february 2016 - millsoakley.com.au · that aligning reporting under srs 702.1 with the product...

www.millsoakley.com.au 1

In this edition...• There has been significant activity on the design of Product Dashboard and Portfolio Holdings, with much

more to come. Proposed choice of fund reforms will test the Government’s capacity to implement FSI and TURC recommendations and, if enacted, will draw new battlelines for default fund contributions. This spectre has pushed employer inducements and advice onto ASIC’s radar.

• APRA proposes to shore up its governance standard. ASIC is looking to tighten calculator relief but will push issues such as AFSL dealing authorisations and 29QC (consistent disclosure) further into the future.

• Finally, we address a case about breach of duties by directors of a responsible entity on investment governance. This has application to superannuation directors in relation to duty of care, skill and diligence and issues of delegation and reasonable reliance.

1. APRA AND ASIC UPDATES

1.1 ASIC Consultation Paper 244: Remaking ASIC class orders on dealing in underlying investments (4 December 2015)

The Consultation Paper sets out ASIC’s proposals to remake the following ASIC Class Orders that are due to sunset on 1 April 2017:(a) Class Order [CO 02/1161] Licensing relief (dealing) for public offer superannuation entities;

and

(b) Class Order [CO 02/1074] Financial Services Guide: Dealing in underlying investments by superannuation trustees.

The Class Orders have the following effects:(a) Class Order [CO 02/1161] exempts public offer superannuation fund trustees from the

requirement to hold an AFSL for dealing in financial products on behalf of members in the course of operating the superannuation fund. The Class Order exempts trustees from the requirements to:

(i) hold an AFSL for their dealings in underlying investments;

(ii) hold appropriate authorisations in each of the financial products in which they deal, such as insurance, securities and derivatives;

(iii) meet organisational competence requirements; and

(iv) meet requirements relating to each responsible manager’s experience and qualifications relevant to each authorisation applied for.

In contrast, a trustee or responsible entity of a managed investment scheme does require such authorisations.

(b) Class Order [CO 02/1074] exempts superannuation fund trustees from the requirement to provide a Financial Services Guide under section 941A of the Corporations Act 2001 (Cth) (Corporations Act) when dealing in underlying investments on behalf of members in the course of operating the fund. ASIC also proposes to remake Class Order [CO 02/1073] Financial Services Guide: Dealing in underlying investments by responsible entities.

Spotlight on Super Prepared by Luke Hooper with assistance from Mark BlandFebruary 2016


ASIC proposes to preserve the Class Orders’ effects beyond 1 April 2017 by combining the effects of the Class Orders into a single instrument.

1.2 ASIC Corporations (Amendment) Instrument 2015/1073 (Registered 9 December 2015)

The Instrument amends ASIC Class Order [CO 10/630] Long-term superannuation returns by enabling the Class Order to apply beyond 31 December 2015, for an indefinite period.

The Class Order provides relief from the operation of the current long-term superannuation fund performance reporting requirements that the Government proposes to refine. The Class Order modifies or varies regulations 7.9.20AA and 7.9.75BA of the Corporations Regulations 2001 (Cth) (Corporations Regulations) to:(a) exclude exit statements from the regime;

(b) exempt “traditional” funds of an insurance nature from the regime; and

(c) permit approved deposit funds and pooled superannuation trusts to provide annual reports online.

1.3 Draft APRA Reporting Standards for qualifying choice options (11 December 2015)

APRA has issued revised draft reporting standards in response to the Government’s release of draft legislation for superannuation product dashboards, due to take effect on 1 July 2016.

Similar to the legislative framework for MySuper product dashboards, the Corporations Regulations will require that the measures contained in the product dashboard are determined in accordance with APRA’s data reporting standards.

APRA proposes to amend:(a) Reporting Standard SRS 700.0 Product Dashboard (SRS 700.0) to allow it to cover both

MySuper and qualifying choice option (Choice) product dashboards and to reflect the proposed amendments to the dashboard requirements; and

(b) Reporting Standard SRS 702.1 Investment Performance (Non-MySuper Investment Options) (SRS 702.1).

Once the content of the proposed Superannuation Legislation Amendment (Transparency Measures) Bill 2015: Product dashboards and Superannuation Legislation Amendment (Transparency Measures) Regulation 2015 (see section 2.1, below) is finalised, APRA will release updated reporting standards for a further round of consultation early in 2016.(a) Draft SRS 700.0 will be amended so that it applies to both MySuper products and Choice

options. The reporting requirements for Choice products will be the same as MySuper products. However trustees will also be required to provide an investment mix pie chart in respect of their Choice products. Further, the “statement of fees and other costs” will be split into its component parts, namely investment, administration and advice fees and indirect costs.

(b) Draft SRS 702.1 applies to both APRA’s “select investment options” and Choice options. A select investment option is defined as a non-MySuper option representing more than 5% of total superannuation fund assets within which the investment option is invested or (if less than 5%), an option whose assets are valued at greater than $200 million. Under Draft SRS 702.1:

(i) references to APRA look-through reporting have been removed from the components of the net return calculation;


(ii) the reporting of net return data need not be undertaken in accordance with Australian Accounting Standards, but on a “best estimates” approach. However, a trustee will have to ensure that the information reported for each quarter is the most accurate information the trustee has available by the reporting due date; and

(iii) the requirement to report the current “highest” and “lowest” scales in respect of administration and investment fees is replaced with a requirement to report only the “highest” administration and investment fees in the range. APRA’s view is that aligning reporting under SRS 702.1 with the Product Disclosure Statement requirements, to the extent possible, will provide adequate transparency while also streamlining reporting and disclosure obligations for industry.

APRA also proposes to make consequential amendments to Reporting Practice Guide SPG 700 Superannuation Disclosure Reporting.

1.4 ASIC Report 455 Consumer testing of the Choice product dashboard (11 December 2015)

ASIC has released the results of consumer testing in respect of the Choice dashboard that follows from the 2013 consumer testing it commissioned on the MySuper product dashboard, which was released as Report 378 Consumer testing of the MySuper product dashboard.

The response to the Choice dashboard, whilst positive overall, depended on many factors, including each participant’s self-reported level of financial awareness. The Report highlights that respondents were sensitive to small changes in the design and terminology, which highlighted the need for consistency of information and presentation from superannuation funds.

One of the key findings was that the use of a “super estimator” appealed to participants who claimed to pay less attention to financial matters. The concept of the estimator has been reflected in Superannuation Legislation Amendment (Transparency Measures) Regulation 2015 (see section 2.1, below) and essentially acts as a very simplified calculator detailing a member’s estimated superannuation account balance at age 65, based upon the member’s current age, annual pay (pre-tax), and current superannuation balance.

1.5 Reporting Standard SRS 534.0 Derivative Financial Instruments (Registered 14 December 2015)

APRA has registered Financial Sector (Collection of Data) (reporting standard) determination No. 39 of 2015 which amends APRA Reporting Standard SRS 534.0 Derivative Financial Instruments.

The Standard has been subject to various amendments, the latest version of which applied in respect of reporting periods ending on or after 1 July 2014, but was revoked by Financial Sector (Collection of Data) (reporting standard) determination No. 29 of 2015 - SRS 534.0 - Derivative Financial Instruments on 13 June 2015.

The new version of the Standard will apply from 1 July 2016.

1.6 Superannuation Reporting Standards – Release of Minor Amendments to Reporting Standards (15 December 2015)

APRA has written to trustees confirming minor amendments that had been made to the following reporting standards:(a) Reporting Standard SRS 532.0 Investment Exposure Concentrations (SRS 532.0);

(b) Reporting Standard SRS 533.1 Asset Allocation and Members’ Benefits Flows (SRS 533.1);

(c) Reporting Standard SRS 534.0 Derivative Financial Instruments (SRS 534.0); and

(d) Reporting Standard SRS 702.0 Investment Performance (SRS 702.0).


The amendments will apply to reporting periods ending on or after 1 July 2016.

SRS 532.0 collects information about specific superannuation fund investments. Page 7 of the instructions to SRS 532.0 has been amended to remove the reference to “non-connected investment vehicles” given the clarification of the definition of “APRA-look through” as outlined in APRA’s April 2015 Discussion Paper on Superannuation Reporting Standards.

SRS 533.1 collects information about asset allocation and members’ benefit flows in select investment options, and has been amended to correct typographical errors.

SRS 534.0 collects information about directly-held derivatives. Items 1 and 3 on the form (and corresponding pages 2 to 4 inclusive of the instructions) have been amended to correct and clarify the reporting obligations.

SRS 702.0 is intended to capture information about investment performance of MySuper products. APRA has amended the instructions to SRS 702.0 to make it clear that whilst the obligation to report the most accurate information remains, trustees will comply with their obligations under SRS 702.0 if they report the unit price or crediting rate struck on the reporting date, unless that price or rate would have to be restruck under a trustee’s policies.

APRA had consulted on Reporting Standard SRS 703.0 Fees Disclosed. However it made no amendments to this Reporting Standard.

1.7 ASIC Superannuation (Amendment) Instrument 2015/1098 (Registered 15 December 2015)

This instrument amends ASIC Class Order [CO 14/541] RSE licensee s29QC SIS Act disclosure exemption by extending the exemption from the requirement to comply with section 29QC of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS) until 1 February 2017.

1.8 ASIC Consultation Paper 247: Client review and remediation programs and update to record-keeping requirements (16 December 2015)

The Consultation Paper sets out ASIC’s proposed guidance on review and remediation programs conducted by Australian financial services licensees who provide personal advice to retail clients.

It also sets out ASIC’s proposed amendments (for clarification) to the AFSL record-keeping requirements on satisfying the best interests test when providing personal advice to retail clients.

Feedback is due by 26 February 2016.

1.9 Governance arrangements for RSE licensees: Outcomes of consultation (18 December 2015)

APRA has written to trustees detailing aspects of its consultation in respect of proposed changes to APRA Prudential Standard SPS 510 Governance (SPS 510) and Prudential Practice Guide SPG 510 Governance (SPG 510) in light of the Government’s failure to pass the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 (Bill).

APRA has stated that the Government has indicated that the Bill will be considered further in 2016, and as such APRA does not intend to formally finalise its consultation on governance arrangements at this time.

However, APRA confirms that it proposes to amend SPS 510 and SPG 510 by introducing the following requirements:(a) a trustee must have a governance framework which sets out policies and procedures that it is

required to have in place to support effective governance practices. Submissions supported the introduction of the concept of a governance framework into SPS 510;

(b) a trustee must establish and implement policies and processes for the nomination, appointment and removal of directors that address the management of vacancies, assessing the suitability of candidates, reappointment processes, processes for resolving disputes


about director appointments, when and how a director will be removed from the board and policies on voting rights and procedures regarding director appointments. Submissions expressed support for trustees to have documented policies and procedures relating to appointment, nomination and removal of directors;

(c) a trustee must have in place a policy on director tenure which addresses maximum tenure periods, consistent with existing expectations stated in SPG 510. APRA’s view was supported by submissions. APRA therefore intends to update SPG 510 in due course to reflect both that boards are expected to consider director’s tenure at the end of each term served, and that APRA expects that there would be limited circumstances in which maximum tenure limits exceeding 12 years would be appropriate; and

(d) a trustee’s governance framework must include the board’s policy on board size, with guidance on APRA’s expectations relating to board size included in draft SPG 510. It remains APRA’s view that, excepting temporary or transitional considerations, there are likely to be limited circumstances where a board of more than 12 directors is required.

APRA intends to formally reflect the above requirements in the prudential framework at the earliest opportunity. APRA will also respond more formally to the issues raised in submissions, including APRA’s proposed administration of the Bill and the associated transitional arrangements, at the appropriate time.

1.10 ASICConsultationPaper249RemakingASICclassorderongenericfinancialcalculators:[CO05/1122] (22 December 2015)

The Consultation Paper sets out ASIC’s proposal to remake Class Order [CO 05/1122] Relief for providers of generic calculators, which sunsets on 1 April 2016.

ASIC’s preliminary view is that this Class Order is operating effectively and efficiently, and continues to form a necessary and useful part of the legislative framework.

However, ASIC proposes to make minor amendments to the conditions of relief as follows:(a) include a new requirement that the assumptions must be clearly and prominently displayed

whilst allowing the provider greater flexibility about how they present information about why the assumptions are reasonable for working out the estimate – in particular, the information may be layered (i.e. detailed disclosure may be accessed through a link);

(b) include a new requirement that if an estimate is of an amount payable or receivable at a future time of two or more years, the results must be adjusted for inflation;

(c) include a new requirement that if a person relying on the relief becomes aware of a breach, or a likely breach, of any of the conditions in the relief, the person must lodge a written report on the matter with ASIC; and

(d) clarify that although the assumptions used by a calculator may in fact reflect a particular financial product, the calculator should not refer to any particular product.

Submissions were due by 12 February 2016.

1.11 AustralianPrudentialRegulationAuthority(confidentiality)determinationNo.1of2016(Registered 8 February 2016)

The Determination provides that certain information given to APRA under the reporting standards SRS 540.0 Fees (SRS 540.0) and SRS 710.0 Conditions of Release (SRS 710.0) is non-confidential and consequently its release by APRA will be permitted under subsection 56(5C) of the Australian Prudential Regulation Authority Act 1998 (Cth).


The following information reported to APRA will form the basis of statistical publications that will be made publically available:(a) SRS 540.0:

(i) 1. Fees paid (column 2 source of payment);

(ii) 1.1 Details of other source of payment;

(iii) 2. Fee rebates and fee discounts;

(iv) 3. Activity fees (column 3 source of payment);

(v) 3.1 Details of other source of payment; and

(vi) 4. Activity fee rebates and fee discounts.

(b) SRS 710.0:

(i) 1.1 Other lump sum benefit payments;

(ii) 1.1.1 Release of unrestricted non-preserved benefits;

(iii) 2.1 Other pension benefit payments; and

(iv) 2.1.1 Release of unrestricted non-preserved benefits.

1.12 ASICConsultationPaper251:RemakingASICclassorderonfinancialproductadvice:Exemptdocuments—[CO03/606](16February2016)

The Consultation Paper sets out ASIC’s proposal to remake Class Order [CO 03/606] Financial product advice: Exempt documents, which sunsets on 1 April 2017.

ASIC’s preliminary view is that this Class Order is operating effectively and efficiently, and continues to form a necessary and useful part of the legislative framework.

However, ASIC proposes to make minor amendments only to reflect current drafting practice and update the format of the current document and to simplify the drafting to give greater clarity, including replacing the list of specified documents prepared as a result of a requirement of the Corporations Act or SIS with a general description.

The Class Order’s Effect

Part 7.6 of the Corporations Act requires a person that provides “financial product advice” to hold an AFSL, unless an exemption applies.

Under section 766B(1A), the giving of an “exempt document or statement” does not constitute the provision of financial product advice. An exempt document includes a document included in a class of documents, information or statements specified by ASIC in a list published in the Gazette.

The Class Order specifies a list of documents, information or statements for that purpose that includes:(a) documents prepared in accordance with the Corporations Act or legislation including SIS;

(b) those issued by entities not ordinarily in the business of providing financial product advice;

(c) explanatory statements for certain foreign schemes of arrangement; and

(d) documents provided in relation to a transaction involving the acquisition of control or potential control of, or the acquisition of a substantial interest in, an issuer of securities or a managed investment scheme that is regulated in the jurisdiction of an approved foreign market.


The Class Order covers:(a) unintended situations of providing financial product advice that is general advice; and

(b) general advice that is contained in an offer document, or a document responding to an offer document under a control transaction, that is regulated in the jurisdiction of an approved foreign market.

Without relief a person who distributes such a document in Australia would require an AFSL.

Comments are due to ASIC by 18 March 2016. ASIC proposes to commence the remade instrument in April or May 2016.

1.13 ASIC guidance to employers about super (17 February 2016)

ASIC has updated its MoneySmart website to help employers select a default superannuation fund for employees.

The updated information encourages employers to consider a range of factors when deciding about a default super fund for employees, including fees, investment options offered, fund performance and insurance.

Additionally, ASIC also encourages employers to be very wary of trustees offering them inducements to choose their funds in light of a review of some retail and industry superannuation fund trustees to assess their compliance with SIS, section 68A.

ASIC states that it will continue to monitor the area of employer inducements and may consider undertaking shadow shopping exercises to gain a better understanding of the employer experience when dealing with superannuation trustees and their associated businesses.

2. LEGISLATION

2.1 Superannuation Legislation Amendment (Transparency Measures) Bill 2015: Product dashboards and Superannuation Legislation Amendment (Transparency Measures) Regulation 2015 (10 December 2015)

Treasury has released Exposure Draft legislation proposing to refine the Corporations Act provisions that establish the legislative frameworks for Choice product dashboards and portfolio holdings disclosure. It is proposed that these provisions will take effect on 1 July 2016.

Choice dashboards

The Exposure Draft’s proposed effect is that a trustee will be required to publish dashboards in respect of a superannuation fund’s top ten (by value) investment options (“qualifying choice investment option”).

A “qualifying choice investment option” means an investment option within one of the fund’s choice products, if that option: (a) is one of the 10 largest of those options, as measured by funds under management on 30

June of the previous financial year; and

(b) is not excluded by the Corporations Regulations.

Portfolio holdings

The Exposure Draft amends Corporations Act, section 1017BB to remove the requirement to identify and disclose “assets derived from assets” or the value of “assets derived from assets”. This means that trustees will not be required to negotiate with fund managers to retrieve investment information in respect of non-associated entities of the fund manager (that is often confidential in nature).


Further, among other consequential exclusions, the Exposure Draft proposes that a trustee may exclude disclosure in respect of 5% of assets invested.

The Exposure Draft excludes platform products from the requirements, on the basis that the investment options that the portfolio holdings disclosure relates to excludes Choice products that contain multiple investment options.

2.2 Superannuation Legislation Amendments (Governance) Bill 2015: Extending superannuation choice to enterprise agreements (10 December 2015)

Treasury has released Exposure Draft legislation proposing to enable employees, who are subject to a workplace determination or enterprise agreement made on or after 1 July 2016, to choose their own superannuation fund.

This Exposure Draft will require employers to give employees a standard choice form, in the circumstances set out in section 32N of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGA Act) including on commencement of employment and on written request from an employee. The employee will then be able to choose a fund for their compulsory superannuation contributions.

Where an employee fails to choose their own superannuation fund, an employer may continue to make compulsory superannuation contributions to the same fund that it contributed to for the employee under or in accordance with a workplace determination or enterprise agreement, made before 1 July 2016. An employer will also be able to specify this fund as a default fund in a standard choice form provided on request to the employee.

The Exposure Draft also excludes certain employers from penalty for failing to technically comply with the Choice provisions in circumstances where an employee is a member of a defined benefit scheme, and therefore cannot choose a fund under the SGA Act.

Submissions closed 20 January 2016.

3. CASES

Case of interest:(a) The court approved settlement of the class action in relation to Australian Capital Reserve

(Camilleri v The Trust Company (Nominees) Limited [2015] FCA 1468 (18 December 2015))

(b) Finding of a breach of duty by directors of a responsible entity which stepped outside the fund’s mandated investment policies and procedures causing considerable investor losses. It address issues analogous to a superannuation director’s duties such as:

(i) Duty of care, skill and diligence of a director and the higher duty of a director of a responsible entity relating to care and conflicts.

(ii) The business judgement rule not applying to RE director duties

(iii) Reasonableness of reliance and delegation.

(iv) Duty to take steps to ensure the RE complies with its obligations, but that these can be delegated if properly monitored.

(Trilogy Funds Management Limited v Sullivan (No 2) [2015] FCA 1452 (18 December 2015))

4. OTHER RECENT DEVELOPMENTS

4.1 Streamlining business reporting with a single touch payroll (21 December 2015)

The Minister for Small Business and Assistant Treasurer announced business reporting of tax and


superannuation will be simplified with the implementation of Single Touch Payroll (STP). STP will enable information, including the reporting of superannuation contributions to be automatically sent to the ATO when employers make contributions to superannuation funds on behalf of their employees, via Standard Business Reporting (SBR) software.

The Minister also stated that the Federal Government is also introducing streamlined processes for individuals commencing employment, enabling them to have the option of completing their Tax File Number declaration and Superannuation Standard Choice forms using myGov or through their employer’s business management software.

The Government’s proposed timeframes are as follows:(a) the ATO will be conducting a pilot in the first half of 2017, with a focus on small businesses;

(b) from 1 July 2017, all businesses will be able to commence STP reporting, with the option to make voluntary payments. In addition, the ATO will transition employers with 20 or more employees to STP;

(c) from 1 July 2018, employers with 20 or more employees will be required to use STP enabled software for reporting to the ATO; and

(d) the Government will make a decision on timing for rolling out STP reporting for employers with less than 20 employees after the pilot is completed.

To assist with the transition, the Government proposes to provide businesses, with a turnover of less than $2 million, a $100 non-refundable tax offset for SBR enabled software. This offset will apply from 1 July 2017 and will be available for software purchases or subscriptions made in the 2018 Financial Year.

4.2 Royal Commission into Trade Union Governance and Corruption – Final report (28 December 2015)

The Final Report of the Royal Commission into Trade Union Governance and Corruption included the following recommendations impacting the default nature of superannuation funds:(a) Recommendation 50: A new civil remedy provision be added to the Fair Work Act 2009 (Cth)

prohibiting a person from organising or taking (or threatening to organise or take) any action, other than protected industrial action, with intent to coerce an employer to pay amounts to a particular employee benefit fund, superannuation fund or employee insurance scheme; and

(b) Recommendation 51: Subsections 32C(6), (6A), (6B), (7) and (8) of the SGA Act be repealed, and all other necessary amendments be adopted to ensure all employees have freedom of choice of superannuation fund.

4.3 Product Dashboard Comparison Metric Consultation Paper (December 2015)

The Consultation Paper sought comments in respect of a proposal to provide comparative information in a superannuation fund’s product dashboard, so that a consumer would not be required to compare two or more product dashboards simultaneously. The Consultation Paper proposes two models.


Text comparison

A sentence could be added to both MySuper and Choice product dashboards to say (for example) ‘Two thirds of MySuper products charged fees between $XXX and $YYY as at mmm yyyy’.

STATEMENT OF FEES AND OTHER COSTS

$755(or 1.5% as a percentage of $50,000)

Comparison diagram

A comparison diagram could be provided showing a specified range of MySuper products. The superannuation investment option’s fees, return or risk would be plotted on this diagram to show how the investment option’s performance compares against a range of MySuper products.

STATEMENT OF FEES AND OTHER COSTS

$755(or 1.5% as a percentage of $50,000)Two-thirds of MySuper products charged total fees and costs betweeen $420 and $620 as at June 2015

Submissions closed on 20 January 2016.

4.4 QROPS update (6 January 2016)

ASFA has stated that Treasury has continued to liaise with Her Majesty’s Revenue and Customs (HMRC) regarding relief options for funds and members affected by the rule changes for Qualifying Recognised Overseas Pension Schemes, which came into effect on 6 April 2015. HMRC appears to have indicated that fund queries regarding relief applications should be directed to the following email address: [email protected]

4.5 Productivity Commission Review into superannuation system (17 February 2016)

The government has released the Terms of Reference for the first two stages of a Productivity Commission review into the superannuation system’s efficiency and competitiveness.

The Review follows from the Financial System Inquiry’s findings that superannuation fund fees have not fallen by as much as would be expected given the substantial increase in the scale of the superannuation system, a major reason for this being the absence of consumer driven competition, particularly in the default fund market.

The Terms of Reference follow from the Government’s response to Financial System Inquiry Recommendation 10 on efficiency in superannuation. The Government committed to tasking the Productivity Commission to develop and release criteria to assess the efficiency and competitiveness of the superannuation system, including the choice and default markets and to develop alternative models for allocating default fund members to products.


This work will inform a review of the efficiency and competitiveness of the superannuation system, which the Productivity Commission will be asked to undertake following the full implementation of the MySuper reforms (after 1 July 2017).

Process

The Productivity Commission is to develop:(a) criteria to assess the efficiency and competitiveness of the superannuation system and

release the criteria within nine months of receiving these Terms of Reference; and

(b) alternative models for a formal competitive process for allocating default fund members to products and report on these within 18 months of receiving these Terms of Reference.

For both elements, the Productivity Commission should consult widely and undertake appropriate public consultation processes, including inviting public submissions and conducting industry roundtables.

Scope of Review(a) Development of criteria to assess efficiency of super system

The Productivity Commission should develop criteria to assess whether and the extent to which the superannuation system is efficient and competitive and delivers the best outcomes for members, including optimising risk-adjusted after fee returns, having regard to:

(i) operational efficiency, where products and services are delivered in a way that minimises costs and maximises value, which can be enhanced by competition and innovation from new entrants and incumbents;

(ii) allocative efficiency, where the system allocates resources to the most productive use and optimally allocates risks;

(iii) dynamic efficiency, including services to members, where the system induces the optimal balance between consumption and saving over time; and

(iv) the extent to which the system encourages optimal behaviour on the part of consumers, including consideration of the learnings from behavioural finance.

(b) Development of alternative models

(i) The Productivity Commission is to examine alternative models for a formal competitive process for allocating default fund members to products and to develop a workable model, or models, that could be implemented by Government if a new model for allocating default fund members to products is desirable.

(ii) The developed model(s) should enhance efficiency in the superannuation system in order to improve retirement incomes, including through optimising long-term net returns to members, and build trust and confidence in funds regulated by APRA. The models developed should consider default fund selection across the superannuation system as a whole.

(iii) The Productivity Commission may consider auction, tender and other types of competitive processes. The Productivity Commission should consider the merits of different approaches, including consideration of:


(A) the strengths and weaknesses of competitive processes used internationally, such as Chile, New Zealand and Sweden, as well as those used in large corporate tenders by the Northern Territory Government and in other jurisdictions

(B) the costs and benefits of different mechanisms, including:

(1) optimising long-term after fee returns; and

(2) the administrative, fiscal, individual and complexity costs;

(C) different processes, including:

(1) the robustness of the process, including against gaming and collusion;

(2) whether the structure achieves efficient outcomes and facilitates ongoing innovation over the long run;

(3) the effect on system stability and market concentration;

(4) who should run the process; and

(5) the extent to which the process promotes the interests of consumers; and

(D) regulatory impediments to optimal competition under the preferred model(s).

The principles for designing a model for a competitive process should include:(a) best interests: ensure incentive compatibility with meeting the best interests of members,

encourage long-term investing, and encourage a focus on expected after-fee returns based on asset allocation and investment strategy;

(b) competition: drive pressure on funds to be innovative and efficient, diversify asset allocation and optimise long-term after-fee returns by rewarding best performers. Facilitate new superannuation fund entrants to the market;

(c) feasibility: ensure the process is low-cost and easy to administer and minimises regulatory costs on industry, including business and employers;

(d) credibility and transparency: make relevant information public; avoid room for gaming the process; and ensure metrics are clear, simple, difficult to dispute and difficult to manipulate;

(e) regular assessment and accountability: regularly conduct a repeat process that requires default funds to earn their right to receive new default members, and ensure funds are accountable for the outcomes they deliver members; and

(f) fiscal implications: the extent to which the process can reduce reliance on the Age Pension and/or give rise to other risks or costs to Government.

The Productivity Commission should draw on expertise in the field of competitive models.


Chris Ketsakidis Partner T: 03 9605 0006 E: [email protected]

Ravi Cooray Associate T: 03 9605 0966 E: [email protected]

Mark Bland Partner T: 03 9605 0832 E: [email protected]

Lisa-Marie McKechnie Partner T: 02 8289 5857 E: [email protected]

Marius Rajanayagam Special Counsel T: 03 9605 0030 E: [email protected]

Luke Hooper Special Counsel T: 03 9605 0894 E: [email protected]

february 2016 - millsoakley.com.au · that aligning reporting under srs 702.1 with the product...

Documents