On 4 April 2011, APRA released the following new SPGs affecting superannuation funds:
APRA issued drafts of these SPGs in September 2011 for comment by the industry. Our summary of the key issues in the drafts is set out in a previous alert, which you can read by clicking here.
In this alert, we summarise the main differences between the draft SPGs and the final versions.
The final versions of the SPGs take effect immediately.
SPG 270 replaces Superannuation Circular No. I.A.1 Contribution and Benefit Accrual Standards for Regulated Superannuation Funds, Update on classification of superannuation contributions, and information previously contained in Frequently Asked Questions – Clearing Houses.
It is possible that a trustee could be placed in a difficult position if the APRA guidance on contributions made in error conflicts with other guidance given by the ATO or its legal obligations.
APRA states that “a prudent trustee will ensure that all the fund’s policies and procedures for contributions processing are fully aligned”.
APRA expects the contribution processing systems of each fund it manages to be “sound” (rather than requiring trustees to ensure that they can determine the validity of any contribution received).
In addition to expecting trustees to develop policies and procedures for dealing with contributions received before a formal member application is received and processed, APRA also expects trustees to establish procedures to ensure any membership or contribution restrictions in the fund’s governing rules are complied with.
APRA has revised its guidance to state that the provisions in the SIS Regulations allowing a trustee to accept a contribution if it is satisfied that it relates to a previous period in which the fund may have accepted the contribution. It says that these provisions be used by the trustee to accept a late contribution only if:
APRA provides additional guidance about the need to document the risks of trustees operating a clearing house.
Where the clearing house is provided by an external service provider, trustees need to consider whether the outsourcing standard would apply:
SPG 280 replaces Superannuation Circular No. I.C.2 Payment Standards for Regulated Superannuation Funds, Superannuation Circular No. I.C.3 Payment Standards for Approved Deposit Funds, and additional advice, generally in the form of letters to industry, on illegal early release and portability relief applications (made under SIS Regulation 6.37).
APRA has modified the guidance about the measures trustees should take to deal with liquidity and cashflow issues in relation to the payment of pensions. Rather than expressly recommending that trustees invest at least three years’ worth of minimum pension payments in highly liquid assets, APRA now recommends that “sufficient assets are set aside to ensure payment of the pension for a minimum period”.
In more a difficult economic environment, it expects trustees to set aside sufficient assets to pay pensions for a longer period, such as three years, and for “the appropriate amount of assets to support the pension to always be invested in (defined) highly liquid investments to ensure adequate cashflow at all times”.
APRA states that it is good practice for trustees to have policies and procedures dealing with the payment of death benefits that ensure compliance with all requirements and also take into account practical concerns and the sensitive nature of such payments, and to consider issues of equity to beneficiaries when determining payments.
APRA has modified its guidance in relation to how trustees should deal with unit pricing errors that result in a reduction in member entitlements. It still provides that the compensation should be transferred to the former member’s current superannuation account.
Where the trustee cannot find a fund, the guidance now provides that where the shortfall is less than $200 and the former member had terminated gainful employment, or was a lost member who is now found, the trustee may pay the amount to the former member in cash. If a condition of release has not been met, the trustee may make an application to APRA for relief from the payment standards.
Trustees of superannuation funds.
Consider the guidance and make business changes as required.