On 16 December 2010 the Assistant Treasurer issued a paper entitled 'Stronger Super' in response to the 36 pages of recommendations in the Super System Review Final Report delivered on 30 June 2010. The key recommendation, that there be a separately regulated, simple, low cost product, is to be adopted. Various trustee governance recommendations are to be reviewed, although some have been rejected outright.
There is to be increased reporting.
The key elements of the SuperStream recommendations, dealing with the streamlining of aspects of fund administration, are to be adopted.
There are to be some changes to the regulation of self managed superannuation funds.
This article examines key aspects of the new MySuper product, trustee governance and SuperStream.
MySuper is to be introduced as a separately regulated product, and Fair Work Australia asked to vary awards so that only MySuper funds are default funds named in awards. A Productivity Commission review will determine whether default funds will be a limited number, as is the case now, or whether all regulated MySuper products will be eligible default funds.
An RSE licensee will need a MySuper licence, and will be able to offer a single MySuper product. The Government will consider further whether an RSE licensee which has separate brands should be able to offer separate MySuper products. Trustees will still be able to allocate costs on a fair and reasonable basis between products.
Numerous features that are currently a matter for the trustee will be subject to an express regulatory regime.
- Single investment strategy
- Insurance cover
- Switching fees/exit fees
- Fee discounts
- Performance based investment management commissions
- Intra fund advice (if offered).
w compliance regime will therefore need to be developed for the MySuper product.
Each trustee will be required, on an annual basis, actively to examine and conclude whether its MySuper product has sufficient scale on its own (with respect to both assets and number of members) to continue providing optimal benefits to members.
ther the provision of intra-fund advice should be compulsory is to be the subject of further consultation.
The Government will ask ASIC to continue the development of retirement forecasts that can be used by trustees.
uper products will be able to be offered from 1 July 2013. Once awards are amended, after a transitional period, MySuper will have to be offered as the default product.
The recommendations that the current rules regarding equal employer and member representation should be abolished are not to be adopted.
The many recommendations as to new statutory duties for directors are to undergo further examination and consultation.
Just what duties should be adopted is a difficult question. The Final Report in the introduction of Part 2 at page 44 states that the governance standards applying to major listed entities are a reasonable starting point. However, the Report contains little discussion as to whether in fact this may be an appropriate level.
At present, the directors of a trustee which is a proprietary limited company are subject to SIS and to the directors' duties applying to such a company. Under these rules, conflicts are able to be waived. Stronger Super, however, would introduce an increased focus on director's conflicts as determined by APRA Prudential Standards. These Standards might include examples of conflicts of interest and of duty that would not be allowed.
The Final Report recommended the creation of a new office of trustee director under the SIS Act, which would incorporate duties that would otherwise be captured in the Corporations Act, as well as 're-focussed' duties for trustee directors.
In particular, a director would have a duty 'to act solely for the benefit of members' and various specific aspects will be set out – avoid conflicts of interest, personal benefits, act honestly, exercise independent judgement.
The duty to members would have priority over the duty to the trustee company where there was a conflict between duties owed to the members and to the company. This is a very different duty to the existing duty of a company director to act 'in good faith in the best interests of the company', owed under the general law (and also under the Corporations Act) to the company.
The Government is to consider further whether these proposals would achieve a more accountable and efficient trustee regime.
We note that, under these proposals, trustee directors would owe different sets of duties, under the SIS Act and the general law, which would have different contents and which would be owed to different people (trustee company/ fund members). It also seems likely that trustee directors would have a much greater exposure to member litigation, as they would owe duties directly to members. At present, the direct claim is against the trustee company and not the directors.
Other recommendations which are supported include a requirement that a trustee provide a member with reasons for its decision in relation to a formal complaint.
Further, the Government supports in principle the proposal that an industry council co ordinated by APRA should develop a Code of Trustee Governance. The Code would include but not be limited to:
- Higher standards of competencies
- Maximum tenure and retirement by rotation
- Maximum size of board
- Demonstrable skill set within first 12 months of appointment
- Annual performance review of each trustee director
- Gender and other diversity requirements.
It is the area of superannuation payment processing that offers the greatest opportunity for cost savings.
At present, employers, being the main payers of superannuation contributions, have no obligation to use a unique identifier when remitting contributions. Many employers do not provide more than the most basic information, such as a name and amount. Given the number of common names of fund members, trustees then spend considerable time identifying the member to whom the payment relates.
A member's Tax File Number (TFN) could, in theory, be used as an identifier. Section 299C of the SIS Act requires an employer who has been quoted a TFN by an employee after 1 July 2007 to quote it to the trustee of the fund to which contributions are to be made for that employee. Failure to do this is an offence. However, this obligation is not enforced and so is largely a dead letter.
The proposed new approach, using the TFN as the primary identifier, will apply from 1 July 2011. The approach is twofold. Firstly, the employer is to provide the TFN of all employees to the fund, but again the obligation is to be without penalty. Secondly, the Australian Taxation Office is to establish an employment website, so that when an employer registers the tax status of new employees, the TFN details are remitted to the nominated fund.
The employer obligation, without penalty, is unlikely to work and is only a minor extension of the current non working model. However, using the ATO as a central data body creates a genuine opportunity to address these problems. The biggest risk is in implementation, as the provision of such information by the ATO is not part of its core activity - raising revenue.
Member transfers between funds are to be streamlined and the time frames shortened. However, the requirements under the Anti Money Laundering legislation are to apply at the time of joining a fund, rather from the payment stage as at present. This has the potential to cause delays.
There is to be industry standardisation relating to forms and protocols being used. This will involve extensive industry consultation.
A trustee, with the authority of the member, will be able to initiate a rollover of all or part of a benefit from another fund as though the member had initiated the request, without any requirement for proof of identity. Just how this will work in practice remains to be seen, and there will of course need to be adequate identity fraud protections.
The proposed changes seem likely to be very substantial, and will affect every area of funds' operations. As always, much will turn on the detail to be developed during the consultative process and it will be difficult for funds to make much progress with their preparations until that detail is available.
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