ASIC Class Order [CO 07/337]

Administered by Department of the Treasury

Legislation au F2007L01531 Not in force Legislative Instrument

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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.

Overview

The ASIC Class Order [07/0337], enacted in 2007, addresses a specific issue identified in the Corporations Act 2001 regarding the disclosure of fees and costs for certain superannuation products, particularly defined benefit pensions. This class order was established by the Australian Securities and Investments Commission (ASIC) to ensure that the policy intention behind exempting certain superannuation products from Enhanced fee disclosure requirements is fully realised. The aim is to provide clarity and ensure that the exemption applies to all superannuation income stream products that are not investment linked or involve an investment account, thereby maintaining consistency in the regulatory approach. By amending Regulation 7.9.16J of the Corporations Regulations 2001, this class order specifically exempts defined benefit superannuation pensions from the Enhanced fee disclosure requirements, aligning them with the treatment of annuities exempt under the same regulatory framework.

Scope and Application

The ASIC Class Order [07/0337] applies to certain superannuation products, specifically those that are paid as superannuation pensions under the Superannuation Industry (Supervision) Regulations 1994, commonly referred to as 'defined benefit superannuation pensions'. This class order is designed to ensure that these superannuation pensions, which provide a pension income stream whose future value is actuarially determined at the time of issuance and does not vary with investment return or fees and costs, are exempt from the Enhanced fee disclosure requirements as stipulated under the Corporations Regulations 2001. These pension products are equivalent to the "annuities (except market linked annuities)" that are already exempted by subsubregulation 7.9.16J(a)(iii) of the Regulations. The order extends the exemption to include these superannuation pensions to align with the policy intention of not subjecting products to Enhanced fee disclosure requirements when compliance would not benefit the product holders. The Class Order modifies the existing regulation 7.9.16J of the Corporations Regulations 2001 to include a new subparagraph 7.9.16J(a)(v) that explicitly exempts these defined benefit superannuation pensions from the Enhanced fee disclosure requirements.

Key Provisions

The ASIC Class Order [07/0337], under paragraph 1020F(1)(c) of the Corporations Act 2001, amends Regulation 7.9.16J of the Corporations Regulations 2001 to provide clarity and expand the existing exemption from enhanced fee disclosure requirements. Regulation 7.9.16J originally exempts certain superannuation products, such as market-linked annuities, from these disclosure requirements, as they are not accumulation-type superannuation products (7.9.16J(a)). The new subparagraph 7.9.16J(a)(v) explicitly includes defined benefit superannuation pensions, which are paid under the Superannuation Industry (Supervision) Regulations 1994, in this exemption. These pensions are structured such that the income stream is actuarially determined at the time of purchase and does not vary with investment returns or fees (7.9.16J(a)(v)). The Class Order imposes specific obligations on financial entities managing these superannuation pensions. It requires them to ensure that their Product Disclosure Statements and periodic statements do not include enhanced fee disclosures for these defined benefit superannuation pensions. This obligation aligns with the policy intention that such disclosure would not benefit the holders of these products, as the income stream value is already known at the outset (7.9.16J(a)(v)). Financial entities must ensure compliance with this exemption to avoid unnecessary disclosures that do not provide meaningful information to consumers. There are no specific offences or penalties outlined for breaches of this Class Order in the explanatory statement. However, non-compliance with the Corporations Act 2001 or the Corporations Regulations 2001 generally could lead to civil or criminal penalties, including fines and imprisonment. For instance, section 1311 of the Act provides for civil penalty provisions, and section 1317 allows for criminal penalties for breaches involving dishonesty or recklessness. The exact penalties would depend on the nature and severity of the breach, but they can be significant, reflecting the importance of regulatory compliance in the financial services sector.

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