Yesterday the Government released exposure draft Stronger Super regulations relating to accrued default amounts, MySuper and insurance. The regulations will amend the Corporations Regulations 2001, Superannuation Guarantee (Administration) Regulations 1993, and Superannuation Industry (Supervision) Regulations 1994.
Accrued default amounts
No need for equivalent rights in respect of benefits
Where a trustee is required by the prudential standards to transfer an accrued default amount in the trustee’s fund to a MySuper product in another fund, the trustee will not need to comply with the requirement that applies to successor fund transfers. This means a trustee will not need to satisfy itself that the receiving fund will confer equivalent rights in respect of benefits. As the accrued default amount will not itself be in a MySuper product, relief from the equivalence requirement is both necessary and welcome.
It is worth recalling that a trustee will not have any liability to the member for transferring an accrued default amount as required by the prudential standards. However, it is also worth recalling that, in identifying a suitable MySuper product, the trustee must form the view that the product will promote the financial interests of the member.
Notification of transfer
The regulations also prescribe the notification to be given where an accrued default amount will be transferred or attributed. Notice must be given at least 90 days beforehand. The notice must identify the amount, the receiving MySuper product, how a PDS for the product can be obtained and “any other information that the member needs to understand” the transfer or attribution. In our view, this last content requirement should be subject to a reasonableness test, otherwise it could require the trustee to consider the individual circumstances of each member.
If fees, charges or insurance premiums will increase, or if the insured benefit will reduce, or if the investment strategy will change (with this last situation very likely to occur in many cases), additional content requirements will apply to the notice. It will need to describe how the member can opt out of the transfer as well as the relevant increase, reduction or change. Dollar disclosure will apply to any change in fees or charges.
The transfer of a member’s interest from a MySuper product to another MySuper product or to a Choice product will trigger a significant event notification where the transfer is recommended or suggested by the trustee or an associate of the trustee. The regulation assumes, wrongly perhaps, that this needs to be specifically addressed. Why a transfer of that kind would not trigger a significant event notification based on the law as it currently stands is not clear. Further, on the assumption that the transfer is likely to involve an increase in fees or charges, the notification would need to be given at least 30 days before the transfer.
SG default death cover
The features of the default death cover required to be offered in order to satisfy the choice of fund requirements, will be refined. The existing age-based scale will continue. An alternative will be cover at a premium of at least 50 cents per week, or the equivalent, where the person has not reached age 56. The cover must be provided where the person is a MySuper member who does not opt out. Where the person is a MySuper member who does opt out, or a Choice member, the cover need only be offered.
Kinds of insured benefits
For the most part, insured benefits will not be able to be provided unless the benefit can be released from the fund under a condition of release – ie on death, terminal medical condition, permanent incapacity or temporary incapacity. This restriction will only apply to insurance cover taken out on or after 1 July 2013. Existing cover will not be affected.
Restrictions on self-insurance will be imposed. There will be transitional arrangements ending in 2016.
The exposure draft materials are available here. The closing date for submissions is 21 November 2012.