Explanatory Memorandum(Circulated by the authority of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)
Chapter 2 - Default contributions must be placed in MySuper products
Outline of chapter
2.1 This chapter explains the new obligations for employers and RSE licensees that will ensure MySuper products will be the default superannuation product for all employees that have not chosen a fund or choice product within a fund.
Process by which default contributions must be placed in MySuper products
2.2 A two-step process will ensure that all superannuation guarantee contributions made by employers on behalf of employees that do not have a chosen fund and have not elected in writing to the RSE licensee to have their contributions made to a specified choice product will be paid into a MySuper product.
2.3 First, employers must make superannuation guarantee contributions on behalf of employees that do not have a chosen fund to a superannuation fund that offers a MySuper product.
2.4 This will be a minimal change to employers' current obligations. For most employers, it is expected 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 offer a MySuper product, will have to select a default fund that offers a MySuper product.
2.5 It is intended that APRA will publish on its website a list of all funds that are authorised to offer a MySuper product.
2.6 Second, all RSE licensees will have an obligation to pay the contributions of members to a MySuper product unless a member has elected, in writing, for contributions made on their behalf to be paid to a specified choice product or products.
Exemption for defined benefit funds
2.7 Currently, superannuation guarantee contributions made in relation to an employee's interest in a defined benefit fund or scheme do not have to comply with the choice of fund requirements. This will not be changed.
2.8 Later tranches of legislation will include an exemption to the obligation on RSE licensees to pay contributions to a MySuper product for contributions that relate to a member's entitlement to a defined benefit. Further, it is intended that where an employer fully meets their superannuation guarantee obligation with a notional benefit certificate from a defined benefit fund or scheme then they will be able to make additional contributions that the RSE licensee will not have to pay to a MySuper product. That is, those additional contributions could be paid to a choice product.
Detailed explanation of new law
2.9 Employers will have to make contributions on behalf of employees that do not have a chosen fund to a fund that is authorised by APRA to offer a MySuper product. [Schedule 1, item 1, paragraph 32C(2)(c)].
2.10 The current subsection 32C(2) of the SG Act outlines how an employer must meet their choice of fund requirements for superannuation guarantee contributions that are on behalf of employees that do not have a chosen fund. One of the existing requirements is that the employer contributes to a fund that complies with the regulations in relation to offering insurance in respect of death. This requirement will not be changed; however, rules on insurance for MySuper and choice products will be included in later tranches of legislation. [Schedule 1, item 1, paragraph 32C(2)(c)].
2.11 RSE licensees will be required to pay the contributions of all members into a MySuper product that they offer unless the member elects in writing that the contribution is to be paid into a specified choice product or more than one specified choice product. A member may elect in writing by completing an online form or selecting a check box on a written form. An election made in writing continues to remain in effect until a contrary election is made by the member. If a member made an election to have contributions paid to a specified product prior to the commencement of these provisions then that election will allow for contributions to continue to be paid into that product. [Schedule 1, item 9, division 6, section 29WA].
2.12 Employees that have a chosen fund may have superannuation guarantee contributions made to a fund whose trustee is not authorised to offer a MySuper product. A trustee of this type of fund will not be able to pay these contributions into a choice product in their fund until the employee has elected in writing to have the contributions paid into a specified choice product. [Schedule 1, item 9, division 6, section 29WA].
2.13 RSE licensees that offer more than one MySuper product will be able to pay contributions to any of those MySuper products to satisfy this obligation subject to any governing rules of the fund that require contributions to be placed in a given MySuper product. It will also be possible for a member to elect to have part of their contributions made to the MySuper product and part of their contributions to a choice product in the fund if they elect in writing. [Schedule 1, item 9, division 6, section 29WA].
2.14 Contravention of the requirement noted in paragraph 2.11 will be an offence of strict liability. A penalty of 50 penalty units will apply. A strict liability offence is necessary as the consequences of an RSE licensee contravening this requirement could have a detrimental impact on the retirement savings of the employees affected. It is a reasonable expectation that RSE licensees have appropriate administrative processes in place to ensure that contributions are placed in either the MySuper product, or in a choice product where a member has made an election in writing. [Schedule 1, item 9, division 6, section 29WA].
2.15 Later tranches of legislation will clarify that this offence will not apply to RSE licensees of funds that only provide defined benefits or to other RSE licensees in respect of contributions that are made to a defined benefit fund or scheme.
Application and transitional provisions
2.16 These provisions will apply from 1 October 2013. [Schedule 1, item 13].
2.17 Transitional arrangements will allow employers to make contributions on behalf of employees that do not have a chosen fund to a fund that operates an existing product for the benefit of that employer that is the subject of an application, made prior to 1 July 2013, for a MySuper product for a large employer. RSE licensees will be able to pay these contributions to the existing product for which an application has been made prior to 1 July 2013 until APRA has decided that application. [Schedule 1, item 12].
2.18 Should APRA refuse an application made prior to 1 July 2013 for authorisation of an existing employer plan as a MySuper product, employers will have a three month grace period in which they will be able to continue to make contributions to that fund and ensure that they can continue to satisfy their obligations to pay these contributions to a fund that offers a MySuper product. Within the three month grace period, RSE licensees will also be able to place contributions from that employer into the existing employer plan that APRA has refused an application for a MySuper product. [Schedule 1, item 12, subsections (5) and (6)].