House of Representatives

Superannuation Legislation Amendment (MySuper Core Provisions) Bill 2011

Explanatory Memorandum

(Circulated by the authority of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)

Chapter 3 - Authorisation of MySuper products

Outline of chapter

3.1 This chapter explains the process by which RSE licensees will be authorised to offer MySuper products and an associated offence for a person misrepresenting that a fund offers a MySuper product when they are not authorised by APRA.

Summary

Application process

3.2 APRA will be able to accept applications for authorisation to offer a MySuper product from any RSE licensee that wishes to offer a MySuper product. RSE licensees will need to apply for authorisation for each MySuper product they wish to offer. However, APRA cannot authorise a MySuper product for a fund that has fewer than five members or is an eligible rollover fund. This excludes trustees of self-managed superannuation funds and small APRA-regulated funds from being able to offer MySuper products. Pooled superannuation trusts and approved deposit funds cannot accept superannuation guarantee obligations, so will also not be able to offer a MySuper product.

3.3 Applications are required to:

be in an approved form;
contain the information required on the approved form;
state the RSE licensee's and the superannuation fund's Australian Business Numbers (ABN); and
be accompanied by an up-to-date copy of the trust deed and governing rules of the fund.

3.4 APRA may provide a notice requesting additional information from an RSE licensee that has applied for authorisation to offer a MySuper product.

Period for deciding applications

3.5 APRA must decide an application to offer a MySuper product within 60 days of receiving an application by the fund. This is the same period that is allowed for a decision on an application for an RSE licence.

3.6 Should APRA request an RSE licensee to provide additional information in relation to its application, APRA will have a further 60 days from when it receives this information in which to decide the application.

3.7 APRA may extend the period for making a decision on an application to offer a MySuper product by an RSE licensee by a further 60 days, providing it notifies the RSE licensee in writing of its intention. This also includes cases where RSE licensees are requested by APRA to provide additional information. Should APRA not have made a decision within the extended time period, the application is deemed to be refused by APRA and the RSE licensee is not authorised to offer the MySuper product.

Authority

3.8 Authorisation will allow an RSE licensee to accept contributions for the benefit of employees who do not have a chosen fund.

3.9 APRA will authorise an RSE licensee to offer a MySuper product if it is satisfied that:

the proposed product complies with the MySuper characteristics (explained in Chapter 4 of this Explanatory Memorandum);
the RSE licensee is likely to comply with the MySuper fee rules (explained in Chapters 5 and 6 of this Explanatory Memorandum); and
the RSE licensee is likely to comply with the enhanced trustee obligations (to be contained in a later tranche of legislation).

3.10 APRA must refuse an RSE licensee's application for authorisation for a MySuper product if it is not satisfied of any of the elements in paragraph 3.9. APRA's decision to refuse an application is a reviewable decision.

3.11 Generally, an RSE licensee will only be authorised to offer one 'generic' MySuper product in a fund. In limited circumstances, RSE licensees may apply for authorisation to offer additional MySuper products that must satisfy additional requirements described in paragraphs 3.12 to 3.14.

Product in another fund in which there is already material goodwill

3.12 An RSE licensee can apply for authorisation for a 'separately branded' MySuper product where there is already goodwill in that product prior to it being transferred to the fund.

3.13 APRA will have discretion to approve RSE licensees to offer more than one MySuper product within a fund in order to preserve a pre-existing brand being transferred to the fund where goodwill could not be maintained unless the RSE licensee was authorised to offer the additional MySuper product in the fund. This will ensure that funds are not precluded from deriving any administrative or other efficiencies from operating more than one MySuper product within a fund. Limiting authorisation of a separately branded MySuper product to cases of transfers will ensure that there is not a proliferation in MySuper products being offered within a single fund.

MySuper products for large employers

3.14 An RSE licensee may apply to APRA for authorisation of a 'tailored' MySuper product that is established for a large employer and its associates that contribute to the fund on behalf of least 500 members who are either employees of the large employer or associates of that large employer. This will enable RSE licensees to offer a tailored MySuper product to large employers where it is viable to offer a distinct product to suit the particular needs of the workplace.

Cancellation of authority

3.15 APRA will be able to cancel the authorisation to offer a MySuper product if:

it is not satisfied that the MySuper product continues to meet the criteria for a MySuper product;
an RSE licensee was authorised to offer a tailored MySuper product to a large employer and its associates that contribute to the fund for at least 500 members and this criteria is not met in respect of that tailored MySuper product at the end of its annual reporting period;
an RSE licensee was authorised to offer a tailored MySuper product on the expectation that a large employer and its associates would contribute to the fund for at least 500 members and this criteria is not satisfied at the end of the period specified by APRA in the authority;
it is no longer satisfied that the RSE licensee is likely to comply with the enhanced trustee obligations or fee rules;
it ceases to be satisfied that the RSE licensee is not likely to represent a product as a MySuper product when they are not authorised to do so;
it ceases to be satisfied that the RSE licensee will pay to a MySuper product the contributions of members who have not elected in writing to have contributions paid to a specified choice product;
the fund ceases to have five or more members;
an RSE licensee was authorised to offer a MySuper product on the expectation that the fund would have five or more members and this criteria is not met by the end of a period specified by APRA;
it ceases to be satisfied that the fund is not an eligible rollover fund; or
it is satisfied that the RSE licensee or one of the individual trustees of an RSE licensee has contravened a provision of the governing rules of the fund relating to the MySuper product.

3.16 Later tranches of legislation may also enable APRA to cancel authorisation to offer a MySuper product if an RSE licensee contravenes any of the rules to be contained in those tranches of legislation. For example, rules relating to enhanced trustee obligations, insurance or disclosure requirements.

Offence for offering a MySuper product without being authorised

3.17 A person cannot make representations that a product in a fund is a MySuper product unless the fund is authorised by APRA to offer that product as a MySuper product. A breach of this provision is an offence of strict liability and subject to a penalty of 60 penalty units.

Detailed explanation of new law

Definition of MySuper product

3.18 A MySuper product is defined as a class of beneficial interest if the RSE licensee has been authorised by APRA to offer that class of beneficial interest in the fund as a MySuper product in that fund. This definition is not intended to imply that a MySuper product is a separate financial product under the Corporations Act. The class of beneficial interest is simply the rights and obligations that attach to that part of the member's interest in the superannuation fund. It most cases, the interest in the superannuation fund will be the relevant financial product. [Schedule 1, item 6, subsection 10(1 ))].

3.19 A class of beneficial interest in a fund that is not a MySuper product is defined as a choice product. [Schedule 1, item 4, subsection 10(1)].

Application process

3.20 APRA will be able to accept applications for authorisation to offer a MySuper product in a fund from any RSE licensee who wishes to offer a MySuper product. RSE licensees will need to apply for authorisation for each MySuper product they wish to offer. During 2012, APRA will provide guidance that will outline the information expected to be provided in an RSE licensee's application. [Schedule 1, item 9, division 2, subsection 29S(1 ))].

3.21 However, APRA cannot authorise a MySuper product for a fund with fewer than five members. This will exclude self managed superannuation funds and small APRA-regulated funds from being able to offer a MySuper product. The existing choice of fund requirements in the SG Act will prevent pooled superannuation trusts and approved deposit funds from accepting contributions and hence these will not be able to offer a MySuper product. [Schedule 1, item 9, division 3, paragraph 29T(1)(d)].

3.22 To ensure that APRA is provided with detailed, relevant information to be able to adequately assess applications from RSE licensees, information must be provided in the approved form. This includes the RSE licensee's and the fund's ABN, as well as an up-to-date copy of the trust deed and governing rules of the fund. [Schedule 1, item 9, division 2, subsection 29S(2)].

3.23 When an RSE licensee provides APRA with a copy of the trust deed and governing rules of the fund as part of its application, these are to already contain the amendments required for the fund to be able to offer a MySuper product. This will ensure that APRA has all of the information that it requires when assessing an RSE licensee's application to be able to offer a MySuper product. [Schedule 1, item 9, division 2, subsection 29S(2)].

3.24 If any of the information provided in an application ceases to be correct or the trust deed or governing rules of the fund have been varied between when the application was submitted to APRA and before APRA has made a decision, the RSE licensee will be required to provide APRA with the correct information or the amended governing rules or trust deed as soon as practicable. [Schedule 1, item 9, division 2, subsections 29S(3 ), ( 4) and (5)].

3.25 APRA may request an RSE licensee to provide additional information before making a decision on the application. This may occur if the information provided by an RSE licensee was insufficient to enable APRA to make a decision. [Schedule 1, item 9, division 2, section 29SA].

Time period for deciding applications

3.26 APRA must decide an application for authorisation to offer a MySuper product within 60 days of receiving an application by an RSE licensee. Given the extensive information required to be assessed by APRA, it is important that it be given an appropriate period of time to be able to assess each application. [Schedule 1, item 9, division 2, paragraph 29SB(1)(a ))].

3.27 However, APRA may request additional information and the initial 60 day period will restart once the RSE licensee has provided the requested information. Any delay by the RSE licensee in providing the requested information delays the day by which APRA must make a decision. This is the same arrangement that applies for requests for additional information in respect of RSE licence applications. [Schedule 1, item 9, division 2, paragraph 29SB(1)(b)].

3.28 APRA may extend the period for deciding an application for authority for an RSE licensee to offer a MySuper product, provided it notifies the RSE licensee in writing, within the initial 60 day period. APRA may only extend the initial 60 day period once. [Schedule 1, item 9, division 2, subsections 29SB(2) and (3)].

3.29 To ensure that APRA has sufficient time in which to approve applications from RSE licensees wishing to offer a generic MySuper product before 1 July 2013, APRA will be provided with additional time to process applications for tailored MySuper products made before 1 July 2013. APRA will have 120 days in which to consider these applications with the option of extending that period by a further 60 days. This period will commence on 1 July 2013 if the application is made prior to that date. RSE licensees will not be required to place member contributions from employers being considered for a tailored MySuper product into a MySuper product until APRA has made a decision on the application. Any application received by APRA after 1 July 2013 will mean that APRA does not have the extended period to make a decision but also means the RSE licensee will not have the transitional arrangements to continue to pay contributions to that product after 1 October 2013 until a decision is made by APRA. [Schedule 1, item 12, subsections (1)-(4)].

3.30 Where APRA has not decided on an application for authority by then end of the required period, APRA is taken to have refused the application. This is the same process that occurs should APRA not have decided on an application for an RSE licence within the required time. RSE licensees are not to offer MySuper products unless they have been authorised by APRA. [Schedule 1, item 9, division 2, subsection 29SB(4)].

Authorisation process

3.31 APRA must authorise an RSE licensee to offer a MySuper product if:

the application is in the approved form;
the RSE licensee provides all of the information required by APRA to approve the authority;
the fund is registered, has five or more members (or is expected to have five or more members within a time period specified by APRA) and is not an eligible rollover fund;
the proposed product will be the only MySuper product in the fund unless it meets one of the criteria explained in paragraph 3.33;
it is satisfied the governing rules require that the product meets the characteristics of a MySuper product;
it is satisfied that the RSE licensee is likely to comply with the fee charging rules in relation to MySuper products;
it is satisfied that the RSE licensee is likely to comply with the enhanced trustee obligations explained in paragraph 3.32;
it is satisfied that the RSE licensee is not likely to represent a product as a MySuper product when they are not authorised to do so; and
it is satisfied that the RSE licensee is not likely to place contributions of a member that does not have a chosen product into a product that is not a MySuper product.

[Schedule 1, item 9, division 3, subsection 29T(1)].

3.32 The enhanced trustee obligations in relation to MySuper products will be defined in subsequent tranches of legislation, including:

to manage the MySuper product at an overall cost aimed at optimising the best financial interests of members, as reflected in the net return over the long term;
to clearly articulate an investment return target (over a rolling 10 year period) and level of risk appropriate to members of the MySuper product; and
actively examine and conclude whether the MySuper product has access to sufficient scale (with respect to both assets and number of members) to continue to provide net returns that are in the best financial interests of members. [Schedule 1, item 9, division 3, paragraph 29T(1)(g)].

3.33 In addition to the criteria noted in paragraph 3.31, an RSE licensee may offer more than one MySuper product in a fund if one of the following criteria is met:

the RSE licensee is already authorised to offer a generic MySuper product in the fund, however the proposed MySuper product satisfies either the goodwill or large employer requirements;
the RSE licensee is seeking to apply for authorisation of a generic MySuper product and is already authorised to offer one or more MySuper products in the fund but each of those authorised products would satisfy either of the goodwill or large employer requirements.

[Schedule 1, item 9, division 3, paragraph 29T(1)(f)].

3.34 If APRA is satisfied that all of the requirements noted in paragraph 3.31 are satisfied, it must authorise an RSE licensee to offer that MySuper product. It must notify the RSE licensee in writing that their application has been approved. [Schedule 1, item 9, division 3, sections 29T and 29TD].

3.35 RSE licensees may only offer MySuper products from 1 July 2013. Should an RSE licensee be authorised to offer a MySuper product before this date, the authority will not take effect until 1 July 2013. [Schedule 1, item 11].

3.36 An RSE licensee that receives authority from APRA to offer one or more MySuper products must only offer an authorised product and no other product as a MySuper product in the fund or in another fund operated by the RSE licensee. RSE licensees are required to be authorised by APRA for each MySuper product they wish to offer. [Schedule 1, item 9, division 6, section 29W].

3.37 If the requirements noted in paragraph 3.31 are not satisfied, then APRA is required to refuse an application to offer a MySuper product. [Schedule 1, item 9, division 3, subsection 29T(2)].

3.38 APRA must notify an RSE licensee in writing whether their product has been authorised or refused authorisation. In the event that authorisation is refused, APRA must provide the RSE licensee with reasons as soon as practicable after the decision is made. [Schedule 1, item 9, division 3, sections 29TD and 29TE)].

3.39 Should APRA refuse an application from an RSE licensee for authorisation to offer a MySuper product, this will be a reviewable decision. [Schedule 1, item 7, paragraph 10(1)(doa)].

3.40 Additional standard licence conditions will exist for all RSE licensees that are authorised to offer a MySuper product. The RSE licensee must ensure the governing rules of the fund are not changed such that the MySuper product no longer satisfies the characteristics required for a MySuper product. The RSE licensee must also ensure they do not contravene any of the governing rules of the fund in relation to the MySuper product. [Schedule 1, item 8, subsection 29E(6A)].

Product in another fund in which there is already material goodwill

3.41 An exception will allow RSE licensees to apply to APRA for authorisation to be able to offer more than one MySuper product per fund in order to preserve a corporate brand if APRA is satisfied of several factors:

the new proposed MySuper product is similar to the product from the original fund from which members are being transferred, for example with respect to the investment strategy, insurance and fees. The product must be maintained to ensure that it is sufficiently similar so that the goodwill in that product will continue (goodwill is an intangible asset which is already a well understood concept). If the product was changed significantly, this would remove the justification for a separately branded MySuper product; and
there is material goodwill in the product of the original fund and that goodwill could not be maintained unless the RSE licensee is authorised to offer the proposed new MySuper product; and
it would be in the best interest of all members of the fund to maintain the distinction between the proposed MySuper product and the existing MySuper product already authorised. [Schedule 1, item 9, division 3, section 29TA].

3.42 For the avoidance of doubt, this Bill will not prevent RSE licensees from having more than one product disclosure statement for a MySuper product. This includes using employer names to label a MySuper product or using an RSE licensee's different brand names to label a MySuper product. However, this does not permit any variation in the features of the underlying product that is offered under a different label. Therefore, for example, two members that enter a MySuper product under different labels will have the same investment strategy and will be charged the same fee structure.

3.43 Where an RSE licensee labels or badges a MySuper product they must continue to meet the obligations of Part 7.10 of the Corporations Act. Therefore, to ensure that product disclosure statement documentation is not misleading, the name of the underlying MySuper product should be clearly stated.

MySuper authorisation for large employers

3.44 RSE licensees will be able to apply to APRA for authorisation to offer a tailored MySuper product to large employers for their employees. As a matter of practice, APRA may not accept applications from RSE licensees for authorisation of a tailored MySuper product until there is evidence of an employer's intention to contribute to the fund. Therefore, an RSE licensee participating in a tender process should not submit an application until they have been selected by that process and have evidence supporting this, for example a letter of intent or an executed contract. [Schedule 1, item 9, division 3, section 29TB].

3.45 To qualify as a large employer, an employer or associate of that employer must contribute or would, apart from a temporary cessation of contributions, contribute to the fund for the benefit of at least 500 members who are either employees of that employer or employees of associates of that employer. For an employer that is not currently contributing to that fund, they may qualify if APRA expects that the employer and its associates will contribute for 500 members by the end of a time period specified by APRA. This excludes any employee of the employer or associate in respect of whom the employer or its associates does not make contributions on their behalf to the fund as well as employees that have a chosen fund different to the fund offering the tailored MySuper product. Associate is defined at section 12 of the SIS Act and is broadly consistent with the definition of associate in the Corporations Act. [Schedule 1, item 9, division 3, paragraph 29TB(1)(b) and subsection 29TB(2)].

3.46 Later tranches of legislation will also clarify that contributions made to the fund that offers the tailored MySuper product by a large employer for employees that only relate to a member's entitlement to a defined benefit do not count towards the 500 members required for a tailored MySuper product.

3.47 Under the governing rules of the fund, the tailored MySuper product may only be open to:

an employee or a former employee of the large employer;
an employee or a former employee of an associate of that large employer; or
relatives or dependants of an employee or former employee of the large employer and relatives or dependants of an employee or former employee of an associate of the specified employer.

[Schedule 1, item 9, division 3, paragraph 29TB(1)(c)].

3.48 However, under the governing rules of the fund, the tailored MySuper product must be open to:

all employees of the large employer where that large employer or an associate of that large employer contributes to the fund or would, apart from a temporary cessation of contributions, contribute to the fund for at least one employee of that large employer; and
all employees of an associate of that large employer where the large employer or an associate of that large employer contributes to or would, apart from a temporary cessation of contributions, contribute for at least one employee of that associate.

[Schedule 1, item 9, division 3, paragraph 29TB(1)(a)].

3.49 An employer may be required by a modern Award to make contributions to a specified fund or one of a group of specified funds for employees that are employed under that Award and do not have a chosen fund. Employers may contribute to a tailored MySuper product in another fund for other employees that are not employed under the Award. However, the tailored MySuper product must still be open to all employees even though default contributions cannot be made to the fund for the employees that are employed under the modern Award. [Schedule 1, item 9, division 3, paragraph 29TB(c)].

3.50 If a member of a tailored MySuper product was to no longer meet the requirements to remain a member of that particular product under the governing rules of the fund, then the RSE licensee will be able to transfer that member into another MySuper product within the same fund or to an eligible rollover fund. For some tailored MySuper products a member may no longer be eligible to remain in the product if they ceased being an employee of the large employer, whereas in other tailored MySuper products former employees may be able to remain within the product. [Schedule 1, item 9, division 3, paragraph 29TB(1)(h)].

Cancellation of authorisation

3.51 APRA will be able to cancel the authorisation of a MySuper product if:

it ceases to be satisfied that the governing rules of the fund meets the required characteristics of a MySuper product;
the RSE licensee was authorised to provide a tailored MySuper product to a large employer and that large employer either no longer meets the requirements to be offered this product on the last day before the annual reporting period or did not meet the 500 member test by the end of the period specified in the authority;
it ceases to be satisfied that the RSE licensee is likely to comply with the enhanced trustee obligations in relation to MySuper products;
it ceases to be satisfied that the RSE licensee will satisfy the fee rules in relation to MySuper products;
it ceases to be satisfied that the RSE licensee is not likely to represent a product as a MySuper product when they are not authorised to do so;
the fund no longer has five or more members, or was granted authorisation on the basis that the fund is expected to have five or more members within a time period specified by APRA and that fund does not have five or more members by the end of that time period;
it ceases to be satisfied that the fund is not an eligible rollover fund;
the RSE licensee contravenes a governing rule of the fund in relation to the MySuper product; or
the fund ceases to be registered.

[Schedule 1, item 9, division 4, subsection 29U(2)].

3.52 If APRA decides to cancel the authorisation of an RSE licensee to offer a MySuper product, it is required to notify the RSE licensee in writing of the reasons for their decision. [Schedule 1, item 9, division 4, subsections 29U(1) and (3)].

3.53 APRA will be required to consult with the Australian Securities and Investments Commission (ASIC) before deciding to cancel an authorisation to offer a MySuper product for an RSE licensee that is also a financial services licensee if it believes that the cancellation will affect the RSE licensee's ability to offer one or more financial services. Further, if APRA cancels the licence of an RSE licensee that is also a financial services licensee, it is required to notify ASIC within one week of the cancellation. However, failing either of these requirements will not invalidate the cancellation of the authorisation. [Schedule 1, item 9, division 4, section 29UA].

3.54 APRA may specify in its notice of cancellation of an authorisation to offer a MySuper product that the authority may continue in effect as if the cancellation had not occurred for specified provisions of the SIS Act or Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations), or any other law of the Commonwealth. In relation to specified matters or for a specific period of time or both. For example, APRA may allow a MySuper authorisation to continue for a specified period of time for a tailored MySuper product if the authorisation is cancelled due to the employer no longer meeting the specified requirements, to allow sufficient time to transfer member interests to another MySuper product. [Schedule 1, item 9, division 4, section 29UB].

3.55 It is intended that later tranches of legislation may also enable APRA to cancel authority for an RSE licensee to be able to offer a MySuper product if it breaches any of the conditions around insurance or disclosure requirements.

3.56 It is also intended that a cancellation of authority to offer a particular MySuper product will require the RSE licensee to transfer the accrued balances of the members of that product to an authorised MySuper product. This will be clarified in later tranches of legislation in conjunction with provisions dealing with transition of accrued balances.

3.57 A decision by APRA to cancel an RSE licensee's authorisation of a MySuper product will be a reviewable decision. [Schedule 1, item 7, paragraph 10(1)(dob)].

Misrepresentation of MySuper products

3.58 All persons will be prohibited from being able to offer MySuper products unless they are authorised by APRA. If a person represents that they offer a MySuper product when they are not authorised, this is an offence of strict liability. A penalty of 60 penalty units will apply. [Schedule 1, item 9, division 6, section 29W].

3.59 A strict liability offence is necessary as the consequences of an RSE licensee contravening this provision could inadvertently cause an employer contributing superannuation benefits for their employees to the fund to be in breach of its requirements under the SG Act, which may cause that employer to incur a superannuation guarantee shortfall charge. [Schedule 1, item 9, division 6, subsection 29W(2)].

Application and transitional provisions

3.60 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. [Item 2, subsection (2)].

3.61 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.

3.62 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].


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