In brief

The Superannuation Complaints Tribunal (SCT) determination D14-15\184 (Determination) is unremarkable in its conclusion considering the change to the trustee’s power to charge fees and the quantum of the increase in the member’s fees. This article discusses some aspects of that Determination that concern some fundamental governance and decision making issues in relation to superannuation product rationalisation.


The SCT’s Determination concerned the successor fund transfer (SFT) of a member’s benefit. The member complaint related to the decision of the trustee of the receiving fund to not refund the member the difference in the fees that the member was charged in the receiving fund to the extent that those fees exceeded the fees that the member was charged in the transferring fund. Under the trust deed of the transferring fund the trustee had no power to charge fees whereas under the trust deed of the receiving fund the trustee had the power to charge fees.

The SCT set aside the decision of the trustee and substituted its own decision that the trustee was to refund that amount. This outcome is not surprising considering the difference in the trustee’s power to charge fees in the transferring fund and the receiving fund and the quantum of increase in fees charged to the member. The SCT stated (at para. 96):

‘The fee, in a full financial year, therefore, increased from $476.16 in the Former Fund to $8,870.03 in the Fund in relation to his benefit which was a similar amount in each of the two income years.’

Equivalent rights SFT test

A SFT can only occur if, amongst other matters, ‘the [receiving] fund confers on the member equivalent rights to the rights that the member had under the [transferring] fund in respect of the benefits’ (regulation 1.03(1) of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations)). Whether this equivalent rights test was satisfied must be determined on a bundled basis. However, considering a right to charge fees is such an important right, there must be significant countervailing considerations if this test is to be satisfied when a member is moved from a fund where no fees could be charged to one where fees could be charged.

In considering the equivalent rights test, the SCT stated (at paras. 102 and 103):

‘Did he have equivalent rights in the Fund? It is the Tribunal’s view and the Tribunal finds as a fact that the [receiving fund] did not confer on the Complainant equivalent rights in respect of his benefit to those that he had in the [transferring fund] immediately before the transfer because of the increased fees and charges that were permitted and applied to his benefit in the [receiving fund] compared with those that applied to his benefit in the [transferring fund].

It appears that the rebate of fees that applied to the Complainant’s benefit in the [transferring fund] did not apply either at all or at the same level in the [receiving fund], thus resulting in increased fees in the [receiving fund] in relation to his benefit compared with those that applied in the [transferring fund].’

However, there are certain other aspects of the Determination that are discussed below that are less obvious.

A trustee cannot SFT with itself!

The trustee whose decision was the subject of the complaint was the trustee of both the transferring fund and the receiving fund.

However, one of the requirements for a ‘successor fund’ is that:

‘before the transfer, the trustee of the [receiving] fund has agreed with the trustee of the [transferring] fund that the [receiving] fund will confer on the member equivalent rights to the rights that the member had under the [transferring] fund in respect of the benefits’ (emphasis added)

So was it possible for the trustee to satisfy the requirement to have an ‘agreement’? The answer is in a basic principle of contract law (the rule against self-contracting) and trust law (a trust is not a separate legal entity). The answer is clearly no.

A contract is a legally binding agreement that requires at least two parties with one making a promise to the other.1 A person cannot contract with himself, herself or itself.2 This basic proposition is supported by the definition of ‘agreement’ in the Oxford English Dictionary:

‘An arrangement (typically one which is legally binding) made between two or more parties and agreed by mutual consent’

Although there is State and Territory legislation that overcomes the rule against self-contracting in circumstances when there is another party involved (eg A contracts with A and B or A and B contract with A and C)3 or when a person transfers property to himself, herself or itself4, legislation does not overcome the self-contracting issue when one person purports to contract with himself, herself or itself.

In this case, the trustee was acting as the trustee of the transferring fund and the trustee of the receiving fund. In that circumstance is the self-contracting issue avoided?

A trust is ‘a relation between trustee and beneficiary in respect of certain property’ when ‘the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law’.5 As the trustee of each of the transferring fund and the receiving fund, the trustee has duties, disabilities, rights and powers in relation to the property of the receiving fund or the transferring fund. Accordingly, as the trustee of each superannuation fund it is not a distinct legal person in acting as a trustee (ie exercising the powers of a trustee) separate from himself, herself or itself in a personal capacity (ie in not exercising the powers of a trustee).

As was observed by Hammerschlag J in MacarthurCook Fund Management Limited v Zhaofeng Funds Limited [2012] NSWSC 911 at [111]:

‘The assumption that a trustee in its personal capacity and in its trustee capacity are different persons is a false one: Minister Administering National Parks and Wildlife Act 1974 v Halloran (2004) 12 BPR 22,391 at 22,409.’


  • if a trustee attempts to agree with itself acting in two different 'capacities'; there is no 'agreement' as there is only one party to the agreement, and
  • without the requirement for there to be an agreement in place between the transferring trustee and the receiving trustee being modified by APRA (or some other solution being implemented) it is not possible for a trustee who is both trustee of a transferring fund and receiving fund to undertake a SFT between the funds.

It is not stated in the Determination whether a modification declaration was obtained. In addition, this cannot be determined from the legislative instruments database as a modification declaration that applies to particular person is not a legislative instrument.6

Each member is SFTed!

The prohibition on the transfer of a member’s benefit (in relation to which member consent, a SFT and a transfer of an accrued default amount are exceptions) is a per-member test. SIS Regulation 6.29 states:

‘… a member’s benefits in a fund must not be transferred from the fund unless:

(c)  the transfer is to a successor fund,

…’ (emphasis added)

The definition of ‘successor fund’ in SIS Regulation 1.03(1) continues the focus on each member as it applies to ‘a transfer of benefits of a member from a fund’ and requires that the receiving fund satisfy the following conditions:

‘(a)  the fund confers on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits,

(b)  before the transfer, the trustee of the fund has agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.’ (emphasis added)

It is important to remember that a SFT is an alternative to obtaining each member’s consent to the transfer of the member’s interest to another superannuation fund. This is a sound policy reason for the legislation focusing on each member.

APRA has recognised this legislative architecture and stated that it:

'takes the view that successor fund transfer is an alternate mechanism to member consent. The onus on the trustee is thus greater to ensure member security. We are unlikely to countenance individual detriment being justified by group benefit’7

This focus on each individual member’s rights continues in APRA’s Superannuation Circular No I.C.4 ‘Equivalent rights’ that was issued in February 2001 (eg at paragraph 9):

‘To satisfy the requirement for equivalent rights, the member’s position and rights in the new fund must be effectively the same as those in the original fund so as not to disadvantage the member. That is, the member’s rights (in respect of benefits) in the new fund should be equivalent in value, measure, force and effect to their rights (in respect of benefits) in the original fund. Although special consideration should be given to significant rights, any judgement of whether rights are equivalent should not be assessed solely on an individual change to a specific right but on the equivalency of the bundle of rights (which includes rights to contingent benefits).’ (emphasis added)

It is important to note that although the SFT equivalent rights test is a per-member test, this does not mean that a superannuation trustee cannot utilise an efficient decision making process in which each member’s rights in relation to their benefits are considered. A trustee’s decision making process in relation to a SFT is discussed further below.

Some lawyers have indicated that although the Determination did not do so, the utility of SFTs as a vehicle for industry consolidation would be compromised if individual members who lose out as a result of a SFT that is in the best interests of beneficiaries of the fund as a whole and that promotes the financial interests of those beneficiaries were able to complain to the Tribunal that they should have been compensated in relation to the impact of the SFT on their individual circumstances.

It must be correct that each of:

  • the ‘best interests’ statutory covenant in section 52(2)(c) of the SIS Act, and
  • the ‘promote the financial interests’ statutory obligation in section 29VN(a) of the SIS Act,

are determined based on all of the beneficiaries of the relevant superannuation fund and all of the MySuper members of the relevant superannuation fund respectively.8 In addition, one person who complains to the SCT that the section 52(2)(c) statutory covenant (or the section 29VN(a) statutory obligation) has been breached should not be compensated if the SFT was in the best interests of members as a whole and promoted the financial interests of the MySuper members.

However, the need for a trustee undertaking a SFT to satisfy the per-member requirements of a ‘successor fund’ cannot be ignored just because a SFT is in the best interests of members as a whole. As was demonstrated by the Determination, the utility of SFTs for superannuation product rationalisation must always be considered through both:

  • the per-member lens of the SFT equivalent rights test;
  • as well as the lens of the section 52(2)(c) ‘best interests’ statutory covenant and the section 29VN(a) ‘promotes the financial interests’ statutory obligation that apply to members or MySuper members as a whole.

A SFT trip down the ING v ANZ memory lane

The Determination states (at para. 31):

‘… minutes of a meeting of the directors of the Trustee at which the successor fund transfer was considered were not provided.’

This is despite the statutory provision that the successor fund satisfy the requirement that each of the transferring trustee and the receiving trustee:

  • analyse a member’s rights in relation to their benefits in the transferring fund,
  • analyse a member’s rights in relation to their benefits in the receiving fund, and
  • determine whether (as a bundle of rights) those rights are equivalent.

This is a time consuming (and accordingly often costly) process. However, as is evidenced by the Determination, without this process being undertaken, properly documented and put before the trustee to consider as part of it deciding whether to approve a SFT, a trustee may leave itself vulnerable to a beneficiary later challenging its decision.

This issue of trustee decision making addressing each statutory requirement was a central issue in ING Funds Management Ltd v ANZ Nominees Ltd (2009) 228 FLR 444; [2009] NSWSC 243. That case concerned a purported amendment by a responsible entity of a constitution of a registered managed investment scheme pursuant to section 601GC(1)(b) of the Corporations Act 2001 (Cth) (Corporations Act).

Section 601GC of the Corporations Act permits the constitution of a registered managed investment scheme to be modified, or repealed and replaced with a new constitution either:

  • by special resolution of the members of the scheme, or
  • by the responsible entity if the responsible entity reasonably considers the change will not adversely affect members' rights.

ING Funds Management Ltd (the responsible entity) purported to amend the constitution of the relevant managed investment scheme pursuant to the second limb of that statutory power (section 601GC(1)(b)).

Barrett J stated (at [85] – [88])

‘… The necessary inquiry concerns the state of mind of INGFM and what, as a matter of fact, it “considered” (in the sense of “concluded”). There must be factual findings about the assessment INGFM actually made concerning the impact of the modification. For the condition to be satisfied, several components must be established. In the present proceedings, it is for INGFM as plaintiff to establish them.

The first component involves an assessment of how INGFM viewed “members’ rights” before the modification and the impact that the modification would have on those rights. The process of determining the state of mind of a company arises for consideration here, as does the meaning of “members’ rights”.

Second, it must be seen that INGFM considered that, according to a comparison of “members’ rights” before the modification with the changed rights that would exist after the event, there would be no “adverse” affectation of the “rights” whatsoever, this being the import of the words “the change will not adversely affect members’ rights”. It is necessary here to consider the meaning of “adversely affect”.

Third, it is necessary that the opinion formed by INGFM as to the absence of adverse affectation be seen to be something that the responsible entity “reasonably considers”.’

In ING no witnesses were called by the responsible entity and therefore the Court was left to draw inferences from documents including the minutes of the relevant meetings. Barrett J stated (at [139]):

‘The minutes of the board meeting do not show any basis or rationale for the recorded decision as to absence of adverse impact on members’ rights. There is nothing to show what the directors took into account in making the recorded decision about members’ rights. Nor is there, on the evidence, any discernible basis on which it could have been decided that members’ rights would not be adversely affected by the modification.’

The trustee’s decision that was considered in the Determination was in an even worse position than the responsible entity in the ING case as the trustee did not provide any minutes of the relevant board meeting to the SCT.

Although it is such a basic and fundamental concept to a trustee, the Determination (as does ING) serves as a reminder to trustees about the risk that they are embedding in their business unless they closely examine the power that they are exercising, analyse and address each of the requirements and adequately document this process and the trustee’s decisions. It is also worth noting that it is an offence if a trustee purports to undertake a SFT where the statutory requirements are not satisfied and the trustee was reckless in determining whether those requirements were satisfied.9

Stop poking the ASIC disclosure bear

The Determination indicates that the trustee sent a letter to the complainant to notify him of the impending SFT. The letter (and enclosed flyer) amongst other things stated:

  • that the receiving fund had similar fees to the transferring fund, and
  • that ‘members did not need to take any action as the Trustee would look after everything in relation to the transfer’ (see paragraph 36).

Besides the obvious problems with the first statement, it is never a prudent course of action for a disclosure document to encourage members to do nothing about an important event occurring to their superannuation. This phrase, that is liked to be many marketers, should be resisted by superannuation trustees.


There are of course so many more issues to be addressed in a SFT. However, the Determination is a useful reminder of some of the governance and decision making issues.