On 13 November 2014, ASIC released its response to Consultation Paper CP 203, which canvassed a number of issues relating to the provision of superannuation benefit projections by trustees. The Consultation Paper was released in March 2013 and only 15 submissions were made (or at least that is the number of non-confidential submissions). ASIC has now amended its Class Order on the topic, CO 11/1227 (Class Order), and while some of the changes are significant, the overall framework remains the same.
Disappointingly, ASIC did not take the opportunity to allow trustees greater discretion in this area. ASIC policy seems to be that retirement benefit projections must follow a common set of prescriptive rules which are set out in the Class Order. We think this rigid approach is likely to continue to be a barrier to the provision of information of this kind, notwithstanding the latest “tweaks”.
When ASIC initially released the Class Order in 2011, it expressed the view that superannuation fund members could benefit from having access to benefit forecasts to give them some indication of how much money they might receive when they retire. The Class Order was designed to make it easier for trustees to provide such forecasts, however, there has been limited take up by superannuation trustees. Industry feedback suggests that this is possibly because the requirements imposed by the Class Order are very prescriptive and some trustees may not agree with the methodology prescribed by ASIC in the Class Order. There are also concerns that superannuation trustees could be exposed to claims if the actual retirement benefit outcomes deviate significantly from the forecasts.
The assumption which underpins the Class Order is that superannuation trustees that (typically) do not hold an Australian financial services licence authorising them to provide “personal financial product advice” are prohibited by law from providing retirement forecasts to their members. There is no express prohibition against doing so, however ASIC seems to take the view that a retirement benefit forecast is a form of “personal financial product advice”. ASIC explains that this is based on the fact that a forecast takes into account a person’s individual circumstances (such as age, current account balance and the like). While this is one aspect of personal financial product advice, to qualify as financial product advice, there must firstly be a “recommendation” or a “statement of opinion” (or a report of either) that is intended to influence a person’s decision-making in relation to a particular financial product or class of products (or which could reasonably be regarded as being intended to do so).
While ASIC acknowledges that a forecast that consists only of “factual information” would not involve the provision of financial product advice (and therefore need not comply with the Class Order), ASIC does not provide any useful commentary explaining when that would be the case. Publication of the Class Order suggests that ASIC considers that relief from the law is required, which means that trustees who provide forecasts which do not comply with the Class Order do so at the risk of falling foul of ASIC’s view of the law. The same underlying philosophy applies in relation to calculators, which are generally considered by ASIC to also involve the provision of personal financial product advice even where there the output does not contain any explicit recommendation in relation to a financial product.
Presumably, ASIC is concerned that the provision of retirement benefit forecasts by superannuation trustees might highlight for many members that their retirement benefit is likely to be inadequate and that this will induce them to make additional contributions to the superannuation fund. Another way of looking at it, however, is that by providing a retirement benefit estimate, the trustee is simply providing additional useful information to a member about the member’s participation in the superannuation fund. This is information that members who are financially astute may well be able to obtain by performing the calculations themselves. From a policy perspective, interpreting the law so as to prevent trustees from performing these calculations for less financially savvy members simply because this may result in the member being better informed and acting on the information seems undesirable, particularly as access to this kind of information should assist members to engage more with their superannuation.
So what has ASIC done to the Class Order?
- Trustees now have the option to include an estimate of the age pension in the estimate, based on specified assumptions.
- The Class Order imposes a requirement that retirement projections be made to a specified assumed retirement age. Previously, the specified age was 65 – it has now been changed to 67 to align with plans to increase age pension eligibility to that age.
- The Class Order has been clarified in relation to assumptions about administration and investment fees.
- The Class Order has been amended to require monetary amounts to be rounded to “three significant figures”, rather than to the nearest $10,000.
- The Class Order has been modified to make it clear that ASIC will not take action against a trustee that follows the rules in the Class Order. This does not affect the trustee’s risk of actions by other parties such as fund members.
Overall, while the changes are positive, the Class Order has been tweaked rather than revolutionised, and we anticipate that the industry’s lukewarm response to the original version of the Class Order will not change dramatically as a result.