Explanatory Memorandum
(Circulated by the authority of the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)Chapter 6 - Fee charging rules for MySuper products
Outline of chapter
6.1 This chapter outlines the rules for the charging of fees to members of a MySuper product.
Summary
6.2 If an RSE licensee charges a fee to members of a MySuper product, it may only do so under one of the fee charging rules.
6.3 The fee charging rules apply to each of the fees that are permitted to be charged in relation to a MySuper product, explained in Chapter 5 of this Explanatory Memorandum.
6.4 The fee charging rules will prohibit an RSE licensee from discriminating between members in relation to how they charge fees to members of a MySuper product. This does not mean that members will necessarily be charged the same fees in terms of dollars, but rather members must be charged fees on a consistent basis.
6.5 The three charging rules under which a fee can be charged in relation to a MySuper product are:
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- a flat fee to all members, whereby each member pays the same fee for the product or service; or
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- a percentage fee to all members, whereby each member is charged the same percentage of their account balance at a point in time for the service or product; or
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- a flat fee plus a percentage fee to all members, whereby each member of the MySuper product is charged the same flat fee and the same percentage of their account balance at a point in time for the service or product.
6.6 If an RSE licensee charges a permitted fee to members of a MySuper product, they must use the same charging rule for each member of that MySuper product.
6.7 A specific set of charging rules apply to the administration fee for employees of an employer that are members of the MySuper product if their employer has secured a discounted administration fee under the single employer exemption as described in paragraph 6.15. All other fees charged to these members are to be charged on a consistent basis.
6.8 An RSE licensee that offers a tailored MySuper product must comply with the fee charging rules for each member of that tailored MySuper product.
Detailed explanation of new law
6.9 The intention of the new fee charging rules is to prevent RSE licensees from discriminating between members of a particular MySuper product in relation to the process by which they charge permitted fees.
6.10 If an RSE licensee elects to charge a permitted fee to members of a MySuper product, it must satisfy one of the charging rules. The three charging rules under which a fee can be charged in relation to a MySuper product are:
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- each member of a particular MySuper product is to be charged the same flat fee over the same period of time;
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- each member of a particular MySuper product is to be charged the same percentage of their account balance in relation to the MySuper product at a particular point in time, for a fee over the same period of time; and
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- each member of a particular MySuper product is to be charged the same flat fee plus the same percentage of their account balance that relates to the MySuper product at a particular point in time, for a fee over the same period of time. [Schedule 1, item 9, division 5, subsections 29VA(1)-(7)].
6.11 For any fee that applies to all members of the MySuper product, such as an administration fee or an investment fee, each member is to be charged the fee under the same charging rule. For example, if one member is charged a percentage of their account balance in relation to the MySuper product as an administration fee, then each member of the MySuper product should be charged the same percentage of their account balance in relation to the MySuper product at the same point in time. This is to avoid any discrimination on the process under which a member is charged a fee. [Schedule 1, item 9, division 5, subsections 29VA(1)-(4)].
6.12 RSE licensees that offer a MySuper product with a lifecycle investment strategy will be required to charge all members the same investment fee, regardless of which stage of the lifecycle they belong to.
6.13 If an RSE licensee elects to charge a member-specific fee, such as a buy-sell spread, switching fee, exit fee or an activity fee, each member to which that fee relates must be charged the fee under the same charging rule. For example, if one member is charged a flat fee in relation to switching between two different investment options, then each other member who switches between different investment options should be charged the same flat fee. [Schedule 1, item 9, division 5, subsections 29VA(5)-(7)].
6.14 If an RSE licensees charges a percentage based fee for a buy-sell spread, switching fee, exit fee or activity fee, then the percentage fee must apply to that part of a member's account to which the relevant action is taken action. For example, should a member wish to transfer half of their account balance from a MySuper product to a choice product, the RSE licensee will be permitted to charge a fixed percentage fee on that half of the member's account being transferred. [Schedule 1, item 9, division 5, subsections 29VA(5)-(7)].
Single Employer Exemption for Administration Fee
6.15 RSE licensees will be able to offer to employers an arrangement that secures a discounted administration fee for their employees in relation to a generic MySuper product. This will allow RSE licensee to pass on the lower costs from any administrative efficiency of dealing with an employer to the employees of that employer. RSE licensees will not be permitted to provide discounts to employers in relation to any of the other permitted fee types within a MySuper product. [Schedule 1, item 9, division 5, section 29VB].
6.16 Any RSE licensee that offers a discounted administration fee will be required to adhere to one of the charging rules. No employee is to be given preference over another employee who is a member of the MySuper product under these charging rules. The three permitted charging rules in relation to administration fees for employees whose employer has negotiated a discounted administration fee are:
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- each employee that holds an interest in a particular MySuper product, whose employer has secured a discounted administration fee in that product, must be charged the same flat administration fee;
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- each employee that holds an interest in a particular MySuper product, whose employer has secured a discounted administration fee in that product, must be charged the same percentage of their account balance in relation to the MySuper product at a particular point in time, in relation to the administration fee; and
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- each employee that holds an interest in a particular MySuper product, whose employer has secured a discounted administration fee in that product, must be charged the same flat fee plus the same percentage of their account balance that relates to the MySuper product for the administration fee. [Schedule 1, item 9, division 5, subsections 29VB(2)-(4)].
6.17 Employees of employers that contribute to a tailored MySuper product are not entitled to any further administration fee discounts under this exemption. A tailored MySuper product is established for a single large employer who will be the only employer sponsor for that MySuper product, so by definition, there is no capacity to provide a discount to the administration fee as there are no other employer sponsors within the MySuper product. As no member of this product is to be given preference under the charging rules, it would not be possible to provide an administration fee discount to any subgroup of members within that MySuper product.
6.18 A contravention of the charging rules outlined in this chapter is a breach of a standard condition of an RSE licence under section 29E of the SIS Act. If an RSE licensee fails to comply with a licence condition, APRA may issue a direction to comply. Failure to comply with a direction may result in the cancellation of the RSE licence (under section 29G of the SIS Act) or prosecution for an offence (under section 29JB of the SIS Act). APRA may also cancel the authority to offer the MySuper product. [Schedule 1, item 9, division 4, paragraph 29U(2)(d)].
6.19 It is intended that later tranches of legislation will outline additional parameters with which an RSE licensee must comply in order to offer an employer an arrangement that secures a discounted administration fee for the employees of that employer.
Application and transitional provisions
6.20 These provisions commence on 1 January 2013.
6.21 However, an RSE licensee will only be authorised to offer a MySuper product from 1 July 2013 and must comply with the charging