The most important amendments for trustees and their directors are:
Contributions in relation to which no “election” has been made must be applied to a MySuper product from 1 January 2014.
The test proposed under Tranche 1 turned on whether the person had given an “election in writing that the contribution is to be paid into a specified choice product”. Tranche 4 will change this test, so that the question will turn on whether the person has given a “direction in writing that the contribution is to be invested under one or more specified investment options”.
This will narrow the circumstances in which trustees will be able to apply contributions to choice products.
The Bill provides that a provision in the governing rules of a fund which specifies a person from whom the trustee “may or must” acquire a service or in which the trustee “may or must” invest will be void.
The provision will apply to existing arrangements although the draft Explanatory Statement suggests that existing arrangements can remain on foot if they are in the best interests of members. It also says:
“if the costs of changing from the current service provider outweigh potential benefits to members then it is possible for trustees to conclude that the arrangement is in the best interests of members and no change would be required”.
However, as currently drafted, the provision might not only prevent a trustee appointing, or investing in, say, a related party, it might also remove the primary power to do so (the expression used is “may or must”).
The Trustee Obligations and Prudential Standards Act (Tranche 2) imposes new duties on trustee directors including to act in the best interests of beneficiaries. A member (and any other person) who suffers loss or damage because of a breach of a director’s duties is able to bring an action against the director for compensation. Many submissions were made to the Government about the significant liability exposure the legislation introduced for directors.
The Bill introduces a hurdle to any such action. A member (or any other person) will not be able to bring an action for breach of a director’s duty under the SIS Act without leave of the court. In deciding whether to grant leave, the court must take into account whether:
The provision is a welcome response to legitimate concerns raised by the industry.
The Bill provides APRA with the power to issue an infringement notice where a trustee breaches a specified provision of the SIS Act. These are reasonably limited and include offering a MySuper product without an authorisation and failing to attribute a contribution to a MySuper product. However, an infringement notice can be issued where the officer has “reasonable grounds to believe” that a person has breached a relevant provision. There may or may not have been a breach of the section. A trustee who receives an infringement notice can pay the amount specified in the notice and, if they do so, will be protected from further action by APRA. Alternatively, they can challenge the notice or do nothing.
The regime gives APRA significant power and raises the prospect of trustees paying fines rather than defending proceedings irrespective of whether they have breached the law.
Other amendments include:
Submissions are due by 2 November 2012.