On 21 September 2011, the Government announced its decisions on key design aspects of its Stronger Super reforms — see an earlier Thomson Reuters Weekly Tax Bulletin article here. A key component of these reforms is the creation of a new simple, low cost default superannuation product called MySuper. The aim of this offering will be to have all superannuation guarantee contributions that employers make on behalf of employees paid into a MySuper product if the employee:
- does not have a chosen fund; and
- has not chosen in writing to the trustee have their contributions made to a specified choice product.
The exposure draft released week or so later on 29 September 2011 provides the legislative detail around core aspects of MySuper, including the changes to:
- superannuation guarantee requirements;
- the application process for MySuper;
- the MySuper authorisation process;
- the characteristics of a MySuper product and the permitted fees; and
- charging rules associated within a MySuper product.
Remaining MySuper provisions will be released in later legislation.
The draft Bill proposes to:
- define a MySuper product into which contributions for the relevant employees can be paid;
- limit a regulated superannuation fund to offering only one MySuper product, except in certain circumstances;
- allow trustees to apply to APRA for authorisation to offer a MySuper product;
- set out rules on the payment of contributions and account transfers for MySuper products; and
- set out the fees that can be charged and the basis on which those fees can be charged to members of a MySuper product.
Two-step process for ensuring relevant contributions are paid into MySuper
A 2-step process is designed to ensure that contributions for relevant employees are paid into a MySuper product.
- First, if an employee does not have a chosen fund, then their employer will be required to make superannuation guarantee contributions on that employee's behalf to a superannuation fund that offers a MySuper product. For most employers, the Government expects their existing default superannuation fund will offer a MySuper product so they will not have to change their arrangements for making superannuation guarantee contributions. New employers, and employers making contributions to a fund that does not to offer a MySuper product, will have to choose a default fund that offers a MySuper product.
- Second, all trustees will be obliged to pay the contributions of members to a MySuper product unless a member has chosen, in writing, for contributions made on their behalf to be paid to a specified choice product or products.
Core criteria for a MySuper product
The draft Bill provides that a MySuper product must meet core criteria including:
- the product has a single diversified, or lifecycle, investment strategy;
- all fund members must have access to the same options and facilities;
- the same processes will be adopted in crediting or debiting member accounts;
- the only limits placed on the source, or kind, of contributions to a MySuper product will be those imposed under the general law or a law of the Commonwealth or of a State or Territory;
- a member's interest will not be able to be transferred without the member's consent except to another MySuper product within the fund, or as required or permitted under a law of the Commonwealth;
- the MySuper product will apply to only the pre-retirement phase;
- only permitted fees will be able to be deducted from member accounts; and
- the permitted fees will be the same for all members, with the exception of the administration fee.
Pending topics for later legislation
Later, legislation about MySuper will address the following topics:
- Trustees will have specific duties in relation to a MySuper product including:
- to formulate and give effect to the investment strategy at an overall cost aimed at optimising the best financial interests of members, as reflected in the net investment return over the longer term;
- to set an investment return target (over a rolling 10 year period) and a level of risk appropriate to members of the MySuper product; and
- to actively examine and conclude whether the MySuper product has access to sufficient scale (with respect to both assets and number of members) to continue to provide net investment returns that are in the financial best interests of members;
- APRA will have:
- the power to make prudential standards in relation to superannuation and to issue directions to trustees;
- enhanced data collection and data publication powers for APRA;
Fees, commissions etc.
- There will be:
- rules about the charging of financial advice, including intra-fund advice;
- a prohibition on deduction of commissions from fund member accounts;
- rules about trustees charging performance-based fees to investment managers in relation to the assets of a MySuper product;
- limitation of certain fees to cost-recovery;
- There will be:
- a rule for the fair and reasonable allocation of costs between each MySuper product and each choice product within a fund;
- specific disclosure requirements in relation to MySuper products, including a product dashboard;
Other default funds allowed
- Other defined benefit funds and schemes will be allowed to continue to be a default superannuation product;
Consequential amendments and transitional arrangements
- There will be:
- consequential amendments to deal with the nominating superannuation funds in modern awards and enterprise agreements;
- consequential amendments to the Corporations Act that ensure the necessary obligations of that Act apply to trustees of MySuper products; and
- arrangements for the transition of member accounts from existing default superannuation products to MySuper products.
Proposed dates of effect
- to the SIS Act would commence on 1 January 2013 or an earlier day fixed by Proclamation; and
- to the SG Act would commence on 1 October 2013, from which date employers would have to make contributions for employees that do not have a chosen fund to a fund that offers a MySuper product.
Comments on the draft were due by 13 October 2011. Enquiries should be directed to Kathleen O'Kane (02) 6263 3979.
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please
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