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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 .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Explanation of amendments .......................................... 5
Chapter 2 Statement of compatibility with human rights................. 9
Glossary
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
1
General outline and financial impact
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.
3
Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011
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.
4
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]
5
Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011
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]
6
Explanation of amendments
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.
7
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.
9
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