Stronger Super - MySuper and insurance: regulations registered

On 4 March 2013, the Superannuation Legislation Amendment Regulation 2013 (No 1) (Cth) was registered to implement aspects of the Stronger Super reforms. The amendments to the SIS Regulations and Corporations Regulations 2001 set out the notification requirements for MySuper transfers, prohibit self-insurance and restrict the types of insurances that can be offered within superannuation. The regulation also refines the minimum insurance requirements for default funds and MySuper members in regulation 9A of the Superannuation Guarantee (Administration) Regulations 1993 (Cth). Details of the amendments are outlined below.

Permitted types of insurance

A new operating standard^[1] will prohibit trustees from providing "insured benefits" other than those consistent with the conditions of release in Schedule 1 to the SIS Regulations for death, terminal medical condition, permanent incapacity and temporary incapacity. However, the prohibition will only apply to beneficiaries who join a fund from 1 July 2014 (instead of 1 July 2013 as originally proposed).

The prohibition does not apply to the continued provision of insured benefits to members who joined a fund before 1 July 2014 and were covered in respect of that insured benefit before 1 July 2014. However, the member must have actually been covered in respect of an insured benefit prior to 1 July 2014.

Anti-detriment payments

The final regulation also excludes anti-detriment payments (that is, tax savings amounts under section 295-485(1)(b) of the Income Tax Assessment Act 1997) from the definition of "insured benefits" to ensure that anti-detriment death benefits can continue to be paid ^[2].

Thomson Reuters note: A complying superannuation fund is entitled to an anti-detriment deduction under section 295-485 of the ITAA 1997 where it pays an increased lump sum superannuation death benefit to the estate of a deceased member (or a spouse or child of the deceased member). However, some superannuation funds rely on an insurance policy to provide the money to pay an increased lump sum death benefit to access an anti-detriment deduction.

Self-insurance prohibited

From 1 July 2013, trustees will generally be prohibited from providing insured benefits unless they are fully supported by an insurance policy provided by an insurer^[3]. That is, a fund will not be able to self-insure. However, funds that are self-insuring at 1 July 2013 will have a 3 year transitional period until 1 July 2016 to move from self-insurance to external insurance arrangements. During the transitional period funds can continue to self-insure in respect of new members.

Notification of MySuper transfers

Trustees will be required to provide members with a notice 90 days prior to attributing an accrued default amount to a MySuper product, or transferring that accrued default amount to another fund because the member is not eligible to hold a MySuper product offered by that fund^[4]. The notice must mention certain information specified in the regulations ^[5].

Where there is no increase in fees (or reduction in insurance benefits) and no change in investment strategy, a modified significant event notice may instead be provided in the 12 months following the attribution of an accrued default amount to a MySuper product. Where an RSE licensee is required by SIS regulation 9.46 to provide a notice of MySuper transfer, the Corporations Regulations 2001^[6] will exempt the RSE licensee from also having to provide a significant event notice.

These regulation 9.46 notices must be provided in writing. This does include electronic forms of communication such as email.

MySuper transfers: significant event notification

A trustee must provide a significant event notice to a member where, upon the recommendation of the trustee, a member's balance in a MySuper product is moved to any other product or investment option. The significant event notice must specify the consequences to the member that might result from moving to another product, regardless of whether the information was contained in the Product Disclosure Statement.

Successor fund transfer rules

The transfer of accrued default amounts to a MySuper product in another fund will be exempt from the successor fund transfer rules in regulation 6.29.

Choice of fund: default insurance

The existing requirement for a default superannuation fund to offer a minimum level of life insurance (otherwise known as death insurance) will be retained but refined in the Superannuation Guarantee (Administration) Regulations 1993^[7]. Superannuation funds will be required by section 68AA of the SIS Act to "provide" (rather than just offer) a minimum amount of death insurance for MySuper members on an opt-out basis. For a choice member, the minimum level of life insurance must only be "offered". Accordingly, the SGA Regulations will be amended to reflect the distinction between the minimum life insurance requirements for MySuper members and choice members in section 32C(2) of the SGAA from 1 January 2014.

Opt-out insurance for MySuper

As mentioned above, super funds will be required to "provide" death and permanent incapacity insurance for MySuper members on an opt-out basis. However, regulation 9.49 provides that life and TPD insurance must be offered on a compulsory basis for MySuper members if the trustee is reasonably satisfied the insurance cannot be placed with an insurer at a reasonable costs or it cannot be provided on opt-out basis at all.

Permanent incapacity

The definition of "permanent incapacity" will be moved to a new regulation 1.03C of the SIS Regulations (from regulation 6.01(2)) from 1 July 2013. It is not intended that the meaning of the definition change.

Date of effect

The amendments generally commence from 1 July 2013, except for the restrictions on the types of insurance (1 July 2014) and the refinements to the minimum insurance for default funds (1 January 2014).

Previous announcement

The regulations were previously released in a draft form on 8 November 2012. In response to industry concerns raised during consultation, Treasury released a Consultation Outcome indicating that the Government would make several changes to the draft regulations, most notably deferring from 1 July 2013 to 1 July 2014 the restrictions on the types of insurance within super.

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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