Super & Life Insurance

"There were few surprises in the superannuation policy recommendations but they could have significant impacts beyond the superannuation industry. Recommendations impacting the ability to pay for advice from superannuation could significantly reduce the number of Australians able to access advice which will put further pressure on the advice industry. And having one account for life would significantly affect the influence of industrial relations on superannuation."

Relevance & consequences for industry

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Certain trustee conflicts would be removed, while others could continue

Trustees of registrable superannuation entities will not be able to assume any obligations other than those arising from or in the course of its performance of the duties of a trustee of a superannuation fund.  For example, a trustee could not also be the responsible entity of a managed investment scheme. That does not mean that a trustee cannot act for more than one registrable superannuation entity. The trustee must be a “specialist” superannuation trustee.  This echoes the RSE licence condition prohibiting a trustee from conducting other business which APRA recently removed.  Further, it will not effectively prevent a person from being a director of both a superannuation trustee and a responsible entity.

The trustee’s role in ensuring that the requirements are met is not specified in the final report.

Fee for no service arrangements involving superannuation to be significantly curtailed

The deduction of any advice fee (other than for intra-fund advice) from a MySuper account will be prohibited.  The deduction of any advice fee (other than for intra-fund advice) from superannuation accounts other than MySuper accounts will be prohibited unless certain requirements are met.

One account for life

A person will have only one default account but it is not clear how this will occur.

This recommendation addresses concerns about the proliferation of unnecessary accounts not being in the interests of members. While this recommendation replicates one of the recommendations recently made by the Productivity Commission, the final report did not endorse the rest of the Productivity Commission’s package, such as the “best in show” shortlist of up to 10 funds proposal or other related recommendations.

More thought should be given to how an account should be stapled to a person.   The approach finally adopted potentially will have significant impacts on the superannuation industry.

Greater accountability for trustees

Breach of the trustees’ and directors’ covenants under sections 52 and 52A of the SIS Act and obligations in relation to MySuper under sections 29VN and 29VO of the SIS Act will be enforceable by action for civil penalty (recommendation 3.7).

This recommendation addresses concerns that there are currently no civil or criminal penalties for relevant breaches. The recommendation would mean a breach could be subject to civil penalties enforceable by APRA or ASIC.  There are risks in extending the consequences for such broad obligations the scope of which are still subject to significant debate within the superannuation industry.  Further, it is not clear how civil penalties would apply to superannuation trustees which have no or limited personal assets.

An unsurprising recommendation was that, over time, provisions modelled on the BEAR should be extended to all RSE licensees.  This recommendation reflects the view that at least the larger superannuation funds are now large enterprises dealing with very large sums of money, with no reason in principle why their directors and senior executives should not be subject to similar obligations to those of boards and banking executives.


What you should do next

  • Dual regulated entities should start considering options for splitting their superannuation arrangements from other arrangements.

  • While the BEAR for superannuation may be different, trustees should understand the requirements of the current regime and understand what lessons can be learnt from the banks’ implementation of the BEAR.  See the Culture and Remuneration and the BEAR sections for further actions.

  • Trustees should consider their current agreements with advice licensees and determine what would need to change to implement the recommendations and how the changes could be made.

  • RSE licensees will need to reassess their group life insurance arrangements with related parties and other life insurers to ensure that the arrangements and policies entered into are in the best interests of members and otherwise satisfy legal and regulatory requirements.

  • RSE licensees will need to assess the rules which govern whether premium rates are fair and reasonable.  This would normally require consideration of whether the status attributed is statistically appropriate.

Authored by: Nathan Hodge and Phil Logan.

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