NEED TO KNOW

On 20 March 2013 ASIC released Consultation Paper 203 (CP 203) that outlines proposed reforms to its policy on superannuation funds offering retirement estimates to members. As part of the reforms, superannuation funds will be able to include the age pension in a retirement estimate. ASIC confirms that it will not take regulatory action for providing misleading information if the retirement estimate uses the prescribed assumptions and methodology.

BACKGROUND

ASIC currently provides superannuation fund trustees relief from licensing, conduct and disclosure requirements for general and personal advice when providing retirement estimates for members.  

When ASIC published Regulatory Guide 229 (RG 229) and Class Order [CO 11/1227] ([CO 11/1227]) in 2011, the intention was to encourage member engagement with their superannuation. RG 229 and [CO 11/1227] were to provide superannuation funds relief for giving members a broad estimate of the potential income available at retirement, taking into account their current account balance, impact of fees and assumptions about future contributions and earnings.  

Superannuation funds have raised concerns about elements of RG 229 and [CO 11/1227] limiting their ability to rely on the relief. The inability to include the age pension when calculating a retirement estimate meant exclusion of a component of the post-retirement income that affects a large portion of superannuation fund members. The prescribed methodology for calculations include standardised assumptions about contribution levels and fund administration fees that may not be an accurate reflection of the member's actual circumstances and could potentially be misleading. 

The reforms are designed to clarify ASIC's policy and assist superannuation funds in offering retirement estimates to their members. 

SUMMARY

CP 203 proposes amendments to RG 229 and [CO 11/1227] to:

  • allow an estimate of the age pension to be included in a retirement estimate if the prescribed assumptions and prescribed form are used;
  • require a retirement estimate to be calculated based on retirement at the age the member will become eligible for the age pension; and
  • confirm:
    • ASIC will not take action for providing misleading estimates if a retirement estimate is based on the prescribed assumptions and methodology;
    • that it is not necessary for a trustee to make specific inquiries into a member's individual circumstances.

The proposed reforms also make other amendments to:

  • clarify an annual income stream amount is based on an assumed lifespan of 25 years after retirement;
  • expand the definition of administration fees so that fees deducted from the fund's investment income before allocation to members is included in a retirement estimate;
  • round a retirement estimate amount to three significant figures for improved accuracy; and
  • revise the wording of the prescribed consumer warnings.

TIMING OF NEW REGIME

The reforms are proposed to commence from 30 April 2013. This will allow superannuation funds to rely on the revised relief when providing retirement estimates to members in their 2012-2013 annual statements if they elect to do so.

NEXT STEPS

The closing date for submissions on the proposals in CP 203 is 19 April 2013.