Superannuation Forecasts for members — Relief for trustees and ASIC's guide to what's allowed

In December 2011, the Australian Securities and Investments Commission released:

• a new class order which relieves trustees of superannuation entities from having to hold an Australian financial services licence (with an 'advice' authorisation) in order to give members certain estimates about their retirement benefits; and
• a Guide to clarify ASIC's views on how superannuation trustees may take advantage of the relief under the new class order and a previous class order relating to financial calculators.

The Guide also sets out ASIC's position on superannuation benefit calculators which allow members to predict their retirement benefits and how those benefits are affected if the member changes variables.

Although ASIC has made it easier for trustees to provide members with forecasts of their retirement benefits, trustees should take extra care to ensure that all ASIC's requirements are met.

Overview

ASIC has released a new Class Order and a Regulatory Guide to encourage superannuation trustees to offer forecasts and calculators to members.

ASIC is hoping that super fund trustees will provide their members with more information (in a way which does not mislead members) so as to help members engage more actively with their superannuation.

The relevance of this article is limited to trustees, advisors and members of public superannuation funds. It may also be relevant to SMSF trustees who issue annual statements to their members, though these trustees will be in the minority as member statements are not a legal requirement of running an SMSF.

The relief provided in the Class Orders

In short, the Class Orders allow super fund trustees to provide their members with superannuation forecasts and superannuation end benefit calculators even if the trustees do not hold an Australian Financial Services Licence (AFS Licence) with a specific 'advice' authorisation.[1] Also if the super fund trustee already holds such an AFS Licence, then ASIC's Class Orders provide relief from the application of the advice, conduct and disclosure requirements of the AFS Licence.

The Class Orders require that the forecasts and calculators assume variables and standard information to ensure that super fund members may have confidence in the design of superannuation forecasts and the quality of the assumptions made.

ASIC also encourages super trustees to present superannuation forecasts and standard information in a way that will best suit the particular needs of their members.

Before trustees provide superannuation forecasts and calculators for their members, they should carefully consider the Class Orders to make sure they meet the specific requirements for relief — a breach may involve considerable penalties.

The Class Orders are:

• Relief for providers of retirement estimates, Class Order 11/1227; and
• Relief for providers of generic calculators Class Order 05/1122.

The Guide

ASIC's Guide 229[2] is a guide for super fund trustees, and their advisors, about how trustees can provide retirement benefit forecasts to members.

What is a superannuation forecast?

A superannuation forecast is an estimate provided (usually by the fund's trustee) to a super fund member of the balance of their superannuation investment at retirement. This forecast must take into account specified variables, including:

• the member's current account balance and contributions;
• the fund's fees; and
• an assumed investment earnings rate.

What are the requirements for superannuation forecasts?

If a super fund trustee wishes to provide its members with a superannuation forecast, then ASIC requires that the forecast:

• contains mandatory content — including, the member's estimated benefit at retirement in today's dollars, the current account balance and the fund's administration fees;
• takes into account all the required variables — for example, a 3% investment earnings rate, a presumed retirement age of 65 and an assumption that the member's contribution levels will remain constant until the member retires; and
• is given to the member when the member receives their periodic statement.

What are ASIC's objectives for superannuation forecasts?

ASIC's objective in requiring these standardised assumptions:

• is to provide members with an accessible starting point to think about their superannuation investments; but
• is not intended to provide members with an exact prediction of their superannuation investment balance at retirement.

Which calculators are covered by the Class Order and Guide?

For the purposes of Class Order 05/1122 and the Guide, ASIC regards any of the following as a superannuation financial calculator: any facility, device, table or other thing used to make a numerical calculation. ASIC's view is that the variables members can add into the calculator must be reasonable.

The main difference between superannuation forecasts and superannuation calculators is that a calculator enables a member to control the variables that apply to their superannuation plans, such as contribution levels and retirement age.

The key point for super fund trustees to note is that the AFS Licence relief is available only to superannuation calculators that do not advertise or promote a specific financial product.

More Information from Maddocks

For questions or more information about the above article, please call Maddocks in Melbourne on 03 9288 0555 and ask for a member of the Superannuation Team.

More Cleardocs information on superannuation and SMSFs

You can read other articles concerning superannuation and SMSFs here.

1. Order SMSF related document packages

• Set up an SMSF
• Update an SMSF deed
• Set up an SMSF pension
• Arrange SMSF borrowing lending docs:
  • for when the lender is a bank
  • for when the lender is a related party
• Set up an SMSF corporate trustee
• SMSF Death Benefit Nomination - binding or non binding
• SMSF Death Benefit Agreement - binding and permanent

2. Download

Download a checklist of the information you need to order a document package.

[1] Through Class Orders CO 11/1227 and CO 05/1122 (Class Orders)

[2] Regulatory Guide 229.