Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
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
3
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
SIS Act Superannuation Industry (Supervision) Act
1993
5
General outline and financial impact
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
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Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011
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.
8
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
9
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]
11
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]
13
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 (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.
14
Conclusion
2.4 The amendments to the Bill are compatible with human rights as
they do not raise any human rights issues.
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