Explanatory Memorandum(Circulated by the authority of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)
Chapter 4 - Characteristics of MySuper products
Outline of chapter
4.1 This chapter explains the key characteristics of MySuper products.
4.2 To offer a MySuper product, a fund's governing rules must set out the rights, obligations and rules relating to the MySuper product.
4.3 To authorise an RSE licensee to offer a MySuper product, APRA must be satisfied that the governing rules of the fund ensure that the MySuper product will have certain characteristics. These characteristics are that the class of beneficial interest that is a MySuper product has:
- a single, diversified investment strategy;
- equal access to options, benefits and facilities for all members of the MySuper product;
- processes for amounts to be attributed to members in a way that does not stream gains or losses to only some members of the MySuper product, with an exemption for lifecycle investment strategies;
- no differences in the extent of fee subsidisation of employees of a certain employer if fee subsidisation is allowed by employers;
- no limits on the source or kinds of contributions made by or on behalf of members; and
- a prohibition on replacing a member's interest in that MySuper product without the member's consent, other than with:
- an interest in another MySuper product in the fund;
- an interest in a MySuper product in another fund and the replacement is permitted by a law of the Commonwealth; or
- an interest in another fund if that transfer is otherwise permitted or required by a law of the Commonwealth; and
- no pension benefits paid from the assets of the MySuper product to members in retirement.
Detailed explanation of new law
Single, diversified investment strategy
4.4 For an RSE licensee to be authorised to offer a MySuper product, APRA must be satisfied that the fund has governing rules (including the trust deed) that has a class of interest that meets the characteristics of a MySuper product. [Schedule 1, item 9, division 3, paragraph 29T(1)(g)].
4.5 MySuper products must have a single, diversified investment strategy in relation to those assets that are attributable to the MySuper product. [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)].
4.6 RSE licensees must be able to clearly identify those assets which are attributable to each MySuper product they offer. This will be necessary for the RSE licensee to satisfy the requirement that they adopt a single diversified investment strategy in relation to the assets of the MySuper product. In addition, it will be necessary for the RSE licensee to be able to identify the assets attributable to each MySuper product for reporting to APRA. [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)].
4.7 An RSE licensee can separately identify assets by separately accounting for those assets thereby allowing MySuper products to fit within an existing fund. Assets that underpin a MySuper product do not have to be physically segregated from assets that underpin choice products within the fund. Hence, underlying assets of MySuper products and choice products may be pooled for investment purposes. [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)].
4.8 RSE licensees that are authorised to offer more than one MySuper product may have a separate investment strategy for each MySuper product they offer, although the same investment strategy could be used for two or more MySuper products that they offer. As noted by paragraph 4.6, in this case, an RSE licensee must be able to identify the assets attributed to each MySuper product that use the same investment strategy. [Schedule 1, item 9, division 3, paragraph 29TC(1)(a)].
4.9 A lifecycle investment strategy will be able to be adopted as the single diversified investment strategy of the MySuper product. RSE licensees that offer a lifecycle investment strategy for their MySuper product may vary the method of crediting investment returns to a member's account, on the basis of:
- the member's age;
- on the basis of the age of the member and other factors prescribed by regulations; or
- on the basis of the age of the member and other factors in circumstances prescribed by the regulations.
[Schedule 1, item 9, division 3, subsection 29TC(2)].
4.10 However, the lifecycle investment strategy must be the same for all members of that MySuper product. For example, two members with the same characteristics taken into consideration by the RSE licensee in determining the lifecycle strategy must have the same investment returns credited to their accounts. [Schedule 1, item 9, division 3, subsection 29TC(2)].
Access to options, benefits and facilities
4.11 The same options, benefits and facilities must be available to all members of a MySuper product. This includes, but is not limited to, access to call centres, member education, intra-fund advice if offered, the capacity to make death benefit nominations, online account information or other services that may be provided by the RSE licensee for members of the MySuper product. [Schedule 1, item 9, division 3, paragraph 29TC(1)(b)].
4.12 This rule applies to each MySuper product. For example, an RSE licensee could provide a member education seminar if it was open to all members of their MySuper product. The fund could not restrict the availability of that seminar to only the employees of a certain employer. However, an RSE licensee that offers a tailored MySuper product that only has members that are employees of a large employer could provide a member education seminar only for the benefit of the employees of that employer. [Schedule 1, item 9, division 3, paragraph 29TC(1)(b)].
4.13 Providing access to the same options, benefits and facilities does not require services to be delivered in an identical way to all members. For example, education seminars may not be able to be provided in person to all members of the fund. If that is the case, an RSE licensee may provide equal access to education seminars by offering them in a few key locations and provide access to members unable to attend in person by placing the educational material used in the seminars on the fund's website. [Schedule 1, item 9, division 3, paragraph 29TC(1)(b)].
4.14 Any service or activity provided by an RSE licensee that is organised, and is directly paid for in full, by a particular employer and not paid for from fund assets can be made available to certain employees only. This is a service provided by an employer and should not be considered a MySuper product feature, irrespective of whether it is associated with employees of the particular employer who are members of a MySuper product in a fund operated by that RSE licensee.
4.15 Later tranches of legislation will clarify that access to insurance cover may differ for members as a result of their age, medical status, occupation or other factors.
Attributing gains and losses to member accounts
4.16 The same process must be adopted in attributing gains and losses to the accounts of members of a MySuper product. [Schedule 1, item 9, division 3, paragraph 29TC(1)(c)].
4.17 With respect to investment returns, preference will not be able to be given to certain members by attributing gains and losses over a different period for those members. The only exception is for lifecycle investment strategies that will allow the investment returns of certain assets to be allocated to members based on their age and, if used by the RSE licensee, other factors prescribed by regulations. [Schedule 1, item 9, division 3, paragraph 29TC(1)(c)].
4.18 Similarly, with respect to fees, the timing and process for charging these fees from member accounts must be the same. If an investment fee is deducted from member accounts, this must be applied to all member accounts at the same time. For example, an investment fee cannot be deducted monthly from a certain subgroup of members and annually from another subgroup of members. [Schedule 1, item 9, division 5, subsection 29VA(1)].
4.19 To the extent that an employer chooses to directly subsidise the fees of their employees that are members of a MySuper product, a different process may be adopted to accommodate the fee subsidisation. If an employer chooses to subsidise the fees of employees through increased contributions then there would be no basis for a differentiation in the process used to deduct fees from member accounts. [Schedule 1, item 9, division 3, paragraph 29TC(1)(d) and (e)].
4.20 For example, the MySuper product may provide for an investment fee to be deducted monthly. While the investment fee must be the same for each member and calculated on the same basis for all members, an RSE licensee could invoice an employer for the fees they choose to subsidise and allow for this to be paid at the end of the financial year rather than at the same time the member would otherwise pay that fee.
4.21 Employers that subsidise fees will not be able to subsidise their employees differently. If the employer subsidises a flat fee, then the amount by which that flat fee is reduced by fee subsidisation must be the same for all employees of that employer who are members of the MySuper product. If the employer subsidises a percentage-based fee, then the amount by which the percentage is reduced by fee subsidisation must be the same for all employees of that employer. Similarly, if the employer subsidises a fee that is a combination of a flat fee and a percentage-based fee, then the amount that the flat fee and percentage-based fee is reduced must be the same for all employees of that employer who are members of the MySuper product. [Schedule 1, item 9, division 3, paragraph 29TC(1)(e)].
4.22 The governing rules in relation to a MySuper product will not be able to impose any limitation on the source of contributions by, or on behalf of, members of the MySuper product. Contributions must be accepted to a MySuper product whether they are made by an employer or the member directly. However, this does not require contributions to be accepted by a non-public offer fund from any individual. The governing rules of the fund may limit who may become a member of the fund. [Schedule 1, item 9, division 3, paragraph 29TC(1)(f)].
4.23 There will also be no limitation to the kind of contributions made by or on behalf of members, unless those contributions are of a kind prescribed by the regulations. The kinds of contributions that may be made by or on behalf of members include, but are not limited to superannuation guarantee contributions, salary sacrifice contributions, after-tax contributions and spouse contributions. RSE licensees must also not limit roll-overs or transfers to a MySuper product unless they are permitted to refuse acceptance of a rollover or transfer in respect of members of the MySuper product as set out in the SIS Regulations. The regulations may provide, for example, that RSE licensees will not be required to accept in-specie contributions and contributions in foreign currencies, however RSE licensees will be able to accept these contributions if they elect to do so. RSE licensees will also not have to accept any source or kind of contribution where a limitation is imposed under a law of the Commonwealth or the general law. [Schedule 1, item 9, division 3, paragraph 29TC(1)(f)].
4.24 A member will be able to request or consent to the RSE licensee giving effect to the rollover or transfer of their interest to any other product. [Schedule 1, item 9, division 3, paragraph 29TC(1)(g) and (h)].
4.25 However, without the member's consent, an RSE licensee will only be able to transfer a member's interest to another MySuper product within the fund, another MySuper product in another fund where this is permitted by a law of the Commonwealth or another fund where the transfer is otherwise permitted or required by a law of the Commonwealth. [Schedule 1, item 9, division 3, paragraph 29TC(1)(g) and (h)].
4.26 This will generally allow for the transfer of a member interest from a tailored MySuper product to a generic MySuper product. However, the Government will give further consideration as to whether additional rules are needed to protect members from being transferred to a substantially higher-priced product without their knowledge or consent. This may include standardised disclosure requirements in situations where a member would be placed in a higher-fee product as a result of changing their employment.
4.27 RSE licensees may transfer members to another MySuper product in another fund. This would occur if an employer decided to change their default fund to another superannuation fund. However, a transfer to another fund must be permitted by the law of the Commonwealth. In general this means that it would have to be to a successor fund as required by the SIS Regulations. [Schedule 1, item 9, division 3, subparagraph 29TC(1)(h)(i)].
4.28 RSE licensees may also transfer members if permitted or required under a law of the Commonwealth. This allows transfers to be made of a member's interest to eligible rollover fund that is permitted under Part 24 of the SIS Act. [Schedule 1, item 9, division 3, subparagraph 29TC(1)(h)(ii)].
4.29 This will also allow transfers to occur under any future law of the Commonwealth once enacted, such as the automatic consolidation of accounts that will not require the consent of the member.
MySuper products limited to pre-retirement phase
4.30 RSE licensees will not be permitted to brand any form of retirement pension product as a MySuper product. For this reason, a pension will not be payable within a MySuper product to members on meeting a condition of release for retirement or reaching preservation age. RSE licensees will still be able to pay pensions to retirees within the fund as is presently the case; however they will be required to move these member's interests into a separate choice product before commencing pension payments. [Schedule 1, item 9, division 3, paragraph 29TC(1)(i)].
4.31 This is not intended to prevent the payment of an income stream benefit under an insurance policy where the member has ceased work on account of ill-health (whether physical or mental). Allowing pension-style insurance benefits to be paid to a member while they are a member of the MySuper product will be clarified in later tranches of legislation.
4.32 Although a post-retirement option is not available within MySuper at the moment, the Government will consult with relevant stakeholders on whether MySuper products should be required to include a post-retirement offering at some time in the future and the framework that should apply.
Application and transitional provisions
4.33 These provisions will commence from 1 January 2013 or a single day to be fixed by Proclamation. An earlier day may be set by Proclamation for the commencement of these provisions if APRA is able to begin accepting applications for authorisation.
4.34 Commencing the provisions from 1 January 2013 provides certainty to industry that applications for authorisation to offer a MySuper product will be accepted from this date. However, if APRA has issued prudential standards and is able to begin accepting applications prior to 1 January 2013, allowing an earlier day to be fixed by Proclamation means that applications could be made earlier providing a longer lead time for both funds and APRA.
4.35 This will allow RSE licensees to apply for authorisation to offer a MySuper product prior to being able to offer the product on 1 July 2013. [Schedule 1, item 11].