A new Bill before Parliament would require trustees of superannuation funds to merge multiple superannuation accounts held by the same member. The obligation would apply from 1 July 2013.
The Bill is the Tax and Superannuation Laws Amendment (2013 Measures No. 2) Bill 2013. If passed it will amend the Superannuation Industry Supervision Act 1993 (SIS Act) to require trustees to establish rules about when and how multiple superannuation accounts must be merged. The amendment does not specify how the trustee must establish the rules, and there is no requirement that the rules be contained in the fund’s governing rules.
The Bill includes several improvements on the exposure draft, including the replacement of the obligation to merge multiple “superannuation interests” with an obligation to merge “superannuation accounts”. It is possible that a member will have multiple accounts while having only one interest.
The rules must set out a procedure for identifying members with more than one account, and the trustee must carry out the procedure at least once each financial year.
Where it identifies multiple accounts belonging to a member, it must merge the accounts so that the member has only one account balance ‘in respect of those accounts’ if the trustee reasonably believes it is in the best interests of member to do so. The amendments do not specify how the trustee is to choose the account into which the accounts are to be merged, and it does not prohibit the trustee merging the accounts into a new account. The obligation appears to apply even if the member has chosen to have more than one account. The draft Explanatory Memorandum also provides that, as an alternative to liquidating accounts to be closed, the trustee could “retain separate benefits, reflecting different underlying investments, but record those benefits in a single ‘account’ with a single set of membership fees, charges and insurance”.
In considering a member’s best interests, the trustee must consider the total fees and charges payable by the member, including fees and charges in relation to insurance, although it is not prevented from considering other relevant matters (such as the effect of the merger on the member’s insurance cover, and the draft Explanatory Memorandum states that the trustee must develop rules regarding the aggregation or extinguishing of existing insurance cover). The rules must provide that fees other than buy-sell spreads are not payable in respect of the merger.
A trustee would not be required to merge accounts where it is not practicable to do so in the circumstances. This appears to be a relatively low threshold. Where the merger would be prohibited by the terms of the governing rules or disclosure documents, there may be a question about whether the trustee is required to amend these (if it is possible to do so) in order to give effect to the merger. The Bill also clarifies that the trustee is not required to merge accounts if one or more of the accounts is a defined benefit interest or income stream (the exposure draft was unclear on this point).
A failure by a trustee to establish the rules for merging accounts will be an offence under the SIS Act. Compliance with the rules will be a condition of the trustee’s RSE licence.