My Super

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20 April 2010www.SuperSystemReview.gov.au

Second Phase One Preliminary Report

REVIEW INTO THE GOVERNANCE,EFFICIENCY, STRUCTURE AND OPERATION OF

AUSTRALIAS SUPERANNUATION SYSTEM

MYSUPEROptimising Australian superannuation

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MySuper

OptimisingAustralian

superannuation

SecondPhaseOnePreliminaryReport

20April2010

www.SuperSystemReview.gov.au

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CommonwealthofAustralia2010

ISBN9780642745934

Thisworkiscopyright. ApartfromanyuseaspermittedundertheCopyrightAct1968,nopartmaybereproducedbyanyprocesswithoutpriorwrittenpermissionfromtheCommonwealth.

Requestsandinquiriesconcerningreproductionandrightsshouldbeaddressedto:

CommonwealthCopyrightAdministration

AttorneyGeneral'sDepartment

35NationalCircuit

BARTONACT2600

Orpostedat:

http://www.ag.gov.au/cca

Internet:

ThispublicationandotherrelatedinformationabouttheSuperSystemReviewisavailableat:

www.supersystemreview.gov.au

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MySuperOptimisingAustraliansuperannuation

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TABLEOFCONTENTS

1 IMPORTANTNOTE 12 MYSUPER 13 WHATISTHEPURPOSEOFTHEMYSUPERPROPOSAL? 24 QUALIFYINGASAMYSUPERPRODUCT 75 MOVINGINANDOUTOFMYSUPER 106 INSURANCEINMYSUPER 117 DEATHBENEFITNOMINATIONS 128 QUESTIONSANDANSWERS 12

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1 IMPORTANTNOTEMySuperformsonlyoneelementofthechoicearchitectureproposedbythePanel. The

Panelisstillfinalisingitsviewsonotherelementswithinthearchitecture,butitisprobable

thatanumber

of

the

changes

proposed

to

apply

to

MySuper

such

as

the

prohibitions

on

contributionfees(seeparagraph4.2.6)andtrailingcommissions(seeparagraph4.2.7)and

therequirementtorenewadvicearrangementsevery12months(seeparagraph4.2.7)will

alsoberecommendedtoapplyinothersuperannuationsectors,includingtoSMSFs. The

Panelisconcernednottocreateregulatoryimbalancesoropportunitiesforarbitrageonsuch

keyissues.

2 MYSUPERThePanelhasdecidedtorenametheuniversalpartofthechoicearchitecturemodel

outlinedin

its

14

December

2009

preliminary

report

as:

MySuper.

MySuperispredicatedonprovidingasimple,costeffectiveproductwithadiversified

portfolioofinvestmentsforthevastmajorityofAustralianworkers(showntobeabove

80percentofmembers)whoareinvestedinthedefaultoptionintheircurrentfund. A

significantportionofthesemembershavenotexercisedchoiceinbeingwheretheyare,but

therearesomememberswhohaveactivelychosenthedefaultinvestmentoptionastheir

investmentofchoice. ThePanelhaschosentoincludeboththesegroupsofmembersin

thescopeofMySuper.

MySupermaybeviewedasanewtypeofproduct,butitisreallyarefocusingonthe

principlethatoccupational/compulsorysuperannuationshouldworkwellforthosemembers

whoelect

not

to

exercise

choice

or

have

chosen

the

trustee

default

investment

option.

Choiceproductsremainasavitalcomponentofthesuperannuationsector,butare

excludedfromthespecificrulesproposedforMySuper.

MySuperisdesignedtocatertothelargenumberofAustralianswhowouldpreferto

delegatethetaskofdesigningandmaintaininganinvestmentstrategyfortheirsuperto

someoneelse. Insummary,itisaproduct1withasingle,diversifiedinvestmentstrategydesignedtosuitmembersasawhole. Itisavalueorientedsuperannuationoffering. The

PanelsSuperStreamproposalswillcomplementMySuper,furtherdrivingdownoverall

costs.2

ItwillbereadilyapparentthatMySuperissimilarinsomewaystothedefaultinvestment

optionsofferedbymanysuperannuationfundstoday. Indeed,MySuperhasbeendesigned

tositcomfortablywithintheexistingstructurescurrentlyofferedbymanysuperannuation

funds. However,somefeaturesofthedefaultoptionsofmanyfundsareinconsistentwith

MySuper.

Forthatreason,MySuperincludesarangeofadditionalregulatoryrequirementsthatare

designedtoensurethatthetrusteeistrulyaccountabletomembers,thatthetrusteeis

1 Technically,theproductcanbeeitheraseparatefundoranidentifiablepoolofassetswithinanexisting

superannuationfund.

2 SuperStreamPhaseTwoPreliminaryReportreleasedon22March2010,seewww.supersystemreview.gov.au.

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unfetteredinitspursuitofthebestinterestsofmembersandthatthecostsofdelivering

MySuperarecontained. Together,thesesafeguardsaredesignedtoemphasisethe

trusteeshipthatMySupermembersoughttoexpectfromtheirproductproviders. They

alsoensurethatmembersdonotinadvertentlypayforservicestheyeitherdonotwantor

donotknowabout.

Lastly,itisworthemphasisingthatMySuperhasnothingtodowithestablishingasinglenationaldefaultfundandthePanelisnotproposingtorecommendone.

3 WHATISTHEPURPOSEOFTHEMYSUPERPROPOSAL?3.1 Aproductforacoredemographic

MySuperproposesthattheAustraliansuperannuationsystemformallybuildina

superannuationproductthatrecognisesthatdirectengagementinsuperannuation

decisionmakingisnotapriorityforalargeproportionofthepopulation. MySuperdoesnot,

ofcourse,

depend

on

disengagement

it

also

works

for

members

who

choose

actively

to

participateinthisproduct.

Recentdatashowthattheaveragememberaccountbalanceacrossawiderangeofsuper

fundsisbelow$25,000.3 Infact,APRAdatashowthatretailandindustryfundaccountshad

balancesofanaverageof$18,400and$16,600,respectively,at30June2009. RiceWarner

estimatetheJune2008averagebalancepermember(notperaccount)at$32,895for

industryfunds,$46,710forretail,$100,302forpublicsectorand$133,492forcorporate

funds.4 Over80percentofmembersholdalltheirassetsinthedefaultstrategy.5

ThesefiguresremindusofacorememberdemographicforwhichtheAustralian

superannuation

system

should

be

able

to

cater

simply

and

efficiently.

It

is

particularly

at

thesememberaccountsizesthatthePanelfindstheMySuperideacompelling;accountsizes

wherecostsandinefficienciescanmakearealimpactonwhetheramemberhasa

comfortableretirement. Butevenasthesystemmatures,andaccountbalancesgrow,the

Australiansuperannuationsystemshouldbeabletoensurethereisavalueformoney,

simpleandeffectiveproductformembers.

ThePanelrecognisesthatofferingasimplesuperannuationproducthasbecomeincreasingly

difficultinthechoiceenvironment. ThePanelbelievesthattheprovisionofchoicewithin

superannuationisnowanentrenchedfeatureoftheAustraliansystem. Itgivesparticipants

theabilitytotailortheirsuperannuationstrategiestotheirneeds,subjecttoadequate

safeguards. However,thePanelalsorecognisesthattheadministrativeandregulatory

infrastructurerequired

to

provide

choice

can

be

expensive.

The

Panel

is

concerned

that,

withrelativelyfewexceptions,thesuperannuationsystemseemstobemovinginthe

directionofgreatercomplexityandhighercostsatatimewhenfundsoughttobebenefitting

fromtheeconomiesofscalederivedfromincreasingsize.

3 SuperRatings2009SRAllFundMedianaveragememberaccountbalancewas$24,855.

4

RiceWarner

Actuaries,

Superannuation

Fees

Report

2008.

5 SuperRatingsbenchmarkreportfortheReview. APRAdoesnotcurrentlycollectdataonthenumberof

accountsindefaultoptions.

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3.2 LeveragingoffawellknownexistingproductGenerallyspeaking,existingdefaultinvestmentoptionshavedeliveredgoodoutcomesfor

members. ThePanelseestheMySuperproposalasbasedinandaroundtheexistingwidely

offeredandwellunderstooddefaultinvestmentoptions. MySupermerelyaimstofocus

moresharplytrusteesattentiononthetypesofmemberadvantagesaffordedbythose

options.

However,MySuperisnotjustforpeoplewhoaredisengaged. Withthelowercostsand

traditionaltrusteeobligations,thePanelbelievesthatmanyengagedinvestorswillchoose

activelytohavetheirsuperannuationinMySuper. ThePanelhasinminddifferentdutiesfor

thetrusteesofchoicefundsoutsideMySuper,butisstillrefiningitsthinkingontheprecise

scopeofthoseduties. Itisalsoquitelikelythatcertainfeaturesthataredevelopedfor

MySuperarethenrecommendedforapplicationinthechoiceandselfmanagedsectors.

TheMySuperproposalintendsthattherebeasimplesuperannuationproductavailablefor

members. Itwillbetreated,forsomepurposes,asseparatefromothertypesof

superannuationproducts,

and

operated

so

that

member

interests

are

transparently

paramountandtherewillbeafocusonoptimisingnetinvestmentreturnsandreducing

overallcosts. ThePanelbelievesthatbyimposingsomedegreeofhomogeneityonthe

product,pricecompetitionmightreasonablybeexpectedtoproducemorepositive

outcomesformembersandhelptrusteescontaincosts. Itwouldalsobeeasierforengaged

membersandtheiradviserstomakecomparisonsbetweenMySuperproductsofferedby

differentfunds.

3.3 MySuperstructureTheMySuperconceptseekstomakesupermoretransparentandcomparableforthebenefit

ofmembers,butnotnecessarilyseparatefromotheraspectsofthetrusteesoperations(for

example,other

investment

options).

For

example,

the

Panel

would

not

envisage

that

a

trusteewouldberequiredtoundertakeseparatemandatesforMySuperinvestmentsas

opposedtochoiceinvestments. ThePanelwantsfundstokeepthesynergiesavailablefrom

treatingMySuperandchoicemembersasasinglepoolforadministrationandinvestment

purposes,whereappropriate. Thiswouldallowfundstogetthebenefitsofeconomiesof

scaleandbulkpurchasingpower. Itwouldnotpreventfundsusingpooledvehicleseither.

Similarly,theproposalthatMySuperbeseparatelyaccountedforisatransparencyand

disclosuremeasure. Itdoesnotfollow,fromthePanelsperspective,thatthisdictatesany

necessaryphysicalseparationfromotherpoolsofassets. Ofcourse,atrusteewouldbefree

totreatMySuperasphysicallyseparateifitchose.

3.4 AccesstoMySuperproductsThePanelproposesthatonlyMySuperproductscouldbeadefaultforthepurposesofthe

SuperannuationGuarantee(Administration)Act1992(SGAct),eitherunderanawardorasnominatedbyanemployer.

Thatsaid,choiceremainsakeyconceptinthesuperannuationsystem. So,forthose

memberswhowanttoexercisechoiceoutsideMySuper,theycanhavetheircontributions

madeintononMySuperproductsthroughanactiveoptindecision. Employersandothers

willnotbepermittedtooptinonbehalfoftheiremployees,clientsetcetera.

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3.5 OpentoallprovidersItisacoreaimoftheMySuperproposaltoensurethattheexistingdefaultfundordefault

investmentoptioncanbemodifiedtoconformwithMySuperproductrequirementswith

minimaldisruptionandtransitioncost. ItisthereforenotthePanelsintentionthatMySuper

couldbeachievedonlythroughsettingupanewMySuperRSE.6

LegislationwouldaddresstheseparationofMySuperproductsfromothersuperannuation

productsinexistingRSEsintermsofgoverningrules,accounting,memberreporting

requirements,membertransitionandtrusteeobligations,inawaythatwouldminimise

disruptionandcost.

AnyofthecurrenttypesofRSEs(exceptpooledsuperannuationtrusts)wouldhavethescope

toofferMySuperproducts. ThePaneldoesnotseeanyreasonwhymembersofcurrent

defaultfundsordefaultinvestmentoptionsthatatrusteeflagsfortransformationintoa

MySuperproductshouldwishtomoveoutofsuchfundsbecauseofthetransformation.

3.6 SimplicityMySupermustbeconceptuallysimpletomembers,eveniftheunderlyingmechanicsare

complex. Thisisadifficultmattertoprescribe,butthePanelbelievesthatitwillbean

outcomeofallthevariouselementsoftheMySuperproposal.

3.7 DecisionmakingtorestwithtrusteeAtouchstoneofMySuperisthatitsmembersdefertothetrusteegenerallyinrelationtoall

aspectsoftheirsuperannuation. ThePanelbelievesthatofferinginvestmentchoicesin

MySuperwould,inessence,bedelegatingwhatsomeregardasthemostimportantactivity

ofthetrusteetomemberswhoaregenerallynotwellequippedtoperformthatactivityor

whohave

specifically

chosen

to

minimise

their

own

decision

making

by

adopting

the

MySuperproduct. ThePanelbelievesthatdecisionsaboutinvestmentstrategyinaMySuper

productcanbemoreefficientlyandappropriatelycarriedoutbythetrustee. However,the

corollaryofdelegatingresponsibilitytothetrusteeisthatthelevelofaccountabilityborneby

trusteesintheMySuperenvironmentwillbeenhanced.

3.8 InvestmentchoiceRetailfundstypicallyofferalargenumberofinvestmentoptions.7 TheMySuperconcept

challengesthismodelforthecoredemographicofmembersreferredtoabove. Offering

suchmembersdelegateddecisionmakinginrelationtoinvestmentchoicesbringsalongwith

itanumberofissuesanddifficulties,including:

(a) inadequatelevelsoffinancialliteracyandappreciationofrisk;(b) informationasymmetry; and(c) complexdisclosureneededtounderstandthechoices.

6 Registrablesuperannuationentity.

7 APRASuperannuationFundLevelProfilesandPerformanceCharacteristicsat30June2008. Themedianfor

the100retailfundswhichofferedchoiceandforwhichdatawasgivenwas33investmentoptions. The

averageof

179

investment

options

is

skewed

by

one

fund

that

offered

1,591

options

and

another

offering

2,432options. 40retailfundsreportedonlyoneinvestmentoption,anddatawasnotreportedfora

further18.

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ThePanelbelievesthatresponsibilityforsuchissuesshouldbeassumedonlybymembers

whohaveelectedactivelytobeinthechoicesectoroftheindustryarchitectureorinan

SMSF.

3.9 CostsThe

Panel

believes

that

MySuper,

along

with

its

other

proposals,

including

SuperStream,

will

induecourseleadtoareductionintheoverallcostscurrentlypaidbyordinarymembers.8

Detailedbackupforthiscontentionisintrainandinvolves:

(a) acomprehensiveanalysisofoverseasexamples;(b) analysisofawiderangeofAPRAandindustrydata;(c) datafromfundsthemselves; and(d) areportdated16April2010fromindependentconsultant,DeloitteActuaries&

ConsultantsLimited,

on

the

projected

total

operating

and

investment

costs

for

the

MySupermodel. AcopyofthereportisontheReviewswebsite

www.supersystemreview.gov.au.

TherewillbesavingalsoonadministrationexpensesthroughthePanelsSuperStream

proposalsandothersavingsonthebasisthattherewillbenobundledadvicecostsfor

MySuperproducts. Whilenotallthesavingsinadministrationexpenseswillnecessarilybe

passedontomembers,thePanelstillbelievesthattheoverallfeespaidbytheaverage

memberwillbelower.

BecauseofitssimplicityandthecentraldutyofthefundtrusteeinoverseeingaMySuper

product,

there

would

be

reduced

member

disclosure

obligations,

thereby

further

reducing

costs. Infact,MySuperwouldnotdependonnotionsofinformedchoiceanddisclosureand

hencetheindustryneednotberequiredtoprovideexpensivedisclosuretomembersinthe

formofproductdisclosurestatements. Instead,comprehensiveinformation,atavarietyof

levelsofdetail,wouldbeavailableonline. Thiswouldbesufficienttoenableengaged

memberswishingtoselectbetweenMySuperproductsofferedbydifferentfundstomakean

informeddecision.

3.10 OptimisingoverallcoststomembersThePaneldoesnotfavourmandatinganoverallfeecaporotherwiseregulatingthecostofa

MySuperproduct. ThePaneIdoes,however,havethedualaimofoptimisingthenet

investmentreturn

and

reducing

the

overall

cost

to

members.

ThePanelisoftheviewthatproposednewtrusteedutiestobeoverseenbyAPRA,along

withtheextratransparency,greatercomparabilityandincreasedcompetitioninherentinthe

proposalshoulddrivedowncostsandfeeschargedtomemberstoanacceptablelevel.

8

Deathinsurance

must

be

offered

in

MySuper

(and

TPD

and

income

protection

will

be

optional

for

the

trusteetooffer),butinkeepingwithindustrystandards,thecostofinsurancepremiumsisnottakeninto

accountinthisanalysis.

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3.11 EngagementCurrently,thereisarangeofapproachestoencouragingmemberstobemoreinvolvedwith

theirsuperannuation. Somefundsofferintrafundadvice. Othercommunicationsbyfunds

tomembersisclosertoadvertisingandislessobviouslyinmemberinterests. Somefunds

engagein

asubstantial

amount

of

outright

advertising.

The

Panel

believes

that

in

MySuper,

trusteesneedtobemorefocusedontheintentofengagementwithmembersandits

tangiblebenefittothem.

ItshouldbestressedherethatthePaneldoesnotintendtodenymembersaccessto

informationortoenforceacertainlevelofdisengagementinanefforttoreducecosts.

Instead,thePanelisseekingtomaketrusteesaccountableforoverallcoststomemberswith

theresultthatsomepracticescarriedoutinthenameofmemberengagementmightcome

undercloserscrutinybyAPRAorintermediarieswhoresearch,rateoradviseonfunds.

ThePanelenvisagesthatMySuperwillresultinagreatlyenhancedenvironmentforthose

memberswho

are

engaged

or

want

to

engage

with

their

superannuation,

arising

from

acombinationofthefollowing:

(a) thefactthathavinganintrafundadvicefacilitywillbecompulsory. AllMySupermemberswillhaveaccesstoinformationandadvicedirectfromtheirtrustee;

(b) esupermeasuresmentionedinparagraph4.2.2;(c) greatertransparencyimposedonfundsbyothermeasurestoberecommendedbythe

PaneloutsidetheMySuperproposals,includingfeecomparability,performance

measurementandmoreinformationaboutthefundsgenerally; and

(d) themandatoryprovisionofforecastsaboutlikelyretirementbenefitsmentionedatparagraph3.12below.

ThePanelbelievesthatthesemeasureswouldreducetheneedforother,lessrelevant,

engagementwithacorrespondingreductionincoststomembers. Thisisnottosaythatthe

Panelisopposedtoeffortstogetmemberstotakemoreresponsibilityfortheirretirement;

farfromit. Thepointisthattheseinitiativescostmoneyandtrusteesneedtobe

accountablefortheireffectiveness.

3.12 ForecastsofretirementbenefitsThePanelbelievesthatpossiblythebiggestengagementhurdleisgettingmembersto

understandwhethertheircurrentcontributionstrategyislikelytoprovidethemwithan

adequateincomeinretirement. Thisinvolvesthemultitieredchallengesoffocussingthem

onfutureevents,currentsavingshabitsandtheconversionoftheirlumpsumthinkinginto

replacementratethinking;whatproportionoftheircurrentincomewilltheyneedtoliveon

inretirement? Theclosestthingtoaddressingthesechallengesarethecurrentpolicyideas

embodiedinASICsConsultationPaper122:SuperannuationForecasts. ThePanelbelievestheseshouldbecomemandatoryforMySuperproducts,subjecttofurtherrefinementofthe

policyideasinASICsconsultationprocess.9

9 http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/CP122.pdf/$file/CP122.pdf.

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4 QUALIFYINGASAMYSUPERPRODUCTAMySuperproductwouldbeformallyestablishedbyintroducingsomehard(objective)

criteriatowhichanytrusteewouldhavetoconforminordertoqualifyaMySuperproduct.

Therewouldalsobesoft(subjective)principlesthatwouldapplytoMySuperproducts

addressingfinancial

performance,

reporting

and

disclosure.

A

MySuper

APRA

licence

would

berequiredandtrusteeswouldbelegallyobligedtomeetboththehardandsoftprinciples.

APRAwouldbeempoweredtoworkwiththetrusteetoresolveanynonconformitywiththe

principlesdependingonthecircumstances.

4.1 SoftprinciplestrusteedutiesTheSISActwouldbeamendedtoincludethreenewhighlevel,principlesbased,trustee

dutiesthatcouldnotbedilutedinthegoverningrules. Thesearesetoutbelow. Thesecond

andthirdduties(paragraphs4.1.2and4.1.3)aredirectedtowardsthetrusteefulfillingthe

firstduty.

4.1.1 OptimisinginvestmentperformanceandoverallcosttomembersThetrusteemustprovidememberswithanappropriatelydesignedinvestmentstrategyatan

overallcostaimedatoptimisingtheirfinancialbestinterests,asreflectedinthenet

investmentreturnoverthelongerterm. Thisdoesnotmeanthatatrusteemustprovidethe

lowestpossiblecostinvestmentstrategy. ThePanelrecognisestheimportanceofasset

allocationandthatsomeinvestmentstrategieswillbemorecostlytoprovidethanothers.

However,MySuperwillrequirethatatrusteehaveaclearandtransparentjustificationfor

boththeinvestmentstrategyitformulatesandtheoverallcostandnetreturntomembers.

4.1.2 Diversifiedassetallocation/singleinvestmentstrategyTrusteesmustseektooptimiseoutcomesforMySupermembers(withintheparametersof

MySuper)bydesigningasingleinvestmentstrategywithanappropriatelydiversified

allocationofgrowthanddefensiveassets(whichmaybe,butnotnecessarilybe,alifecycle

strategy),basedonamandatorysystemforexplaininginvestmentaims,volatilityandfeesto

members,withthedecisiononstrategyultimatelyrestingwiththetrustee.

ThePanelbelievesthattrusteesshoulddisclosethelevelofreturntargetedbytheir

investmentstrategy(forexample,[x]percentaboveinflation,usuallymeasuredbytheCPI)

overarolling[fiveyear]period,withanindicationofriskandvolatilitybeingprovidedby

referencetothelikelihoodofanegativereturnbeingposted,againusuallyonceevery

[y]yearsandthemaximumpotentiallossthatcouldbereasonablyexpected.

4.1.3 ScaleAtrusteemustformtheview,onanannualbasis,thatitsMySuperproducthassufficient

scaleonitsown(withrespecttobothassetsandnumberofmembers)toprovideoptimal

retirementsavingsforitsmembersormustpoolitsMySuperproductassetswiththe

MySuperproductsofothertrusteesormergeitsMySupermembersandoperationswith

otherfundstoreachtherequiredscale. Thewaythescaleconceptisadministeredwill,of

course,needtodealwithfundsindividualcircumstances,featuresparticulartocertain

occupationsandtoallowingcompetitionfromnewentrantstothemarket.

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4.2 HardcriteriaSetoutbelowarethehardcriteriawithwhichtrusteesofferingMySuperproductswould

havetocomply.

4.2.1Contributions

ThetrusteewouldhavetoacceptalltypesofcontributionsintoaMySuperproduct(except

wherepreventedbylaw).

4.2.2 EsuperMemberdisclosurerequirementsforMySuperproductswouldbeminimisedtoassistwith

costreduction,althoughcomprehensiveinformationwouldbeavailableonline. Member

benefitstatementswouldcontinuetobesentoutastheycurrentlyare,includingbyemail,

becausethisisoneoffundsprimaryformsofengagementwithmembers. However,

MySupermemberscouldelecttohavememberaccountinformationavailabletothemonline

insteadof

in

hard

copy

(much

like

internet

banking).

Current

PDS

disclosure

could

be

replacedbysimpleonlinedisclosure,althoughtrusteeswouldbefreetochoosetocontinue

printingPDSsiftheywished.

4.2.3 Crosssubsidisation/quarantiningTherewillalwaysbesomedegreeofcostcrosssubsidisationbetweenmembersinany

pooledinvestment. However,thePanelbelievesthatthereshouldbenodirectorindirect

crosssubsidisationofcostsbetweenMySuperproductsandotherproductsofferedbyafund

trusteewhetherwithinthesameRSEornot. Thetrusteewouldberequiredtohaveaformal

policyonhowcostsareallocated. BreacheswouldberequiredtobereportedtoAPRA.

Tosupport

this

objective,

atrustee

offering

aMySuper

product

would

be

required

to

produceseparateauditedfinancialstatementsfortheMySuperproductasifittheproduct

wereastandaloneRSEforthepurposesofAAS25oritssuccessor.

4.2.4 PostretirementMySuperwouldnotjustcoveraccumulationtoretirement,butultimatelymustalsooffera

postretirementproduct,eitheronitsownorinconjunctionwithanotherprovider. The

PanelviewsMySuper,initsultimateform,asawholeoflifeproduct. Thiswillneedextensive

consultationanddevelopmentwithindustry,butisakeypartoftheMySuperconcept.

Optionsincludeproductsthatretainexposuretogrowthassetsafterretirement,annuity

productsand

other

longevity

risk

hedging

and

arange

of

account

based

pension

products.

4.2.5 BenchmarkingTrusteesofferingMySuperwillberequiredtoparticipateinapprovedbenchmarkingsurveys

thatwillmeasuretheirrelativeefficiencyagainstpeersinanumberofkeyareas(for

example,administrationcostspermember,servicestandards).

4.2.6 Fees(a) Contributionfees

Therewould

be

no

entry

(contribution)

fees

charged

for

aMySuper

product,

including

onrollovers. Exitfeescouldonlybechargedonacostrecoverybasis.

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(b) Buyandsellspreads

BuyandsellspreadschargedtoMySupermemberswouldhavetobecloselylinkedto

demonstrablecostsincurred(thatis,actualtransactioncostsininvesting

contributions)providedthattheyarepaidtothefundandnotthetrusteeinits

personalcapacity

or

to

any

other

party.

(c) Switchingfees

FeespayableonswitchingwithinthefundintooroutofaMySuperproduct,whether

chargeableonthefirstswitchinanygivenperiodoronlyafteracertainlimithasbeen

reached,areabletobechargedinMySuperprovidedthattheyarepaidtothefund(as

inthecaseofthebuyandsellspread)andnotthetrusteeinitspersonalcapacityorto

anyotherparty.

(d) Feeschedulesanddiscounts

Allfeeschedulesanddiscounts(ifany)aretobeexplicitandnotsubjecttonegotiation

orrebates.

(e) Performancebasedinvestmentmanagementfees

Noperformancebasedinvestmentmanagementfeescouldbepaidtoorbythe

trusteeunlesstheycomplywiththePerformanceFeeStandards(highlevelprinciples

whicharetobeseparatelyarticulatedbythePanelforconsultationwiththeindustry).

4.2.7 Advice(a)

No

bundled

advice

Personaladvice(exceptforintrafundadvice)couldnotbebundledwithMySuper

productsanditwouldbeuptomemberstorequestadvice. Memberswhowant

advicemusthaveaccessto:

(i) free,qualityinformationonthefundswebsite;and

(ii) intrafundadviceaboutMySuperalongthelinesofASICRG200:Advicetosuperfundmembers,thecostofwhichcaneitherbesharedacrosstheMySupermembership(likeanadministrationexpense)orchargedtothosewhousethe

service.

(b) Notrailingcommissionorongoingpayments

FeesforpersonalfinancialadvicesoughtbyMySupermembersoutsidetheintrafund

modelwouldbeonafeeforservicebasisnegotiatedbetweenthememberandthe

adviserandcouldnotinvolveanytrailingcommission(orothersimilarpaymentora

volumerebatepaidbyorbehalfofthetrustee). Ifthetrusteeallows,feesforadvice

aboutsuperannuationwouldbeabletobepaidfromthemembersaccount. Trustees

couldhaveanarrangementwithadviserstoprovidetheservicetoMySupermembers.

However,everyarrangementforpaymentforadvicewouldrequireexpressrenewal

bythe

MySuper

member

every

12

months

(that

is

an

opt

in

regime

for

advice

where

membersareincontrol).

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4.2.8 UnitpricingorcreditingratesThePanelisstilllookingatthequestionwhethertrusteesshoulduseunitpricingorapply

creditingratestoattributeavaluetotheinterestsofmembersinthefund. IfthePanel

decidestorecommendanychangetoexistingpolicyinthisarea,MySuperwouldnotbe

treateddifferentlyfromthechoicesector.

5 MOVINGINANDOUTOFMYSUPER5.1 Investmentchoice

ThereshouldbeveryfewbarrierstoaMySupermembermakinganinvestmentchoice

andsomovingsomeoralloftheirsuperoutoftheMySuperproductifthatiswhatthey

wanttodo. Anexceptiontothisiswherealicensedadvisermakesarecommendation;thisis

dealtwithseparatelyinparagraph5.5.

Ontheotherhand,itshouldnotbeeasyforatrusteetorecommendthisbecausethetrustee

wouldbeunderarangeofobligationsdirectedatthemembersbestfinancialinterestsin

MySuper. Obviously,thepurposeofMySuperwillbequicklydefeatediftrusteescaninduce

memberstoswitchtoproductswherethefeaturesaimedatbetteroutcomesformembers

(forexample,scale,costtransparency,simplicityandsoon)arenotpresent.

5.2 MovingbacktoMySuperAmembermightmakeachoiceinrelationtosomeoralloftheirMySuperandswitch,for

example,toacashinvestmentoption. Lateron,theymightdecidetoswitchbackto

MySuper. ThePanelseesthisoccurringinmuchthesamewayasitdoesnowwiththe

possibleexceptionthatitmightbedonewithlesspaperwork. ThemovebacktoMySuper

shouldinvolveevenlessadministrationandwouldnotcallforthememberbeingtreatedin

anywaydifferentlyfromotherMySupermembersmerelybecausetheyhadchosentobe

there.

5.3 BeinginboththeMySuperandChoicesegmentsItwillbepossibleforamembertohaveapartoftheirsuperannuationinaMySuperproduct

andtherestin,forexample,aninternationalequitiesinvestmentoptionofferedbythesame

RSEorinanotherfundaltogether.

5.4 EligiblerolloverfundsThePanelbelievesthatamembershouldonlybeabletobemovedoutofaMySuper

account,wheretheyhavenotmadeanactivechoice,iftheyaremovedtoaneligiblerollover

fund(ERF). AllERFswouldberequiredtooperateunderstandardsverysimilartothose

proposedforMySuper. UndertheSuperStreamproposals,ERFswillhavearangeofmore

memberfriendlyobligations. Also,theautoconsolidationproposalswillalsocatchalarge

proportionofsuchaccountsandconsolidatethemwiththememberslatestactiveaccount

(orotherinstructionnominatedbythemember). Thiswouldalsocoverthepracticeof

flippingmembersoutofcorporateplanswhentheyhaveceasedemployment.

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5.5 RecommendationsbylicensedadvisersThePanelbelievesthatrequirementsatleastasrobustasthoseinsection947Dofthe

CorporationsActarerequiredwhereanadviserrecommendsthatamemberswitchoutofa

MySuperproductintoanalternativesuperannuationproduct.

6 INSURANCEINMYSUPER6.1 CompulsoryinsuranceinMySuper

Deathinsurancewouldhavetobeofferedonanoptoutbasis10inMySuperproducts(andbe

abletobeincreasedabovethedefaultlevelofcoveratmemberelection). Ratherthanthere

beingaminimumspecifiedlevelofcover,thePanelbelievesthatthetrusteeisbestplacedto

judgewhatlevelofdeathcoversuitsitsmemberdemographic. However:

(a) membersshouldbeabletooptoutofanyinsuranceatanytime;(b) thetrusteeshoulddetermineanappropriateminimumdefaultandmaximumoptional

levelofcoverforitsmembers;and

(c) thepremiumwouldnotbeallowedtoincludeorfundasalescommissionorlikepaymentinconnectionwithanygroupinsurancearrangement(althoughatrustee

wouldbeabletopaybrokerageforservicesrenderedbyabrokeroragentonafeefor

servicebasis).

6.2 OptionalinsuranceinMySuperThePanelbelievesthattrusteesshouldhavetheoptionofofferingtwoothertypesofcover:

totalandpermanentdisability(TPD)andincomeprotection(salarycontinuation)insurance,

iftheybelievethatitisintheirmembersintereststodoso. Trusteeschoosingtodothis

wouldbesubjecttothesameconditionsasreferredtoinparagraph6.1.

6.3 OthertypesofinsuranceThePanelbelievesthatthereshouldbealimittotheextentthatinsurancethatisnot

directlyrelatedtobuildingretirementsavingsshouldbepaidforoutofamembers

superannuation. Therefore,atrusteewillnotbeabletooffertraumainsuranceandother

typesofcover. Thisisconsistentwiththesolepurposetestinanyevent.

6.4 RiskpoolConsistentwiththePanelsviewthatMySuperisaimedattransparencyofoutcomesandnot

physicalbarriers,itshouldbepossibleforMySupermemberstobeinthesamepoolasother

membersforthepurposesofpricingtheriskattachingtogrouplifeorothertypesof

insurance.

10 Thatis,coverwouldbeautomaticunlessthememberchosetooptout.

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7 DEATHBENEFITNOMINATIONSThePanelisproposingthatitshouldbeamatterforindividualfunds(intheirgoverning

rules)todecidehowtoapproachthesubjectofdeathbenefitnominations. Somelarge

fundscurrentlydonotofferanyformofnominationwhileotherschoosetooffereither

bindingor

non

binding

nominations.

Thereareanumberofpracticalissueswithdeathbenefitnominationsthatgobeyondthe

scopeoftheMySuperproposalandsoitisnotproposedtomakeaproposalforchangethat

isspecifictoMySuper. ThePanelspreliminaryrecommendationisthatifatrusteeoffersa

bindingnomination,thenitwouldbepreferableifitwereeffectiveforfiveyears(asopposed

tothecurrentthree)andwereinvalidatedbythesametypeofstandardlifeevents(for

example,remarriage)thatwouldinvalidateatestamentarydisposition. Itacknowledges

thatthischangewillrequiretheestablishmentofanationalstandardsettingoutprecisely

thoseeventsthatwouldvoidanotherwisebindingdeathbenefitnomination.

8 QUESTIONSANDANSWERS8.1 WhatisMySuperexactly?

MySupercontemplatesasingle,diversifiedinvestmentstrategydesignedtosuitmembersas

awhole,inwhichcostsandliabilitiesbetweenMySuperandchoicesegmentsofafundare

equitablydetermined. Thereisanemphasisonlowcosts,butnotattheexpenseof

investmentreturns. Theproductisintendedtobemoretransparent,slightlymore

homogenousbecauseofthecriteriaoutlinedinthispaperandhencemorecomparable.

MySuperseekstoidentifyapoolofassetsthatisrequiredtobeseparatelyaccountedfor,

butdoesnotnecessarilydemandthattheybephysicallyseparate.

ThestartingpointforMySuperisthedefaultinvestmentoptionanddefaultinsuranceoption

inexistingdefaultfundsforSGActpurposes. Thetrusteemustthendecidewhetheritwants

toqualifythedefaultoptionasaMySuperproduct. Trusteeswillneedtoassesshowclosely

theirexistingdefaultoffering(forexample,investmentandotherfeatures)istotheMySuper

model. Quiteanumberoftrusteeswillfindthattheircurrentdefaultofferingiscloseto

meetingtheMySupercriteriaalready. Thisisnotanunintendedresult. ThePanelhadthe

existingshapeofmanyfundofferingsinmindwhenconceivingMySuper.

8.2 CanadefaultfundhavemorethanoneMySuperproduct?IndividualmemberscannotbeofferedmorethanoneMySuperproductandtheycanonlybe

defaultedintoasingleMySuperproduct,notarangeofthem. Choicescanbemadeoutside

theMySuperenvironment.

Generally,therewillbeonlyoneMySuperproductineachRSE. However,therewillbe

situationswhereatrusteehasmultipledistinctlybrandedproductswithinasingleRSE,andin

thosecircumstancesoneMySupermaybepermittedundereachbrandname. Theprinciple

hereisthattheywouldnotbeabletopresentanindividualmemberwithchoicebetween

differentMySuperproducts.

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TherewillbesituationswhereamastertrusthasmultipleMySupersubfundsreflectingthe

factthatitisservingarangeofdifferentemployers. Anemployeeofanyparticularemployer

could,however,onlybeofferedtheoneMySuperproduct. ThePanelisconsidering

whether,insomestructures,thesameMySuperproductcouldbeofferedatdifferentprice

pointsreflectingdifferencesinthescaleofemployerparticipation.8.3 Canatrusteeofferanotheroptioninthedefaultfund,ratherthanjust

MySuper?

MySuperwouldreplacedefaultsaltogether,soitsnotaquestionoftherebeinganother

optioninthedefaultMySuperisthedefaultandtheindustrycanceaseusingtheterm

default. IfaproductisnotMySuperoraneligiblerolloverfund,itisinthechoice

environmentwhichwouldcontinueoperatingverymuchasitcurrentlydoesandcanbein

thesameRSEasMySuper.

8.4 CanatrusteeofferadditionalservicestomembersinMySuper?ThePanelhasnotyetcometoaviewonwhetheradditionalservicescanbeofferedin

MySuper. ThePanelisconcernedthatofferingsuchadditionalservicesmightincreasecosts

toMySupermembers,inmanycaseswithoutacorrespondingbenefit.

8.5 Whatabouttransitioncostsandimplementationdifficulties?ThePanelisobviouslyinterestedinexploringwaystoreduceanytransitioncostsand

implementationdifficulties,butstressesthattheMySuperproposalrevolvesaround

recalibratinganexistingproduct,notcreatinganewone. ThePanelhassoughtfeedback

fromtrustees,administratorsandotherserviceprovidersduringaroundtableprocessabout

whatwouldbeinvolvedinatransitiontoMySuperandwhatissuesmightariseandhastaken

thatintoaccountinpublishingtheseproposals.

8.6 Willfundshavetodisposeofinvestmentportfolios?Notunlesstheychooseto. TheMySupermodelimposescertaindutiesontrusteesto

developanappropriatesingleinvestmentstrategyinordertooptimiseinvestment

performanceandmanageoverallcoststomembers. Therewillbeaconsiderableleadtime

beforeMySupercomesintooperationandthetrusteeofanexistingdefaultofferingshould

beabletotransitiontothenewenvironmentrelativelyseamlessly,provideditispreparedto

complywiththeMySupercriteria.

8.7 HowdoexistingcorporatefundsfitintotheMySupermodel?DefinedcontributioncorporatefundsmustofferaMySuperproductiftheywanttobethe

employersdefaultforSGActpurposes.

8.8 HowdodefinedbenefitfundsfitintotheMySupermodel?PuredefinedbenefitplanswouldautomaticallybedefaultfundsforSGandawardpurposes

inrespectofthedefinedbenefitprovidedtomembers. Thisisbecauseinvestmentand

administrationcostsarenotpassedontomembers,butareinsteadultimatelybornebythe

employer. DefinedbenefitsareprotectedinawaybroadlyconsistentwithaMySuper

product.

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My Super

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