POWERED BY MOMENTUM MEDIA
(October-2003) Giving the keys to a new driver
Most companies outsourcing their super use “successor fund” arrangements that are defined by law and ensure individual members are not transferred without their consent to another super fund unless the new fund is as good and offers “equivalent” benefits and rights to the old fund.
The only alternative to successor fund transfers is to obtain consent for the transfer from every individual member. This is costly and time consuming. It only takes a handful of members to withhold consent and thus frustrate the attempt to streamline and improve superannuation arrangements for all members.
Rice Walker Actuaries managing director Wayne Walker says: “Every leading master trust is only too willing to accept successor fund transfers into their fund. But it can be a different story if you try to take the fund away from a master trust.”
Research conducted by Rice Walker Actuaries late last year found it much harder to get out of a master trust than it is to get into one. “They let you in and try to keep you in,” says Walker.
Nonetheless, he believes that this is changing. “In a few years time, most master trusts will be giving an exit option. It will be standard,” he says.
Walker notes that many industry funds do not allow successor fund transfers but that this too is changing, citing the launch by Retail Employees Superannuation Trust (REST) of Acumen, the first stand-alone corporate master trust product to be offered by an industry fund.
Walker adds that legislation defining a “successor fund” is not precise. “It talks about ‘equivalent rights’. There is room for legitimate difference of opinion as to what constitutes a proper successor fund. It is up to the trustees of the two funds involved to decide. This is right and proper. The members’ interest must be paramount at all times.”
Scott Charaneka, a partner at legal firm Ebsworth & Ebsworth, believes there is broad support for the existing successor fund system. “What other choices are available?”
Michael Vrisakis, a partner at legal firm Blake Dawson Waldron, agrees. He notes: “By and large, the system does work, but there are some grey legal areas that surround the central concept — namely, the provision by the receiving fund of equivalent rights in respect of benefits.”
The big issues he highlights are what benefits need to be considered by the transferring trustee and the receiving trustee; the transfer of defined benefit funds to accumulation funds; whether insurance benefits, which are contingent in nature, have to be replicated; and the deed of transfer, which embodies the actual successor fund agreement required by the Superannuation Industry (Supervision) (SIS) Act 1993.
What is also often a bone of contention is the indemnity provision which typically requires the receiving trustee to indemnify the transferring trustee in relation to claims associated with the transfer, or on some wider basis.
Walker cautions: “The interpretation of successor fund transfers — indeed, whether they are permitted — is but one of many issues that need to be taken into account before signing participation agreements and passing the point of no return.”
Going beyond the legal issues, Charaneka finds the transfer process works best when members have been kept well informed through a campaign of disclosure. “You cannot ignore the human side of transfers. It is imperative that members are not alienated from the process. Problems are more likely when these issues are ignored.”
Looking ahead, Vrisakis believes that the master trust to master trust transfer scenario is one of the biggest issues which will emerge.
“Legally, for the transferring master trust trustee to transfer members out it must form the view that the transfer is in the best interests of members,” he says. “Commercially, this may put a lump in the transferring trustee’s throat as that legal conclusion could be interpreted at first blush as a recognition that the receiving fund is a better option. No master trust trustee is going to want to give that impression!”
AUTHOR
Simon Segal
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