The Government must clarify the details of the MySuper regime to help trustees prepare for the new regulatory environment, according to the Australian Institute of Superannuation Trustees (AIST) in its submission regarding the draft legislation.
The Government must explicitly define what a MySuper product is and how it differs from a Choice product, said the AIST. It said trustees need to know what their obligations will be to members who hold a MySuper product in addition to a Choice product, and whether or not such members will be charged separate administration fees for both products.
Another concern for the AIST was the lack of clarity concerning the enhanced trustee obligations, which are missing from the first tranche of the legislation.
“It will be difficult for trustees to plan for MySuper unless they know their specific and different obligations. This is compounded by the parallel intention to give the Australian Prudential Regulation Authority [APRA] prudential standards-making power, and for the consequent standards to also cover trustee duties,” said the AIST.
The uncertainty for trustees is compounded by the Government’s decision to accelerate the timetable for the implementation of MySuper, said the AIST. APRA will be able to receive applications from registrable superannuation entity licensees from 1 January 2013, or earlier if so approved.
Another problem in the draft legislation is the compulsory transfer of member funds to an eligible rollover fund (ERF), according to the AIST.
“This could occur without a member’s consent (express or otherwise), and could result in their transfer to a higher priced product,” the AIST said.
To solve the problem, the AIST recommended that the legislation be amended so that a member could not be transferred to an ERF unless the fees and costs of the ERF were equal to or less than the cost of the MySuper product from which they were transferred.
The AIST also expressed concerns that the requirement for members to be moved from large employer-sponsored MySuper products into a generic MySuper product (or ERF) in the same fund could lead to individuals being ‘flipped’ into more expensive products.
“Such a move will result in financial disadvantage for the member, and provide an incentive for financial product providers to direct members from lower-cost to higher-cost products,” said the AIST.
As a solution, the AIST recommended keeping employer-sponsored funds open after the member leaves employment, with no further contributions allowed. Automatic consolidation would then take place after two years of inactivity.
Finally, the AIST lamented the Government’s decision to omit the scale requirements for superannuation funds from the first tranche of the legislation.
“This may put some funds in an invidious position of preparing to make a MySuper application, not knowing if they will be able to meet the scale requirements or not,” said the AIST.
