Today the Government released an Exposure Draft of Tranche 4 of the Stronger Super legislation – the Superannuation Legislation Amendment (Further Measures) Bill 2012.
The most important amendments for trustees and their directors are:
- The circumstances in which a member has specified where their contributions are to be paid will be narrowed.
- Provisions in the governing rules of superannuation funds which require trustees to use certain service providers or invest in certain entities or products will be made void.
- Directors will not be able to be sued for breach of their SIS Act duties without leave of the court.
- APRA will be able to issue “infringement notices” to trustees.
Specifying where contributions are to be paid
Contributions in relation to which no “election” has been made must be applied to a MySuper product from 1 January 2014.
The test proposed under Tranche 1 turned on whether the person had given an “election in writing that the contribution is to be paid into a specified choice product”. Tranche 4 will change this test, so that the question will turn on whether the person has given a “direction in writing that the contribution is to be invested under one or more specified investment options”.
This will narrow the circumstances in which trustees will be able to apply contributions to choice products.
Service providers and investments cannot be limited
The Bill provides that a provision in the governing rules of a fund which specifies a person from whom the trustee “may or must” acquire a service or in which the trustee “may or must” invest will be void.
The provision will apply to existing arrangements although the draft Explanatory Statement suggests that existing arrangements can remain on foot if they are in the best interests of members. It also says:
“if the costs of changing from the current service provider outweigh potential benefits to members then it is possible for trustees to conclude that the arrangement is in the best interests of members and no change would be required”.
However, as currently drafted, the provision might not only prevent a trustee appointing, or investing in, say, a related party, it might also remove the primary power to do so (the expression used is “may or must”).
Actions for breaches of directors’ duties
The Trustee Obligations and Prudential Standards Act (Tranche 2) imposes new duties on trustee directors including to act in the best interests of beneficiaries. A member (and any other person) who suffers loss or damage because of a breach of a director’s duties is able to bring an action against the director for compensation. Many submissions were made to the Government about the significant liability exposure the legislation introduced for directors.
The Bill introduces a hurdle to any such action. A member (or any other person) will not be able to bring an action for breach of a director’s duty under the SIS Act without leave of the court. In deciding whether to grant leave, the court must take into account whether:
- the applicant is acting in good faith; and
- there is a serious question to be tried.
The provision is a welcome response to legitimate concerns raised by the industry.
The Bill provides APRA with the power to issue an infringement notice where a trustee breaches a specified provision of the SIS Act. These are reasonably limited and include offering a MySuper product without an authorisation and failing to attribute a contribution to a MySuper product. However, an infringement notice can be issued where the officer has “reasonable grounds to believe” that a person has breached a relevant provision. There may or may not have been a breach of the section. A trustee who receives an infringement notice can pay the amount specified in the notice and, if they do so, will be protected from further action by APRA. Alternatively, they can challenge the notice or do nothing.
The regime gives APRA significant power and raises the prospect of trustees paying fines rather than defending proceedings irrespective of whether they have breached the law.
Other amendments include:
- A provision in the governing rules of a fund which prevents a director voting on a matter relating to the fund will be void except, broadly, where the director has a material personal interest or conflict of interest or duty.
- Trustees will be required to provide reasons for decisions in relation to complaints. The requirement will apply where the complaint relates to a death benefit or otherwise where reasons are requested.
- The time period for making TPD complaints to the SCT will be extended from 2 years to 4 or 6 years (depending on the circumstances).
- The MySuper fee charging rule permitting employer subsidisation of administration fees will not be available where the MySuper product is a “large employer” product. Similarly, where there is a “large employer” MySuper product, all contributions made by the large employer and its associates will have to be applied to that product – it will not be possible for some contributions to be applied to that product and others to the fund’s generic MySuper product.
Submissions are due by 2 November 2012.