New Zealand: Super funds get better ride in amended Financial Markets Conduct Bill

Brief Counsel
Last Updated: 15 October 2012
Article by Mike Woodbury

Changes to the treatment of KiwiSaver and superannuation schemes in the Financial Markets Conduct Bill will simplify compliance and make for a more pragmatic regime.

We track the main amendments to emerge from the select committee process and provide a brief commentary.

Purpose of superannuation scheme

The Bill will still require that - as a general rule - the sole, as opposed to the principal, purpose of a registered superannuation scheme must be to provide retirement benefits.

Officials’ advice to the Commerce Committee (the Committee) is that the current law in this area is too loose and “out of step with the rest of the world, which [has] stronger lock-ins and tighter purposes”, placing New Zealand schemes under question for overseas recognition and portability purposes.

A scheme with other purposes not “merely incidental” to providing retirement benefits must be registered as a standard managed investment scheme.

However, the Committee has recommended some changes to soften the application of this rule:

  • an existing registered superannuation scheme (or a section of that scheme) that is closed to new joiners can continue operating under the current “principal purpose” restriction, and
  • a “prescribed workplace scheme” (to be defined by regulation) can retain, as a stand-alone purpose, paying benefits when members leave the employment of the relevant employer or industry.

The first of these facilities will enable a superannuation scheme (including a retail scheme) to “grandfather” the more permissive early withdrawal provisions in place for existing members and prescribe (in a new section) more restrictive entitlements for new joiners which meet the sole purpose test.

Workplace schemes may need to invoke both exceptions in order for current in-service withdrawal facilities to remain available to existing members. The Bill allows early withdrawals in limited circumstances, or according to limited criteria, that are defined in trust deeds. However, each such facility must as a general rule be “merely ancillary” to the sole purpose of providing retirement benefits.

Related amendments clarify that permitted withdrawals from KiwiSaver schemes are not inconsistent with the sole purpose test. They might usefully also have prescribed a similar exception for KiwiSaver-consistent early withdrawals offered by other superannuation schemes.

Any application for registration of a managed investment scheme as a superannuation scheme must be accompanied by a certificate from the Financial Markets Authority (FMA) that it is satisfied the scheme complies with the applicable withdrawal restrictions.

New Zealand criteria

The Bill is now clear that for all KiwiSaver and superannuation schemes, the “New Zealand criteria” apply only “on entry” and do not apply with respect to later transfers between schemes.

The criteria will be more liberal for superannuation than for KiwiSaver schemes. It will be permissible to join a superannuation scheme if employed on New Zealand terms and conditions by a New Zealand-resident employer (without having to be a citizen or entitled to permanent residence).

Related party investments by restricted schemes

The proposed 5% limit on investments by restricted schemes in related parties of, or participants in, those schemes has been retained. The terminology now used to describe such an investment is an “in-house asset”, meaning a scheme asset which is:

  • a loan to or an investment in, or
  • subject to a lease or lease arrangement with

a related party of the scheme or a scheme participant (or an associate of either of them).

However the proposed rules have been relaxed as follows:

  • in-house assets will no longer be aggregated when testing compliance with the 5% limit (in-house assets relating to persons who are not associated with each other will count separately, such that there will be no breach if each such investment is below 5%)
  • the 5% restriction will initially apply only to new investments made after the date when the legislation takes effect
  • schemes will then have three years from that date to ensure that no in-house asset exceeds 5% of scheme assets, and
  • employer contributors will be treated as related parties only in the case of specified employer-related schemes.

The Bill also now prescribes that (among other new exclusions) in-house assets exclude investments in other registered schemes or prescribed overseas schemes.

We had submitted that the 5% limit should be expressed in benchmark (not actual) asset allocation terms to avoid inadvertent breach. The Bill now provides that a scheme’s in-house assets ratio must be calculated in accordance with FMA-notified frameworks and methodologies, which officials consider can address that concern.

These changes will make the related party investment restrictions workable for more restricted schemes than before, and others will now be able to seek exemptions as soon as the Bill becomes law, or will at the very least have more time to comply.

Other compliance relief

New provisions concerning the content of governing documents will lessen the level of prescription that was to have been required in scheme trust deeds in areas such as contribution requirements and asset valuation methodology.

Indemnity protections will now be permissible, as we had urged, for:

  • managers’ non-negligent breaches of trust deeds, SIPOs or their issuer obligations, and
  • supervisors’ non-negligent failure to remedy issuer contraventions or act in accordance with special resolutions by scheme participants.

Indemnity protections will also now be permissible for investment managers in a wider range of circumstances, including non-negligent SIPO breaches.

A restricted scheme will need an external custodian only where it does not have a corporate trustee or use for investment purposes a nominee company with the scheme’s trustees as its directors. Natural person trustees may need to incorporate, or establish nominee companies, in order to continue holding scheme assets.

We welcome the unheralded but long-overdue amendment allowing the supervisor or trustee of a registered scheme to “make a partial distribution of assets of the scheme at any time before a copy of the full financial statements [prepared as at the wind-up date] is sent to the FMA” (unless prohibited by the trust deed).

This addresses a key concern relating to superannuation scheme wind-ups and we urge that it be made available as soon as the Bill is enacted.

No doubt with a view to avoiding difficulties of the kind which arose for some of this year’s KiwiSaver governance changes, the transitional provisions for FMA-approved trust deed amendments now expressly allow changes which, although not related to ensuring compliance with the new legislation, are otherwise permitted by law.

Other, mostly technical or corrective, amendments to the Bill show a welcome pragmatism which will simplify compliance.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Mike Woodbury
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions