Explanatory Memorandum(Circulated by the authority of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)
Chapter 5 - Permitted fees for MySuper products
Outline of chapter
5.1 This chapter outlines all of the fees that RSE licensees are able to charge members in relation to a MySuper product.
5.2 RSE licensees will only be able to charge the following fees in relation to MySuper products:
- an administration fee;
- an investment fee;
- a buy-sell spread;
- a switching fee;
- an exit fee; and
- an activity fee(s).
5.3 RSE licensees will be prohibited from charging any other fee types in relation to MySuper products.
5.4 This will prevent RSE licensees from being able to deduct fees from member accounts that are not within the scope of the permitted fees in relation to MySuper products, for example entry fees.
5.5 The charging rules for each fee type in relation to MySuper products are described in more detail in Chapter 6 of this Explanatory Memorandum.
Detailed explanation of new law
5.6 An RSE licensee will only be permitted to charge six types of fees to members in relation to a MySuper product. These are: an administration fee; an investment fee; a buy-sell spread; a switching fee; an exit fee; and an activity fee(s). [Schedule 1, item 9, division 5, subsection 29V(1)].
5.7 RSE licensees are not required to charge any of the permitted fees, however, if they elect to charge a fee, they may only charge a permitted fee.
5.8 Insurance premiums are not described as a permitted fee. However, this is not intended to prevent an RSE licensee from deducting from member accounts an amount that reflects the premium that is attributable to each member. That premium may reflect the characteristics of the member such as age and occupation, and may also reflect the member's choice of coverage. Later tranches of legislation will include rules in relation to insurance cover in MySuper products.
5.9 A member may be charged an administration fee for purposes that relate to the administration and operation of the fund. An administration fee may include, but is not limited to, recovering costs of:
- processing contributions and dealing with employer-sponsors;
- providing member communication (for example, call centres);
- administration of the trustee office;
- levies required to be paid to APRA;
- product development;
- overheads, including accommodation and information technology; and
- intra-fund advice (to be defined in more detail in a later tranche of legislation).
[Schedule 1, item 9, division 5, subsection 29V(2)].
5.10 A member may be charged an investment fee for costs that relate to the investment of the assets of the fund, including the payment for the care and expertise in the investment and choice of the assets and transaction costs incurred by the RSE licensee in relation to investment products. An investment fee may include, but is not limited to, recovering costs of:
- engaging investment managers;
- performance based fees paid to investment managers;
- directly managing investments;
- transaction costs involved in the buying and selling of assets; and
- asset consulting.
Schedule 1, item 9, division 5, subsection 29V(3)].
5.11 Administration and investment fees must relate to the relevant costs of administration and operation of the fund and the investment of the assets of the fund respectively. This does not restrict these fees to strictly recovering costs, but may also include a profit margin for the RSE licensee. [Schedule 1, item 9, division 5, subsections 29V(2) and (3)].
5.12 This Bill does not restrain an RSE licensee to deducting only the fee disclosed in the product disclosure statement for the relevant period. Rather, where costs vary from the disclosed fee, the variation in costs may be charged to members as part of the administration fee or investment fee. For example, the variation may be charged to member accounts as an administration fee subsequent to the disclosed administration fee being charged. However, these amounts that are charged must still comply with a fee charging rule at the point in time it is charged as explained at Chapter 6 of this explanatory memorandum.
5.13 All costs that an RSE licensee could properly incur in relation to a MySuper product should be able to be recovered under an administration fee or investment fee. However, the RSE licensee may instead separately charge for certain costs in exit fee, switching fee, buy-sell spread or activity fee. An RSE licensee may choose to do this to recover the costs of these actions from members in relation to which the relevant action is taken instead of charging for these costs across all members of the MySuper product. [Schedule 1, item 9, division 5, sections 29V].
5.14 For superannuation funds that operate a unitised MySuper product, the buy-sell spread is the difference between the price at which a unit of the fund is valued and the price for which a unit may be purchased or sold. A member may be charged a fee for the transaction costs incurred by the RSE licensee from the acquisition or disposal of assets should a member make a contribution to the fund, or redeem assets from the fund through leaving the fund or through changing their investment mix within the existing fund. Buy-sell spreads will be limited to cost recovery. [Schedule 1, item 9, division 5, subsection 29V(4)].
5.15 A member may only be charged a switching fee to recover the costs incurred by the RSE licensee if a member decides to move all or part of their interest in the fund to a different investment option. This may be incurred if a member moves all or part of their interest to a different product within the fund including:
- from a MySuper product to a choice product;
- from a choice product to a MySuper product;
- from a choice product to a choice product; or
- from a MySuper product to a MySuper product.
[Schedule 1, item 9, division 5, subsection 29V(5)].
5.16 RSE licensees will be able to waive switching fees if they elect to do so, however if charged, these fees will be limited to cost recovery. This will allow, for example, an RSE licensee to permit members to make a certain number of free switches in a given period. [Schedule 1, item 9, division 5, subsection 29V(1)].
5.17 An exit fee may only be charged to a member to recover the direct costs incurred by the RSE licensee when that member withdraws all or part of their benefits from the fund. Exit fees will be restricted to cost recovery. An exit fee cannot be charged in relation to a member transferring to the pension product in the fund. A switching fee could be charged in relation to this event. However, as the costs of transferring a member to a pension product in the fund may be greater than an investment switch, an RSE licensee could choose to recover these costs as a separate fee in the pension product that will not be subject to the charging rules that apply to MySuper products. [Schedule 1, item 9, division 5, subsection 29V(6)].
5.18 An activity fee may be charged to a member to recover the transaction costs incurred by RSE licensees that:
- are directly related to an activity that the RSE licensee has engaged in, on the member's request; or
- that relates to the member as required by law. [Schedule 1, item 9, division 5, subparagraph 29V(7)(a)(i)].
5.19 Activity fees will allow RSE licensees to recover costs incurred as a result of a one off transaction in relation to a member. If an RSE licensee charges an activity fee for a transaction, they cannot recover the costs of that transaction as exit fees, switching fees or buy-sell spreads. Examples of an activity fee include a family law fee, whereby a member is required to have their account split as a result of a family law settlement, or a death benefit nomination. Activity fees will be limited to cost recovery in MySuper products. [Schedule 1, item 9, division 5, paragraph 29V(7)(b)].
5.20 These definitions of fees will be used in later tranches of legislation to ensure that exit fees, switching fees and buy-sell spreads are limited to cost recovery. Cost recovery is not intended to apply to each instance of the fee being charged to a member. Rather, a fee limited to cost recovery must be equal to the average cost for the fund in undertaking that action.
5.21 Later tranches of legislation will also define those fees for financial advice that can be deducted from member accounts. There will also be specific charging rules that, in certain circumstances, permit fees for financial advice to be charged differently to members.
Application and transitional provisions
5.22 These provisions commence on 1 January 2013.
5.23 However, an RSE licensee will only be authorised to offer a MySuper product from 1 July 2013 and must only charge the permitted fees in relation to a MySuper product from this date. [Schedule 1, item 11].