The Government released today the Stronger Super Information Pack containing the Government’s decisions on key design aspects of the Stronger Super reforms. These were set out in the Government’s Stronger Super report released in December last year in response to the 177 recommendations of the Super System Review (Cooper Review).
Today’s announcement has been a long time coming and, at first blush, is underwhelming given the amount of work and talk that has preceded it. It is brief, covers a lot of old ground and does not take us much further than the 2010 Stronger Super report. However, what we have is clearly the beginning of a process, a process that won’t be finished until 2017.
There will be tranches of draft legislation, more committee meetings, draft regulations and draft APRA standards to follow. For trustees, the key date to work towards is 1 July 2013 when they can first offer MySuper products. Before then, they will need to apply for a MySuper authorisation, set investment strategies, negotiate investment mandates and make new insurance arrangements. They may also need to establish operational risk reserves and make a significant investment in improving technology and administration.
There are significant concessions in the package announced today to key industry participants, particularly around MySuper products and account consolidation. There will not be a special category of trustee-director; but there will be a duty of priority for trustees and their directors.
Submissions are not invited in response to this Information Pack. However, there will be many other opportunities to do so in response to draft legislation and standards.
SUMMARY OF INFORMATION PACK
- Commencing 1 July 2013: MySuper products can be offered from 1 July 2013 and employers will be required to make default superannuation contributions to funds offering MySuper products from 1 October 2013.
- Transition: Trustees offering MySuper products will need to transfer the existing balances of their default members to a MySuper product by 1 July 2017.
Pricing: Funds choosing to offer MySuper must offer a product with a single investment strategy and a standard set of fees but:
- discounted administration fees can be offered to an employer’s employees; and
- funds can tailor a MySuper product to the needs of a particular workplace where an employer has more than 500 employees offering bespoke investment strategies, member services and fees.
- Branding: Funds must use a single brand for MySuper products except where there is a pre-existing and distinct default product acquired by a fund. They will need APRA approval. It seems that APRA will not be able to give its approval in other cases to the use of bespoke branding.
- Lifecycle investment options: Trustees may use a lifecycle investment option as the single investment strategy for their MySuper product.
- Authorisation: Trustees will not require a MySuper licence, but they will need to be authorised by APRA for each MySuper product they offer.
- Fees: MySuper products can charge administration fees, investment fees (including a performance fee), buy-sell spreads (limited to cost recovery), exit fees (limited to cost recovery) and switching fee (limited to cost recovery) and fees for certain member- specific costs. Only fees which meet these descriptions may be charged.
- Insurance: Life and TPD insurance will have to be provided on an opt-out basis, unless it cannot be obtained at a reasonable cost. Life and TPD insurance in a MySuper product will need to meet a standard, default level, except that it can be tailored for specific employer-sponsored plans. The trustee can decide whether to provide income protection insurance and, if so, on what basis.
- Post-retirement products: MySuper products will not be required to include a retirement product; it is unclear whether they can do so.
- CGT relief: The Government is still consulting about the need for CGT rollover relief. Submissions are due by 31 October 2011.
The paper says nothing about whether trustees will be required to provide intra-fund advice to MySuper members.
Click here to read more on MySuper.
The other side of MySuper for trustees is their “choice” product. The paper makes very few references to choice. It says that trustees will not be subject to any restrictions in the fees they charge. More notably, choice trustees will be required to offer a range of investment options sufficient to allow members to obtain a diversified asset mix if they choose. So, while trustees will not be required to select investments for their members, they will need to carefully select the investment choices which they offer to them.
Although an office of trustee-director will not be created, the duties of trustees and their directors will be refined in the following ways:
- trustees and directors will have a new duty “to give priority” to members (when “that duty” conflicts with other duties);
- requirements for trustee directors in relation to managing conflicts will be strengthened;
- the standard under the statutory duty of care will be raised to that of a prudent person of business;
- the duties of trustee directors to act honestly and to exercise independent judgement will be clarified;
- a duty to implement an insurance strategy and to manage insurance with the sole aim of benefiting members will be introduced.
There are also announcements about investment governance and operational risk.
Click here to read more about Governance.
Self-managed superannuation funds
Consultations on SMSF auditor registration are ongoing. SMSF auditors will have to comply with the Accounting Professional and Ethical Standard Board’s standard APES 110 – Code of Ethics for Professional Accountants.
Related party transactions will have to be conducted through a market, where one exists. Where no market exists, the transaction will have to be supported by a valuation from a suitably qualified independent valuer.
All other SMSF recommendations will be implemented in line with the Stronger Super report, except that superannuation legislation will not be amended to automatically deem anything permitted by superannuation or taxation legislation to be permitted by SMSF trust deeds.
There will be data and e-commerce standards which must be complied with and automatic consolidation of small accounts with a detailed timetable for the introduction of different elements of the arrangements.
In addition, trustees will be required to monitor and report to members periodically about the receipt of employer contributions.
It is unclear how trustees and employers will be bound by these measures. Click here to read more about SuperStream proposals.