Superannuation (prudential standard) determination No. 1 of 2013

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Superannuation Industry (Supervision) Act 1993, section 34C(1)

Under subsection 34C(1) of the Superannuation Industry (Supervision) Act 1993 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by all RSE licensees of registrable superannuation entities (RSEs). Sections 242Q and 394 of the Act provide that a prudential standard determined under section 34C may deal with matters relating to the movement of amounts held in an Eligible Rollover Fund (ERF) for which the RSE licensee’s authorisation is cancelled, or in the case of an ERF in existence at 1 January 2014 for which the RSE licensee has not been authorised to operate the fund as an authorised ERF. 

On 29 May 2013, APRA made Superannuation (prudential standard) determination No. 1 of 2013 (the instrument) under subsection 34C(1) of the Act.

The instrument commences on 1 July 2013.

1. Background

The Government indicated, in its response to the recommendations of the Super System Review in December 2010, support for the recommendation that APRA be given the power to make prudential standards in respect of superannuation, consistent with APRA’s existing powers in respect of banking and insurance.[1]

APRA was granted the ability to make prudential standards in relation to superannuation under the Act by the passage of the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012 on 8 September 2012.

Following consultation, in December 2012 APRA released details of the process by which RSE licensees could apply for authorisation to operate a superannuation fund as an ERF.

In March 2013, APRA released a draft of Prudential Standard SPS 450 Eligible Rollover Fund (ERF) Transition (SPS 450) for consultation.

2.             Purpose and operation of the instrument

The purpose of the instrument is to make SPS 450, which sets out the minimum processes for an RSE licensee to implement in accordance with its election under section 242B of the Act in the event that its authorisation to operate a regulated superannuation fund as an ERF is cancelled.

SPS 450 also establishes obligations on the RSE licensee of an ERF which is in existence on 1 January 2014 if the RSE licensee is not authorised on that date to operate the ERF.  Further, it establishes obligations on an RSE licensee which receives an amount transferred in accordance with provisions of SPS 450.

The objective of SPS 450 is to ensure that:

• each member’s interest within an ERF for which the RSE licensee has not obtained authorisation, or for which the authorisation is cancelled, is placed:
  •  within a suitable authorised ERF; or
  • if no suitable authorised ERF is available for that member or class of member, within a suitable MySuper product; and
• the process is managed soundly and prudently in the best interests of the member.

The key requirements of SPS 450 are that a transferring RSE licensee must:

• prepare and implement a transition plan addressing the movement of member interests and associated identifying data to a suitable authorised ERF or, if no such ERF is available, to a suitable MySuper product;
• provide all reasonable assistance to the receiving RSE licensee; and
• undertake specified reporting to APRA.

The receiving RSE licensee must attribute the interest of each transferred member to an account in an ERF if it is authorised to operate one, or otherwise to an account in the MySuper product within a superannuation fund operated by the RSE licensee which, in the opinion of the RSE licensee, best promotes the financial interests of that member.

3.             Consultation

In March 2013, APRA issued a letter to all RSE licensees seeking submissions in relation to a draft of SPS 450. APRA emailed copies of the consultation letter to each RSE licensee which operates an existing ERF and also to four industry organisations.  5 written submissions were received in response to this letter.  

On 31 May 2013 APRA released a letter outlining the significant issues raised in the submissions and APRA’s response to them.

4.             Regulation Impact Statement

A Regulation Impact Statement is not required for SPS 450.

5.             Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

The statement is at Attachment A.

ATTACHMENT A

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Prudential Standard SPS 450 Eligible Rollover Fund (ERF) Transition

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instrument listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Overview of the Legislative Instrument

Prudential Standard SPS 450 Eligible Rollover Fund (ERF) Transition (SPS 450) is made pursuant to section 34C(1) of the Superannuation Industry (Supervision) Act 1993 (the Act).

Sections 242Q and 394 of the Act provide that a prudential standard made under section 34C may include provisions in respect of an RSE licensee whose authority to operate a superannuation fund as an ERF is cancelled, or an RSE Licensee which, as at 1 January 2014, holds an amount in an ERF which is not authorised. These provisions may include:

(a)   a requirement to transfer a member’s interest in the unauthorised ERF;

(b)   setting out the requirements that must be met in relation to the transfer; and,

(c)   dealing with other matters.

SPS 450 contains provisions imposing requirements for the transfer of the amount held by the RSE Licensee of the existing fund to an RSE Licensee of an authorised ERF or MySuper product, the requirements that must be met, and other matters.

Human rights implications

SPS 450 engages the right to privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR).

Article 17 of the ICCPR prohibits unlawful or arbitrary inferences with a person’s privacy, family, home and correspondence.  The UN Human Rights Committee has not defined “privacy”. The Privacy Act 1988 provides for the protection of personal information in the Commonwealth public sector and in the private sector.

In order to transfer a member’s interest in an unauthorised ERF as required by SPS 450, the transferring RSE Licensee will need to ascertain such personal information as it can about the amount, including the name of the member and any other indentifying details about that member. It is implicit that the receiving RSE Licensee will receive such personal information in order to be able to account to the member in relation to his or her interest in the receiving fund.

The Explanatory Memorandum for the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 which introduced, inter alia, sections 242Q and 394 of SIS states:

ERFs are maintained for the single purpose of being a temporary repository for the interests of members who have lost connection with their superannuation accounts. ERFs are intended to hold these superannuation interests and generally preserve their value until they can be reconnected with the member.

The SIS Act subjects an RSE licensee of an authorised ERF or a MySuper product to enhanced Trustee obligations and additional requirements and prohibitions. This is to ensure that funds, in respect of which a member has not taken, or cannot take, an active interest are treated in a conservative manner which is less likely to result in the incursion of larger than usual investment risks and losses and fees being incurred. Should an RSE licensee not be required to transfer funds in respect of which a member cannot be located into an ERF or MySuper account as required by SPS 450, it is likely that the value of the member’s interest will diminish rather than being preserved.

The disclosure of personal information in providing a member’s name or any other identification details or details of amounts held in a fund is unlikely to cause any harm to the member. Further, the receiving RSE Licensee is bound by the requirements of the Privacy Act.

 Conclusion

SPS 450 is compatible with human rights because to the extent that it limits human rights, those limitations are reasonable, necessary and proportionate.

[1]  Stronger Super, Recommendation 10.2, p. 60.