MySuper is a new, simple and cost‑effective superannuation product that will replace existing default products. MySuper products will have a simple set of product features, irrespective of who provides them. This will enable members, employers and market analysts to compare funds more easily based on a few key differences. It will also ensure members do not pay for any unnecessary 'bells and whistles' they do not need or use.
All existing superannuation funds will be able to apply to offer a MySuper product.
Members wishing to make other choices with their superannuation will still be able to opt for an alternative product, or manage their own superannuation affairs through a self managed superannuation fund.
MySuper will lower the costs for employers in selecting a default fund, as they will have better information to assist with their choice, and the confidence that any MySuper product will meet minimum standards and offer a cost‑effective superannuation plan for their employees.
2.2 Transition to MySuper
The Government previously announced that superannuation funds will be able to offer MySuper products from 1 July 2013.
From 1 October 2013, employers must make contributions for employees who have not made a choice of fund to a fund that offers a MySuper product in order to satisfy superannuation guarantee requirements. Additional transitional arrangements will be developed to deal with situations involving funds nominated in enterprise agreements.
In order for a superannuation fund to be named in a modern award, it will have to offer a MySuper product. Fair Work Australia will review the default superannuation funds named in modern awards to ensure that they offer a MySuper product. The Government will undertake further consultation on these arrangements to ensure a smooth transition for employers, employees and industry.
Trustees of superannuation funds offering MySuper products will need to transfer the existing balances of their default members to a MySuper product by 1 July 2017. These arrangements will ensure the vast majority of default members obtain the full benefits of MySuper, while allowing almost six years for industry to prepare for and manage the transition. As part of the legislative design process, the Government will consult on a mechanism to allow for this period to be extended in certain, limited circumstances, recognising there may be instances where existing obligations affect a trustee's ability to transfer balances.
Trustees will not have to transfer the existing member balances that relate to an entitlement to a defined benefit or relate to certain legacy products. As part of the legislative design process, the Government will consult further on the legacy products that will be exempt from the transfer of existing balances to a MySuper product.
The Government also recognises that, under the proposed framework for transition, questions could arise as to whether a trustee has fulfilled its fiduciary obligations to act in the best interests of members. Further consideration of the protection trustees may require in these circumstances will also be undertaken in consultation with stakeholders at the legislative design phase.
2.3 Pricing of MySuper products
As part of Stronger Super, the Government announced that each superannuation fund would be able to offer one MySuper product with a single, diversified investment strategy. Consultations considered whether the one MySuper product should be offered at a single price (that is, fee structure) for all members or could be offered at different prices.
The Government has decided that funds choosing to offer MySuper must offer a product with a single investment strategy and a standard set of fees available to all prospective members. However, employers will be able to negotiate with funds to obtain a discounted administration fee for their employees. This recognises that there may be administrative efficiencies in dealing with some employers that warrant a lower administration fee. The Government will determine the parameters under which a trustee will be able to offer a discounted administration fee within the MySuper regulatory framework.
The Government has also decided that funds will have the flexibility to offer employers with more than 500 employees a MySuper product tailored to the needs of the particular workplace. These products will be able to differ from a fund's main MySuper product in terms of investment strategy, member services and fees.
To maintain transparency of these arrangements, the details of all separately tailored MySuper products and discounted administration fees will be required to be reported to APRA and will also need to be separately published by trustees.
As part of Stronger Super, the Government announced that while each fund will be limited to offering one MySuper product, further consideration would be given to whether separate brands of MySuper products can be offered within a fund.
The Government has decided it will provide a limited exception aimed at cases where there is a pre‑existing and distinct MySuper or default product acquired by a fund as a result of a merger or takeover. Funds will need to apply to APRA for approval to offer more than one brand of MySuper product.
2.5 Single, diversified investment strategy
2.5.1 Level of risk and investment return target
As part of Stronger Super, the Government announced that a MySuper product will have a single, diversified investment strategy.
The Government will require MySuper trustees to clearly articulate the targeted rate of return (over a rolling ten year period) and level of risk that the trustee has determined is appropriate for its MySuper members. APRA will consult with the industry to determine appropriate metrics for the standard reporting of the return and risk targets for MySuper products. Trustees will also be required to use the same approach for calculating and presenting this information in the new product dashboard.
2.5.2 Lifecycle investment options
The Government previously announced it would further consider whether a lifecycle investment approach could be a MySuper trustee's single investment strategy. Lifecycle investment options enable trustees to automatically move members into a different investment mix based on their age and can be particularly relevant as part of a transition to retirement.
Trustees are best placed to decide whether a lifecycle investment option is best suited to their members. Therefore, the Government has decided that trustees will be allowed to use a lifecycle investment option as the single investment strategy for their MySuper product. APRA will be asked to develop guidance for trustees on issues related to the way in which they develop and maintain a lifecycle investment approach for a MySuper product.
2.6 Authorisation of MySuper providers
The Government announced that trustees wanting to offer a MySuper product will be required to hold a specific MySuper licence issued by APRA.
After consulting with APRA and the industry, the Government has decided that trustees will not be required to apply to APRA to hold a specific MySuper licence. However, trustees will be required to apply to APRA to be authorised for each MySuper product they wish to offer. This approach will build upon existing processes, avoid duplication and ensure APRA is given sufficient power to regulate MySuper.
Fees a member can be charged in MySuper products will be limited to:
- administration fee;
- investment fee (including a performance-based fee, subject to the limitations outlined below);
- buy and sell spreads (limited to cost recovery);
- exit fee (limited to cost recovery); and
- switching fee (limited to cost recovery).
In addition, trustees may charge fees for certain member‑specific costs initiated by the member or a court; for example, account splitting following a family law decision.
All fees charged for MySuper products must be able to be included under these standard descriptions. This will make it simpler for members to understand what they pay and to compare fees against other MySuper products.
Trustees will not be limited on the types of fees that can be charged in choice products.
The Government has decided on parameters for performancebased fees consistent with those recommended in the Super System Review. In any performance‑based fee arrangement with a fund manager in respect of assets of the MySuper product, trustees must include the following provisions:
- a reduced base fee that reflects the potential gains the investment manager receives from performancebased fees, taking into account any fee cap;
- measurement of performance on an after‑tax (where possible) and after‑costs basis;
- an appropriate benchmark and hurdle for the asset class reflecting the risks of the actual investments;
- an appropriate testing period; and
- provisions for the adjustment of the performancebased fee to recoup any prior or subsequent underperformance (for example, high water marks, clawbacks, vesting arrangements and rolling testing periods).
If a performancebased fee arrangement does not contain each of these provisions, a trustee must be able to justify that the differing arrangement continues to be in the best financial interests of the members of the MySuper product.
2.8.1 MySuper and choice products
As part of Stronger Super, the Government announced that all APRA‑regulated funds will be required to offer life and total and permanent disability (TPD) cover on an opt‑out basis (where available, depending on occupational and demographic factors) and would consult on implementation.
The Government has decided that trustees must, at a minimum, allow members to opt‑out of life and TPD insurance within 90 days of the member joining a fund, or on each anniversary of the member joining the fund. However, if trustees are unable to obtain opt‑out cover at a reasonable cost, trustees of MySuper products will be required to offer compulsory insurance, while trustees of choice products can either offer compulsory insurance or no insurance. These arrangements will not apply to defined benefit funds that have insurance cover as part of the benefit design.
The Government also announced that it would consider whether income protection insurance should be offered on an opt‑out basis to members of all APRA‑regulated funds. Following consultation, the Government has decided that it will be left to the trustee's discretion whether to offer income protection insurance, on an opt‑in or opt‑out basis or at all.
These changes mean that a member's superannuation will not be reduced by premiums for insurance cover that the trustee has determined is not suitable for their members.
Currently, some members are being charged premiums for own occupation cover in TPD insurance policies and other types of insurance that may not be released to them when an insurance payment is made for them, because the circumstances do not meet a condition of release.
The Government will end this practice. The Government believes it is in the best interests of members to align insurance definitions with the conditions of release so that insurance is consistent with the purpose of superannuation and that insurance monies are available to members at the time of their disability.
The Government considers that this change needs to made as rapidly as possible and will consult with industry on an appropriate timeline for the phase‑out of existing policies that are not consistent with definitions of life, TPD and income protection insurance that will be incorporated in the legislation.
Furthermore, to improve transparency and comparability of insurance provided through superannuation, the Government will consult on an approach to ensure that policy terms are disclosed in a standardised way.
2.8.2 Default insurance in MySuper products
MySuper products will be required to offer a standard, default level of life and TPD insurance. Members of MySuper products will be able to increase or decrease their insurance cover (if offered by the trustee) without having to leave the MySuper product.
There may be particular factors at a workplace level that influence the appropriate level and structure of insurance for employees at that workplace. Therefore, within a MySuper product, it will be possible for the standard insurance cover to be replaced by a default insurance strategy tailored to meet the specific requirements of the employees of a particular employer.
2.9 Post‑retirement products
The Government has decided that a MySuper product will only cover the pre‑retirement phase initially. The Government will consult with relevant stakeholders on whether MySuper products should be required to include a post‑retirement offering at some time in the future and the framework that should apply.
2.10 Capital gains tax (CGT) rollover for MySuper reforms
The Government will continue to consult key stakeholders on CGT consequences that may directly arise from transitioning to MySuper and to what extent, if any, CGT rollover relief is appropriate.
Submissions can be made to cgt_super_roll‑email@example.com and must be received by 21 October 2011.