The Government has announced that it will legislate to compel trustees of APRA-regulated superannuation funds to act in the best “financial” interests of their members.
This measure was announced as part of the Your Future, Your Super reforms released in the 2020-21 Federal Budget on 6 October.
The proposed best financial interests duty will give effect to recommendation 22 of the Productivity Commission report. Overall, the measure seeks to remove ambiguity on how trustees should be spending members’ money.
The onus on demonstrating compliance with the new duty will be reversed. From 1 July 2021, trustees will be required to establish a “reasonable basis” to support their actions being consistent with the duty.
Anti-avoidance measures will ensure any super fund payments to third parties, such as interposed or related entities, do not undermine the intent of the new duty.
What exactly is this new trustee duty about?
Covenants in s 52 of the SIS Act already require trustees to act in the best interests of the members. In addition, trustees are currently required to determine each year whether the financial interests of the members are being promoted by the trustee.
Rather, the proposed new duty appears to be aimed at addressing the Government’s concerns about some funds spending money on things like political advertising, and possibly sporting sponsorships, where any benefit to the fund members is more indirect.
It is also worth noting that the Banking Royal Commission concluded that the “Fox and Henhouse” political advertising did not contravene the sole purpose test or the best interests duty, and did not amount to misconduct.
So the proposed new duty seems to be aimed at tightening up this area by requiring trustees to establish a “reasonable basis” for such expenditure in the “financial” interests of the members.
Date of effect
The proposed duty with apply to trustee decisions taken on or after 1 July 2021. As with all super reforms, the commencement date is likely to be a moving target. Especially as the Government is yet to undertake industry consultation about the proposal and any unforeseen consequences.
Other super reforms
The other reforms announced as part of the Your Future, Your Super package include:
- YourSuper portal – the ATO has been tasked to develop systems for new employees to select from table of MySuper products.
- Stapled super accounts – existing super accounts will be “stapled” to the member to avoid the creation of new accounts if the person changes employment. From 1 July 2021, employers will no longer automatically create a new super account in their default fund for new employees when they do not choose a super fund. Employers will instead obtain information via the ATO online services about an employee’s existing super fund that is stapled to the employee.
- MySuper benchmarking – APRA will benchmark test the investment performance of MySuper products. If products underperform over 2 consecutive annual tests they will be prohibited from receiving new members until they can show an improvement.
Thomson Reuters – Budget webinar
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