ASIC CLASS ORDER [07/0337]

EXPLANATORY STATEMENT

Prepared by the Australian securities and investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes Class Order [07/0337] Enhanced fee disclosure – Defined benefit pensions under paragraph 1020F(1)(c) of the Corporations Act 2001 (the Act).

Paragraph 1020F(1)(c) of the Act provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person as if specified provisions were modified.

1. Background

Regulation 7.9.16J of the Corporations Regulations 2001 (the Regulations) apply the Enhanced fee disclosure requirements of Division 4C of the Regulations to certain superannuation products and to managed investment products.  The Enhanced fee disclosure requirements of Division 4C of the Regulations relate to the disclosure of the fees and costs in relation to the product in Product Disclosure Statements and periodic statements that must be given to holders of those products.

Subregulation 7.9.16J(a) of the Regulations provides that the Enhanced fee disclosure requirements do not apply to particular types of superannuation product.  In particular, the Enhanced fee disclosure requirements expressly do not apply to superannuation products that are "annuities (except market linked annuities)" – subsubregulation 7.9.16J(a)(iii) of the Regulations.  Such annuities are products that pay an income stream to the product holder.  The value of the income stream is actuarially determined by the annuity provider at the time the product is issued and is based on the amount paid by the holder to purchase the annuity.

Division 4C of the Regulations was inserted by the Corporations Amendment Regulations 2005 (No.1).  The Explanatory Statement to those regulations describes that the exception in subsubregulation 7.9.16J(a)(iii) of the Regulations is appropriate because those annuity income stream products are not accumulation type superannuation products and the investment return that a consumer will receive will generally be known before the investment is made.  That is, under those products the consumer obtains an annuity income stream the future value of which is determined actuarially at the time of the purchase of the product, and does not vary with investment return or fees and costs over the life of the product.

On the basis of the structure of these products, compliance with the Enhanced fee disclosure requirements do not benefit the product holders.  The Explanatory Statement notes the intention to exempt superannuation products that are not investment linked or involve an investment account.

Concerns have arisen that the term "annuities", as defined in subregulation 7.9.01(1) of the Regulations, may not have effect that the exemption also extends to superannuation products that are paid as superannuation pensions, where the structure and basis on which the pension is paid is the same as for the annuities that are exempt.

2. Purpose

The purpose of Class Order [07/0337] is to ensure that the policy intention in relation to the exemption from the Enhanced fee disclosure requirements is given effect with respect to all superannuation income stream products that are not investment linked or involve an investment account.

Class Order [07/0337] ensures that the Enhanced fee disclosure requirements do not apply to certain superannuation products that are paid as superannuation pensions under the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).  The superannuation pensions exempted are those where the consumer obtains a pension the future value of which is determined actuarially at the time the pension product is issued and does not vary with investment return or fees and costs. 

These superannuation products are the superannuation pension equivalent to the "annuities (except market linked annuities)" exempted by subsubregulation 7.9.16J(a)(iii) of the Regulations.  Compliance with the Enhanced fee disclosure requirements would not benefit the holders of these superannuation pension products.

3. Operation

Class Order [07/0337] modifies regulation 7.9.16J of the Regulations to provide for a further category of superannuation products to be exempt from the Enhanced fee disclosure requirements.

Class Order [07/0337] inserts a new subparagragh 7.9.16J(a)(v) into the Regulations to provide expressly that the superannuation pensions paid under subregulations 1.06(2), 1.06(6) and 1.06(7) of the SIS Regulations are also exempt from the Enhanced fee disclosure requirements.  These superannuation pensions are known generally as 'defined benefit superannuation pensions'.

4. Consultation

In determining to make Class Order [07/0337] ASIC consulted with a major provider of defined benefit superannuation pensions and the Department of the Treasury.  Wider consultation was not necessary on the basis of the minor/machinery nature of the relief.