarify the application of the fee rules in circumstances where an administration fee exemption for employees of an employer-sponsor applies.  Where an administration fee exemption for employees of an employer-sponsor is relied on for some members, the administration fee charged to the remaining members in the MySuper product (who are not eligible for the administration fee exemption) must satisfy one of the general administration fee rules in subsection (2), (3) or (4) of section 29VA of the SIS Act.  [Amendment 15]

1.20               In addition, paragraph 29VB(1)(b) of the SIS Act is amended to clarify that all relevant ‘employee members’ (that is, members who hold the MySuper product who are employees of the relevant employer-sponsor associate, and relatives or dependants of those employees) must obtain the benefit of any administration fee exemption.  [Amendment 16]

1.21               These amendments commence the day after the Bill receives Royal Assent.  [Amendment 4]

Product Dashboard

1.22               The Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 ( Further MySuper and Transparency Measures Act) inserted a requirement into the Corporations Act 2001 (Corporations Act) for trustees of Registrable Superannuation Entities (RSEs) to make a product dashboard publicly available on their fund’s website in respect of each of their MySuper products, and each investment option for a choice product. 

1.23               The product dashboard provisions are being amended to ensure the data published by trustees provides members with meaningful and useful information that can be easily understood, and to allow members to compare a fund’s performance across different products.

1.24               Paragraph 1017BA(1)(c) of the Corporations Act is changed to remove the obligation on trustees to update information set out in each product dashboard about fees and other costs within 14 days after the end of each quarter.  This information will now need to be updated within 14 days after the end of a period to be prescribed in the regulations.  [Amendment 7]

1.25               Subsections 1017BA(2) and (3) of the Corporations Act, which set out the requirements for a product dashboard for a MySuper product or an investment option of a choice product, will be repealed and replaced with subsections which provide greater flexibility around the key information to be disclosed.  The new subsections identify the key product dashboard information in general terms, with detail of the requirements (for example, how the information is to be worked out, and any other information that is required), able to be prescribed in the regulations.  [Amendment 7]

1.26               Rather than merely requiring a product dashboard to show the number of times the return target for the product or investment option has been achieved, the changes to subsections 1017BA(2) and (3) will allow for the reporting of information on the product’s (or option’s) annual net return, the moving average return achieved, and the moving average return target.  This will address concerns raised by industry that the initial requirement was too narrow and did not provide an accurate representation of a product’s historical performance.

1.27               The changes to subsections 1017BA(2) and (3) also provide flexibility around the reporting of average fees and costs.  Regulations will be able to be made requiring the reporting of average fees and costs for a representative member and on a dollar basis, rather than just as a percentage.

1.28               The requirement to include a statement in the product dashboard about the liquidity of member’s investments in the relevant product or investment option is being removed.  This will allow time for further consultation to be undertaken to develop a suitable liquidity metric.  Once a suitable measure has been developed, a liquidity statement will be able to be added back into the product dashboard by way of regulation.

1.29               The amendment also adds new paragraph 1017BA(4A) to the Corporations Act.  This paragraph introduces a regulation making power for the specific purpose of clarifying the effect of the ‘single asset investment’ exemption from the product dashboard requirements in paragraph 1017BA(4)(c).  [Amendment 7]

1.30               As the amendments provide for relevant time periods to be prescribed in regulations, the definition of ‘quarter’ in subsection 1017BA(5) is no longer relevant, and is therefore repealed.   [Amendment 7]

1.31               These amendments commence on 1 July 2013.  [Amendment 1]

Portfolio Holding Disclosure

1.32               The Further MySuper and Transparency Measures Act inserted a requirement into the Corporations Act for RSEs to make available to the public information relating to their portfolio holdings.  The requirement was to apply from 31 December 2013. 

1.33               Section 1540 of the Corporations Act is amended to defer the application of this requirement, so it will now apply from the 30 June 2014 reporting day and later reporting days.  This will provide industry with more time to implement the changes required under the new disclosure regime.  [Amendment  8]

1.34               However, there is no impediment to RSEs providing this information earlier if they are able to do so.  Provision of this information is important to improving transparency in the superannuation system and RSEs are encouraged to provide the information earlier.  

1.35               This amendment commences on 1 July 2013.  [Amendment 2]

MySuper and choice products

1.36               Amendments to subsection 29TC(1) of the SIS Act will ensure that no member who holds a MySuper product can be precluded from holding a choice product, and vice versa.

1.37               The amendment will prohibit an RSE licensee from structuring a MySuper product in such a way that it precludes a member from having some of their superannuation in a MySuper product and some in a choice product.   [Amendment 13]

1.38               This amendment commences the day after the Bill receives Royal Assent.  [Amendment 4]

Fair Work Act consequential amendments

1.39               Minor consequential amendments to the Fair Work Act 2009 , the SIS Act, and the Further MySuper and Transparency Measures Act, are necessary to reflect the recent change of Fair Work Australia’s title to the Fair Work Commission.  [Amendments 9 to 12, 14, 18 and 26]

1.40               These amendments generally commence on 1 January 2013.  The consequential amendment to subsection 29U(4) of the SIS Act commences on Royal Assent.  [Amendments 3 to 6]



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

•        respond to recommendations of the PJC in relation to infringement notices and service providers;

•        allow a single cap on percentage based administrative fees for MySuper products and clarify when an administration fee exemption applies;

•        make changes to the product dashboard requirements and delay the commencement of portfolio holding disclosure requirements;

•        clarify that no member who holds a MySuper product can be precluded from holding a choice produce, and vice versa; and

•        make consequential amendments to reflect the change in title of Fair Work Australia to the Fair Work Commission.

Human rights implications

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

Conclusion

2.4                   The 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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Amendments

Bill reference

Paragraph number

Amendments 23 and 24

1.5

Amendment 25

1.10

Amendment 22

1.13

Amendments 19 to 21

1.16

Amendments 17 and 27

1.18

Amendment 15

1.19

Amendment 16

1.20

Amendment 4

1.21, 1.38

Amendment 7

1.24, 1.29, 1.30

Amendment 7

1.25

Amendment 1

1.31

Amendment  8

1.33

Amendment 2

1.35

Amendment 13

1.37

Amendments 9 to 12, 14, 18 and 26

1.39

Amendments 3 to 6

1.40

 

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