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Superannuation monthly update – September 2020

02 October 2020

#Superannuation, Funds Management & Financial Services, #COVID-19

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Superannuation monthly update – September 2020

Regulator updates

ASIC updates the fees and costs disclosure regime (9 September 2020)

ASIC reminded trustees that they can choose to opt-in to the new fees and costs regime for periodic and exit statements (which commenced from 1 July 2020) and for product disclosure statements (PDS) from 30 September 2020. To opt-in, the trustee must make a written record that includes the date of election and the PDS or product to which the election applies.

A key deadline is the requirement that periodic and exit statements with reporting periods commencing on 1 July 2021 must comply with the new requirements, meaning that the new requirements for exit statements will be triggered for exits on or after 1 July 2021.

ASIC will continue to develop its proposals on disclosure by platforms.

Our thoughts

We discussed these new rules in our April newsletter here. In short, ASIC Corporations (Amendment) Instrument 2019/1071 and ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 were registered, amending and then repealing ASIC Class Order [CO 14/1252].

However, COVID-19 resulted in ASIC Corporations (Amendment and Repeal) Instrument 2020/579 being introduced to:

  • extend the application of ASIC Class Order [CO 14/1252] and delay the commencement of ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 until 30 September 2022
  • further amend the ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, including changes to specific templates.

Legislation

Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations (No. 3) 2020 (3 September 2020)

The regulations extend the deadline by which applications must be made for COVID-19-related early release from superannuation accounts, to 31 December 2020.

Parliamentary Contributory Superannuation (Early Release Payments) Amendment Regulations 2020 (3 September 2020)

The regulations extend the deadline by which applications must be made for COVID-19-related early release from the Parliamentary Contributory Superannuation Scheme, to 31 December 2020.

Superannuation Amendment (PSSAP Membership) Bill 2020 (7 September 2020)

The Bill enables certain current and former Commonwealth employees and statutory office holders to continue to be or to become contributory members of the Public Sector Superannuation Accumulation Plan if they are currently not eligible to do so.

Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 4) (14 September 2020)

The Instrument extends the AML/CTF Rules’ exemption from the applicable customer identification procedure when trustees make payments under the early release of superannuation scheme, until 31 December 2020.

ASIC Corporations (Amendment) Instrument 2020/853 (22 September 2020)

The Instrument amends ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (Fees and Costs Instrument) by requiring trustees who charge an asset-based administration fee or a combination of asset-based and fixed administration fees and costs (Administration Fees) to provide different disclosure in the annual fees and costs example (Example) that applies to representative members (i.e. those with an account balance of $50,000).

The amendments apply once trustees commence providing disclosure, pursuant to the Fees and Costs Instrument (which, for most trustees will be 30 September 2022).

Our thoughts

This is the second amendment made to the Fees and Costs Instrument (the first was COVID-19-related) and it is foreseeable that further amendments will be made over time.

The amendment means that the Example’s Administration Fee row will appear as follows, for some trustees:

Certain questions arise as to whether the amendment creates some confusion:

  • the new notional subclause 218(2A) instructs trustees to comply with the new disclosure requirement if “… the total amount of administration fees and costs includes an amount that applies regardless of the balance…”

    Therefore the first question to ask is whether the words “amount that applies regardless of the balance” refers to the asset-based fee value (converted to a dollar amount) or the fixed fee? Currently, and historically, those words have applied to fixed fees, because fixed fees remain the same, irrespective of account balance size. Asset-based fees change as account balance size changes – the only constant is the percentage-basis that is used to calculate fees. In other words, the current instructions suggest that this row should be used by trustees who charge fixed fees and given the intention is that this new subclause should apply to trustees that charge an asset-based component, some drafting changes may be required.
  • the second question to ask is in what order do trustees insert the dollar values of the fixed-fee and asset-based fee?

    There is no immediate indication of whether the fixed fee precedes the asset-based fee, or vice versa. If you look at most super fund PDS’s (that have a combination of fixed and asset-based admin fees) the disclosure states the fixed fee, first, as this is not subject to fluctuation with the asset-based fee following. The fees and costs templates for PDSs (where the Administration Fee includes a combination of fixed fee and asset-based fee) tend to disclose the fixed fee, first, and asset-based fee, second; from this, the values disclosed in the Example’s Administration Fee row follow in the same order so that the prescribed drafting is not impacted (other than the additional asset-based fee following the prescribed wording “regardless of your balance”).

    The indication that the asset-based fee is to be disclosed first is that the second value to be inserted is followed by the words “regardless of your balance”. These words suggest that the fixed fee is inserted last, as (1) only the fixed fee remains constant and (2) currently and historically, this prescribed drafting has followed the Example’s Administration Fee value.

    But given that (1) the instructions to notional subclause 218(2A) also use the words “regardless of your balance” when, presumably, referring to the asset-based fee component, and (2) the fact that the Fees and Costs Instrument actually removed the prescribed words “regardless of your balance” from the Example’s Administration Fee row as it would apply to fixed fees, it may be the intention that the asset-based fee should be inserted last in that Example’s row with the words “regardless of your balance” requiring some additional drafting to refer to the fact that the percentage rate that asset-based fees are calculated do not change. However, if that is the case, the Example’s other investment-based rows should have similar drafting.
  • the final question to ask is whether the Example exposes trustees to claims that the disclosure is misleading or deceptive or whether trustees need to add further explanation to clarify what the values contained in the Example means.

    This is because the Example relies upon a comma to separate the fee component that will change as the account balance changes from the other fee component that does not change regardless of the account balance. I would imagine that many readers will fail to register that the comma means that only one of those fee components remains the same, regardless of account balance. In other words, is it foreseeable that many readers (assuming they read the PDS) would mistakenly assume that the dollar value of the asset-based fee will not increase as account balances rise? The current practice of disclosing the fixed fee (and the prescribed drafting) first and the asset-based fee second seems to arrest that problem.

    Further, the words “in administration fees and costs” follows the first dollar value, but not the second dollar value, when it would make sense for this drafting to be included at the end of the row.

A lot of explanation for one seemingly innocuous row of disclosure...

Cases and other recent developments

Australian Securities and Investments Commission v MLC Nominees Pty Ltd [2020] FCA 1306 (11 September 2020)

The Federal Court has ordered two entities in NAB’s wealth management division (NULIS Nominees (Australia) Limited (NULIS) and MLC Nominees Pty Ltd (MLC Nominees)) to pay a total $57.5 million penalty after the court found the trustees had made false and misleading representations to superannuation members about their entitlement to charge plan service fees and members’ obligations to pay the fees.

The court also made declarations that MLC Nominees and NULIS failed to ensure that their financial services were provided efficiently, honestly and fairly.

The court’s orders and declarations were made following its findings that:

  • between 8 September 2012 and 30 June 2016, MLC Nominees misled members in the MasterKey Product and deducted approximately $33.6 million in Plan Service Fees from approximately 220,000 members of MasterKey Business Super (MKBS) and MasterKey Personal Super (MKPS), divisions of the MasterKey Product, who did not have a plan adviser
  • between 8 September 2012 and 30 September 2018, MLC Nominees and NULIS misled members and deducted approximately $71.9 million Plan Service Fees from approximately 457,000 MKPS members linked to plan advisers where plan advisers were not required to provide services and members did not receive services or any services they could not otherwise obtain for free.

Review of the Legislative Framework for Corporations and Financial Services Regulation (11 September 2020)

The Australian Law Reform Commission (ALRC) has been asked to inquire into the potential simplification of Australian financial services law (Inquiry).

The Inquiry is part of the government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released in February 2019. The ALRC is not tasked with recommending policy changes regarding the content of obligations on financial service providers. Rather, the ALRC is to consider whether, and if so what, changes could be made to the Australian financial services law to simplify and rationalise the law.

Three sub-topics are specifically outlined, each of which is to be the subject of an interim report by the ALRC before the release of the consolidated Final Report:

  • a first interim report focusing on the appropriate use of definitions in corporations and financial services legislation, which is due by 30 November 2021
  • a second interim report focusing on regulatory design and the hierarchy of primary law provisions, regulations, class orders, and standards, which is due by 30 September 2022
  • a third interim report focusing on potential reframing or restructuring of Chapter 7 of the Corporations Act, which is due by 25 August 2023
  • a consolidated final report is due by 30 November 2023.

Our thoughts

We envisage the findings in these reports will be highly anticipated.

Proposed changes to AFCA Rules – the transfer of remaining SCT complaints to AFCA (21 September 2020)

AFCA is seeking consultation in respect of proposed AFCA Rule changes resulting from the SCT ceasing operations after 31 December 2020. AFCA needs to amend its Rules to ensure there are appropriate arrangements in place to address the following possible events:

  • any remaining complaints currently with the SCT are unable to be finalised before the SCT ceasing operations, or
  • any matters that are before the Federal Court on appeal from the SCT are not finalised prior to SCT ceasing operations and require remittal back to be determined again, or finalised per the Court’s directions.

The proposed changes will allow AFCA to consider these complaints and will not otherwise affect what complaints it can consider. Accordingly, AFCA is seeking consultation from interested parties. 

Further, AFCA proposes to make two minor technical changes to the Rules to:

  • clarify which Australian Bureau of Statistics reports are used to index AFCA’s monetary limits
  • to correct a reference to legislation.

Following consultation, the proposed amendments to the Rules will be submitted to ASIC for review and approval, which may result in further changes. It is anticipated that the relevant amendments to the Rules will be released by January 2021.

Submissions are due to AFCA by 16 October 2020.

The AFCA Approach to delayed insurance claims in superannuation (21 September 2020)

This document sets out how AFCA approaches complaints about delays in handling insurance claims held through superannuation. It forms part of a broader suite of guidance on how AFCA resolves superannuation complaints and includes case studies. 

The document can be downloaded here.

Author: Luke Hooper

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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