Frequently asked questions

MySuper

  • Superannuation
  • Current
    29 March 2016

MySuper and eligible rollover funds - frequently asked questions

Updated: 29 March 2016
These FAQs are published for discussion purposes only. The content of these FAQs is not legal advice. Users are encouraged to obtain professional advice about the application of any legislation or prudential standard to their particular circumstances. Users should exercise their own skill and care when relying on any material contained in the FAQs. APRA disclaims any liability for any loss or damage arising out of any use of or reliance on these FAQs. The FAQs may include links to external websites that are beyond APRA’s control. APRA accepts no responsibility for the accuracy, completeness or currency of the content of these FAQs.

MySuper - General and product features

Can there be different investment fees for lifecycle products across different stages of the lifecycle?

An RSE licensee can charge different investment fees for up to four age ranges of members with an interest in a lifecycle MySuper product. This does not prevent the RSE licensee from structuring the lifecycle strategy with more than four sets of asset allocation.

Will members who have a MySuper product, and a separate non-MySuper interest, in the same fund need to have two accounts with separate statements?

No, a single account can cover both MySuper and choice interests, just as it can cover both defined benefit and defined contribution interests.

What different arrangements for administration fees for employers will be allowed for authorised MySuper products?

Within a single MySuper product, administration fees can be varied in accordance with the administration fee exemption for employees of an employer-sponsor. This provides that a different administration fee can be charged in relation to employees of a contributing employer-sponsor or associate of that employer-sponsor and relatives or dependants of those employees. The administration fee in respect of those members must be charged on the same basis for the group. It must be no less than the cost of administration and operation of the fund in relation to that group of members.
For further information, see s. 29VB of the Superannuation Industry (Supervision) Act 1993.

Can a large-employer MySuper product be 'white-labelled' for another non-associated large-employer product?

No. A non-associated large employer will need to have its own authorised MySuper product or use a generic MySuper product.

How can an RSE licensee attest to scale when the MySuper product is a small option within the RSE, particularly during the transition period when accrued default amounts are yet to be transferred to the MySuper product?

RSE licensees that offer a MySuper product are required to determine, on an annual basis, whether members who hold a MySuper interest are disadvantaged by insufficient scale compared to members who hold a MySuper interest in other funds. This will require the RSE licensee to consider all aspects of the MySuper product, including the number of members and assets at both the MySuper product level and the fund level.
The RSE licensee should be satisfied that members are not disadvantaged over time in terms of the net returns from the MySuper product, irrespective of the size of the RSE.

Can RSE licensees choose not to provide death and total permanent disability insurance on an opt-out basis to certain categories of members?

Certain groups of members may be excluded from insurance cover on the basis of ‘reasonable conditions’. APRA would expect reasonable conditions to be based on the RSE licensee’s assessment of the availability and cost of third-party insurance cover, for example, in relation to age or pre-existing medical conditions. In APRA’s view, RSE licensees cannot choose to exclude broad categories of members, such as those who do not have a standard employer-sponsor, from being provided with death and TPD insurance on an opt-out basis unless they can demonstrate that third party insurance which includes the specified group is not available, or is not available at a reasonable cost.
In any assessment of reasonable conditions, the RSE licensee remains bound by its obligation to promote the financial interests of members with an interest in the MySuper product and its general covenants to perform its duties and exercise its powers in the best interests of the beneficiaries, and to act fairly in dealing with beneficiaries within each class of membership, including MySuper. The same obligations and considerations also apply when an RSE licensee is selecting and negotiating insurance.
For more information, see s. 68AA and paragraphs 2.14-2.22 of the Explanatory Memorandum to the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012.

If the investment strategy underlying a MySuper product is a lifecycle investment strategy, can a member choose to be in a particular stage of the lifecycle strategy?

No. If an RSE licensee offers a lifecycle investment strategy, the RSE licensee may vary the method of crediting investment returns to a member's account only on the basis of the member’s age (and other factors if prescribed, see s. 29TC(2) of the Superannuation Industry (Supervision) Act 1993). It will be a matter of fact which stage of the strategy a member is in at any point in time and therefore no member choice is permissible.

Can an exemption be granted from the payment of insurance premiums and fees for casual employees in MySuper?

The 'reasonable conditions' flexibility inherent in s.68AA ensures that an RSE licensee can have casual employees as members within their MySuper product but offer them no or different insurance as part of the RSE licensees' group life and TPD policies. This means there is no need for an exemption. The insurance fee is to be charged on a cost-recovery basis.
If casual employees are permitted to join the MySuper product with a differently structured insurance offering, they should be charged an insurance fee which meets the costs of that offering.

Under MySuper, switching fees can only be charged to the individual member that has requested a switch i.e. cost recovery. Can a switching fee be embedded in an administration fee?

RSE licensees are permitted to apply a switching fee on a cost recovery basis to the extent that the cost is not covered by the administration fee. The standard administration fee may, for example, allow for a limited number of switches, with any additional switches being charged on a cost-recovery basis.

As part of a MySuper application can an RSE licensee submit a board-approved, amended trust deed initially and provide a copy of the executed trust deed later?

At the time of lodgement, MySuper applications must include an up-to-date executed copy of the trust deed or governing rules. APRA does not necessarily expect that the RSE licensee can provide, in all cases, a consolidated deed, but the RSE licensee must provide an executed amending deed which effects the necessary changes to the trust deed. APRA may request a complete copy of the executed trust deed or governing rules if required. RSE licensees may choose to discuss draft amending deeds with APRA during consultation prior to lodgement.

Is attaching a copy of legal advice a sufficient statement under A5.1 of the MySuper application form?

No. Where an RSE licensee has received legal advice in regards to how the Trust Deed or Governing Rules comply with the requirement in s29TC(1), the RSE licensee should attach that legal opinion. However, APRA also expects the RSE licensee to set out its own understanding, in its own words, of how the Trust Deed or Governing Rules comply with the requirement in s29TC(1).

Question B2.5 of the MySuper application form states, 'for each relevant fee category identified at items B2.3 and B2.4, attach a description of the mechanism by which the RSE licensee will establish that the fees charged do not exceed cost recovery.' Question B2.3 includes the option of an advice fee, which can exceed cost recovery. How should question B2.5 be answered for advice fees?

Question B2.5 states 'for each relevant fee category'. Since an advice fee does not need to be limited to cost recovery, it is not a relevant fee category and does not need to be included in the response to question B2.5.

What are APRA's requirements in relation to changes in policies associated with a MySuper authorisation application? Are they required to be submitted to APRA when a change is made by the RSE licensee?

Until the authorisation process is complete, an applicant needs to comply with its attestation C2(c) in the application form that ‘it will notify APRA of any changes to the information contained in the application as soon as practicable.’

What categories of fees must, if imposed in a MySuper environment, be set at a level that is no greater than a cost recovery basis?

If an RSE licensee charges buy-sell spreads, switching fees, exit fees, activity fees and insurance fees in a MySuper environment, sections 99C and 29VC of the SIS Act require them to be charged at no more than a cost recovery basis. In other words, the amount charged to MySuper members for these fees must be no more than an amount that recovers the cost to the RSE licensee of providing the service.

How can an RSE licensee charge buy-sell spreads, switching fees, exit fees, activity fees and insurance fees on a cost recovery basis to MySuper members if the activity is performed by an outsourced provider and the charge to the RSE licensee in relation to the activity is embedded within an aggregate fee?

An RSE licensee using an outsourced provider must identify the component of the aggregate fee paid to the outsourced provider that relates to the specific activity. This would be expected to be based on calculations provided to the RSE licensee by the service provider. As a matter of sound practice, APRA expects that the relevant charge would be a separately identified cost when the relevant agreement is next negotiated.

Can an RSE licensee introduce buy-sell spreads, switching fees, exit fees, activity fees and insurance fees on a cost recovery basis to a MySuper product without a corresponding reduction to the administration and/or investment fee charged to members?

An RSE licensee is permitted to charge buy-sell spreads, switching fees, exit fees, activity fees and insurance fees at a rate no more than a cost recovery basis to MySuper members. These fees can only be charged if the cost is not covered by the administration fee and/or investment fee (subsections 29V(2) and (3)). If the relevant service is provided in-house or by a third party on a fee for service basis, the RSE licensee will be able to calculate the cost of provision, and set the fee accordingly.

Where a MySuper product offers a lifecycle strategy, can different buy-sell spreads be charged for each life stage?

No. Where an RSE licensee chooses to charge a buy-sell spread, the fee charged must apply to every member of the MySuper product. If this fee is charged as a percentage of a member’s account, the percentage charged must be the same for every other MySuper member, regardless of their stage in the lifecycle.
Charging a fee on a cost-recovery basis means that the total amount of the fee charged to all MySuper members should recoup the cost incurred by the RSE licensee for providing the services to which the fee relates.
It should be noted that an RSE licensee is not required to charge a buy-sell spread. Where a reasonable basis of applying cost recovery cannot be determined, an RSE licensee has the option of charging these costs via the administration or investment fee.

Must a performance-based fee charged by an investment manager form part of the ‘investment fee’ within a MySuper product or can it be excluded as an indirect cost of investment? Where an RSE licensee offers a lifecycle strategy with more than four age cohorts the inclusion of performance-based fees within the ‘investment fee’ could result in there being more than the permissible four cohorts for investment fees. (added 7 November 2014)

APRA considers that performance-based fees fall within the plain and natural meaning of an investment fee.
RSE licensees need to ensure that if they choose to use performance-based fees within a lifecycle strategy, they do not create more than the permissible four differentiated investment fees. Regardless of the number of age cohorts within a particular lifecycle strategy, RSE licensees are not permitted to charge more than four differentiated investment fees within a lifecycle based MySuper product.
Please also see ASIC’s Info Sheet 197 which explains ASIC’s expectations for estimating performance fees.

MySuper Insurance

Is APRA intending to issue guidance on the treatment of the insurance arrangements of members during the transition to MySuper?

The four-year transition period is designed, in part, to allow for sufficient time for RSE licensees to determine the best way to transition insurance arrangements (which can be very complex) and thereby ensure the best outcomes for members. APRA will be developing guidance on a range of topics and will consider whether additional guidance in this area is necessary.

Can an RSE licensee choose to use a different insurer for a particular employer plan (including MySuper members and choice members), without the use of a 29TB tailored MySuper product?

APRA considers that the use of different insurers is permitted by the legislation.

Can an RSE licensee stipulate that a member can have life and TPD cover, but cannot opt out of only life cover?

RSE licensees may require members who wish to make an election in accordance with s. 68AA(5) to opt out of both life and TPD insurance. However, there is nothing prohibiting an RSE licensee from offering an option to opt out of TPD only and retain life insurance, or to opt out of life only and retain TPD.

Can permanent incapacity insurance on an ‘own occupation’ basis be used to support the provision of permanent incapacity benefits to a MySuper member under s 68AA of the SIS Act?

Generally, yes. ‘Own occupation’ insurance covers a person who is unable to perform the functions of their own occupation, even if they are able to perform in other occupations for which they are reasonably qualified. Section 68AA (read with the definition of ‘permanent incapacity’ in section 10(1) and regulation 1.03C) requires the provision of permanent incapacity benefits on an ‘any occupation basis’ – that is, where the RSE licensee is reasonably satisfied that the member is unlikely to engage in gainful employment for which the member is reasonably qualified by education, training or experience. ’Own occupation’ insurance is therefore more generous than ‘any occupation’ insurance. If a member becomes permanently incapacitated on an ‘any occupation’ basis, they usually will also be unable to undertake their own occupation at the time of injury. Accordingly, they would ordinarily be entitled to a payout under the ‘own occupation’ policy, thus enabling the trustee to satisfy the obligation in s 68AA (in relation to MySuper members). However, where the member is only permanently incapacitated on an ‘own occupation’ basis, and is or will be capable of working in an occupation for which they have skills, training and experience, the ‘permanent incapacity’ condition of release will not be satisfied, and the benefits will not be able to be released from the fund on the basis of that condition. Note that SIS Regulation 4.07D requires the phasing out of ‘own occupation’ benefits, unless the member has had this coverage on a continuing basis since before 1 July 2014.

If the insurance policy includes additional benefits (e.g. benefits for loss of limb, even where this does not result in permanent incapacity on an ‘any occupation’ basis), can the policy be used to support the provision of permanent incapacity benefits to a MySuper member under s 68AA of the SIS Act?

Yes, the policy can be used to support the provision of permanent incapacity benefits to  MySuper member under s 68AA of the SIS Act, provided it also covers permanent incapacity. For example, a policy that provides for benefits upon (a) ‘any occupation’ permanent incapacity; or (b) loss of limbs; or (c) loss of cognitive function may be used to meet the requirement in s 68AA to provide ‘any occupation’ permanent incapacity benefits because of benefit (a), despite additional benefits (b) and (c) being available under the policy. However if the member becomes entitled to an additional benefit, but is or will be capable of working in an occupation for which they have skills, training and experience, the ‘permanent incapacity’ condition of release will not be satisfied, and the benefits will not be able to be released from the fund on the basis of that condition. Note that SIS Regulation 4.07D requires the phasing out of these kinds of additional benefits, except where the member has had this coverage on a continuing basis since before 1 July 2014.

If an insurance policy in respect of permanent incapacity provides for a waiting period (e.g. that in order to be considered for a permanent incapacity benefit, the MySuper member has to be unable to work for a qualifying period of X months), and this is reflected in the terms and conditions upon which the benefit is provided by the fund, will this be a ‘reasonable condition’ within the meaning of s 68AA of the SIS Act?

Generally yes, because the condition imposed by the fund (i.e. the waiting period) will be the same as the condition in the policy of insurance taken out to provide the benefit; as a result it will be a ‘reasonable condition’ under subsection 68AA(4). However, RSE licensees need to consider whether agreeing to such a policy is consistent with their general covenants and duties (see ss 29VN and 52) in particular whether the length of the waiting period is justified as ‘reasonable’.

Is it possible for an RSE licensee to satisfy s 68AA in respect of MySuper members by providing self-insured death or permanent incapacity benefits?

Yes, subject to SIS Regulation 4.07E (which generally requires that the self-insurance arrangements must (a) have been in place prior to 1 July 2013 and (b) be phased out by 1 July 2016 in respect of accumulation members) See paragraph 2.15 of the Explanatory Memorandum to the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012.

Where non-conforming insurance is grandfathered by SIS regulation4.07D, because the member was covered by the insurance prior to 1 July 2014 and continues to be so covered, can the amount of coverage be increased?

Yes. As noted in the Explanatory Statement to Superannuation Legislation Amendment Regulation 2013 (No 1), from 1 July 2014 the exemption under subregulation 4.07D(3) cannot be used to provide a member with a type of cover they did not have prior to 1 July 2014. However, a member can vary their level of cover from 1 July 2014. For example, subject to the governing rules, the cover could be increased or decreased, and associated premiums adjusted, after 1 July 2014.

If the member is covered by non-conforming insurance in fund A prior to and after 1 July 2014 on a continuing basis, and is successor fund transferred to fund B after 1 July 2014, will the non-conforming benefit continue to be grandfathered in fund B under regulation 4.07D?

As noted in the Explanatory Statement to Superannuation Legislation Amendment Regulation 2013 (No 1), the grandfathering still applies if the member is transferred to another fund under the successor fund transfer rules. The new fund will be able to offer the same insurance benefits as were available to the member in former fund.

Mysuper - Transition

Will defined benefit members need to have their default balance transferred to a MySuper product?

No, the Superannuation Industry (Supervision) Act 1993 does not require an RSE licensee to move any part of the balance of a defined benefit member to a MySuper product.

If an RSE licensee cannot find the paperwork to identify a choice balance, can they request that a member sign a retrospective instruction?

An RSE licensee needs to determine its own procedure for identifying an accrued default amount. Generally all amounts in the default investment option, other than amounts attributed to members who have some part of their interest attributed to another investment option, will meet the definition of an accrued default amount.

Suppose money of a member is invested in an option that was not the default option at the time it was invested, and at that time the member gave an instruction to invest it in the non-default option. Does the member have to give a further instruction, or otherwise confirm the original instruction, in order to avoid the money being treated as an ’accrued default amount’ that has to be moved to a MySuper product?

Nothing in the Stronger Super legislation requires a member who has already given an investment instruction to the RSE licensee to take any action whatsoever. Their instructions regarding investment choice remain binding, including where they were given to the RSE licensee of the member’s former fund which has undergone a successor fund transfer into the current fund.

Many defined benefit members have a voluntary accumulation account in addition to their defined benefit interest. Does any money in the default option for these voluntary accounts also need to go into a MySuper product?

No, any benefit of a member who holds a defined benefit interest is excluded from the definition of an accrued default amount and so does not need to be moved into a MySuper product.

MySuper - Accrued Default Amount

Currently, when a defined benefit member leaves their employer, the defined benefit lump sum benefit can default into another (accumulation) option. After 1 July 2013, will this money need to go into the MySuper option?

Yes. Unless the member has given direction to invest it into an investment option other than the default option, or the default option meets one of the exceptions specified in s. 20B(3) of SIS, the money will fall within the definition of an accrued default amount and will need to be placed into a MySuper product before 1 July 2017.

Can non-accrued default amounts be transferred into a MySuper product?

A member can choose to have amounts other than accrued default amounts transferred into a MySuper product within an RSE by member consent, subject to the governing rules of the fund. Amounts may also be transferred without member consent in accordance with the governing rules of the fund, provided there is appropriate disclosure to the member in advance.
Amounts other than accrued default amounts can only be transferred to another fund in accordance with the provisions of SIS Regulations r. 6.29.

Some RSEs have only one investment option under which all of its members' underlying assets are invested. How will these RSEs transition to MySuper?

For RSEs with only one investment option, that option is the default investment option. From 1 July 2013, accrued default amounts within the RSE must be transferred to a suitable MySuper product before 1 July 2017, unless the member opts out of the movement to a MySuper product and specifies the existing single option as their preferred investment option.
From 1 January 2014, unless the RSE licensee is authorised to offer a MySuper product, the RSE will not be able to receive default employer contributions. It will only be able to accept contributions from members who have chosen the RSE and nominated the single investment option as their preferred investment option.
The RSE will need to comply with all elements of Prudential Standard SPS 410 MySuper Transition.