Senate

Supplementary Explanatory Memorandum

(Circulated by authority of the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator the Hon Jane Hume)

Glossary

The following abbreviations and acronyms are used throughout this Explanatory Memorandum.

General outline and financial impact

Insurance for superannuation members (Schedule 1)

Amendments 1 and 5 to16 amend Schedule 1 to the Bill to delay the application of the insurance measures to 1 February 2020 and delay the obligation that a trustee notify potentially affected members until 1 December 2019.

Amendments 2 to 4 amend Schedule 1 to the Bill to allow trustees to provide opt out insurance to new members aged under 25 years and members with balances below $6,000 where the member is engaged in a dangerous occupation.

Date of effect: 1 February 2020.

Proposal announced: The amendments have not previously been announced.

Financial impact: The financial impact of the Amendments is estimated to be a cost of $55.1 million over four years to 2022-23.

Human rights implications: These Amendments do not raise any human rights issue.

Chapter 1 - Insurance for superannuation members (Schedule 1)

Outline of chapter

1.1 Amendments 1 and 5 to 16 amend Schedule 1 to the Bill to delay the commencement of the measure until 1 February 2020 and require that on 1 November 2019 trustees identify members who may be affected by the measure and notify these members by 1 December 2019.

1.2 Amendments 2 to 4 amend Schedule 1 to the Bill to allow trustees to provide opt out insurance to new members aged under 25 years and members with balances below $6,000 where the member is engaged in a dangerous occupation.

Detailed explanation of the amendments

1.3 The Bill prevents trustees from providing insurance on an opt out basis to members who are under 25 years and begin to hold a new superannuation account from commencement of the Bill.

1.4 The Bill also prevents trustees from providing insurance on an opt out basis to members whose superannuation balance has not been $6,000 or more since a particular date.

Delayed commencement

1.5 Amendments 1 and 5 to 16 amend Schedule 1 to the Bill to delay the application of the new insurance rules. Schedule 1 to the Bill is amended so that the Bill applies from 1 February 2020.

1.6 This means that insurance cannot be provided to a member who is under 25 years and begins to hold a choice or MySuper product on or after 1 February 2020.

1.7 As a result of the amendments a member who holds a product with a balance less than $6,000 on 1 February 2020, insurance must cease to be provided unless the balance has been at least $6,000 on or after 1 November 2019.

1.8 The requirement on a trustee to notify members who will be affected by the new rules applies from 1 November 2019. On 1 November 2019 the trustee must identify which members have a balance less than $6,000 and give these members a written notice by 1 December 2019 explaining the effect of the new insurance rules.

Dangerous occupation exemption

1.9 Amendments 2 to 4 amend Schedule 1 to the Bill to add a dangerous occupation exception to the list of exceptions when the trustee is able to continue to provide insurance on an opt out basis.

1.10 Amendment 4 amends Schedule 1 to the Bill to insert section 68AAF to provide that the dangerous occupation exception applies to a member where:

•

the member is employed in a dangerous occupation;

•

it is reasonable to expect that the contributions paid into the product will be for the member's employment in that occupation; and

•

the trustee or trustees of the superannuation fund have notified APRA in writing that the exception will apply to the product and the election is in force.

1.11 The exception also applies to an emergency services worker as defined for the purposes of the Work Health and Safety Act 2011. This is a broad list of emergency service worker and includes a member of the police force or service; a member of the fire service; or a member of an ambulance service.

1.12 The dangerous occupation exception recognises that certain occupations carry a higher degree of risk which provides a basis for retaining the current opt out insurance settings for members employed in these occupations.

Dangerous occupations

1.13 Amendment 4 amends Schedule 1 to the Bill to insert subsection 68AAF(2) to set out how a trustee can elect to apply the dangerous occupation exception to its members.

1.14 A trustee may elect that members are covered by the dangerous occupation exemption if those members are employed in an occupation specified in the election and a Fellow of the Institute of Actuaries of Australia has certified that based on rates of death, or death and total permanent disability the occupation is in the riskiest quintile of occupations in Australia.

1.15 A Fellow of the Institute of Actuaries of Australia would make this certification with regard to data from the most recent 5 years. Data which may be considered could include fatality data published by Safe Work Australia, claims history by occupation data and underwriting data held by insurers.

Reasonable expectation of contribution payments

1.16 A reasonable expectation that contributions will be paid into a product in respect of a member's employment in a dangerous occupation must be more than the mere possibility of a contribution payment for such employment. A trustee should be satisfied that such contributions will be paid, within a reasonable period of time.

1.17 Given that superannuation guarantee contributions are required to be made quarterly and allowing for extenuating circumstances, a period of six months from when the member starts to hold a product would be considered a reasonable period.

1.18 The requirement for a connection between prospective contributions and the occupation allows better targeting of the exception to insurance provided on an opt out basis through the superannuation fund for that occupation.

Example 1.1

The trustee of SuperAus receives a new member form from Lachlan who is employed as a police officer, which is a dangerous occupation.

While the trustee of SuperAus has not received a contribution in respect of Lachlan when it receives the new member form, it has reason to expect it will receive a contribution within the next quarter, as that is when Lachlan's employer's superannuation guarantee is due.

Therefore, it is reasonable for the trustee of SuperAus to expect that the contributions to be paid into the product will be for Lachlan's employment as a police officer.

Example 1.2

Angus is 23 years old and is a roof plumber.

Angus commenced this job in February 2020. Orange Fund receives contributions in respect of this job and provides Angus with insurance on an opt out basis under the dangerous occupation exception based on the trustee's election which has been certified by an actuary.

Angus starts a second job as a part-time bartender, which is not a dangerous occupation. Purple Fund receives contributions in respect of this job, is aware of Angus' other employment as a roof plumber and his other fund, and has encouraged Angus to consolidate his superannuation accounts, but Angus has not done so.

Simply knowing that Angus may make a contribution to Purple Fund in respect of a dangerous occupation is not sufficient to establish a reasonable expectation that contributions for the dangerous occupation will be paid into the product. Therefore, Purple Fund would not be able to provide Angus insurance on an opt out basis under the dangerous occupation exception.

1.19 Trustees may have regard to the occupation that is notified by the member or member's employer upon joining the fund. However, the amendment to the Bill does not place an obligation on an employer to provide information about an employee's occupation.

Trustee electing to apply the exception

1.20 Amendment 4 inserts subsections 68AAF(3), 68AAF(4) and 68AAF(5) into Schedule 1 to the Bill to set out the process for making the election and notifying APRA.

1.21 An election to apply the dangerous occupation exemption must be made in writing and a copy must be published on the trustee's website and given to APRA.

1.22 The election is in force for a choice or MySuper product from the day the trustee or trustees give the election to APRA until the day the trustee or trustees notify APRA in writing that the election is withdrawn.

1.23 Trustees are prevented from providing insurance on an opt out basis to members employed in dangerous occupations that start to hold a product on or after the date of the fund's withdrawal of the exception if the members are aged under 25 years or have an account balance of less than $6,000.

1.24 The notification to withdraw does not affect members that are already provided insurance on an opt out basis under the dangerous occupation exception, because the assessment of whether the exception applies to them is made at the point when they start to hold the product.

1.25 The exception continues to apply to those members until they reach the age of 25 and their account balance is or exceeds $6,000 when sections 68AAB and 68AAC will no longer apply to the member.

1.26 In circumstances where a fund withdraws its election, a prudent trustee would notify members, who would continue to be provided with opt out insurance under the dangerous occupation exception, of the withdrawal.

1.27 This notice would make these members aware that the trustee has changed the way insurance is provided going forward and encourage the members to consider their insurance needs.

Example 1.3

On 1 May 2020, DangerSuper notifies APRA it is electing to use the dangerous occupation exception to provide opt out insurance to new members employed in dangerous occupations aged under 25 or with balances under $6,000 who begin to hold a TopChoice choice product on or after that date.

On 1 January 2022, DangerSuper notifies APRA that it withdraws the election to use the exception.

All the members who joined the fund before 1 January 2022, who are employed in dangerous occupations and who are under 25 or have balances below $6,000 will continue to receive opt out insurance.

DangerSuper sends a notification to members who are under 25 or with balances below $6,000 to notify them that the fund has changed its approach to members employed in dangerous occupations, and that although the change does not affect them they should consider if the insurance offered by the fund is appropriate for their circumstances.

New members under 25 years old or members with balances under $6,000, that start to hold a MySuper or choice product from 1 January 2022 will be provided insurance on an opt in basis only regardless of their occupation.

1.28 Amendment 4 amends Schedule 1 to the Bill to place a requirement on a trustee who elects to apply the dangerous occupation exemption to notify members. The trustee has 28 days from when the exemption applies to the member, to notify the member that insurance will be provided, the cost of the insurance and how the member could opt out.

1.29 The covenants in the Superannuation Industry (Supervision) Act 1993 require a trustee to exercise the trustee's duties and powers in the best interest of members. The trustee must consider this requirement when electing to use the dangerous occupation exception, including the impact on affected members and the members as a whole.

1.30 In particular, consistent with existing subsection 52(7) of the Superannuation Industry (Supervision) Act 1993 when deciding to apply the dangerous occupation exemption, a trustee has an obligation to consider the cost of acquiring or offering insurance on all members and ensuring that the cost of the insurance does not inappropriately erode the retirement income of beneficiaries.

Correction to the Explanatory Memorandum

1.31 Example 1.3 in the Explanatory Memorandum to the Bill is replaced with the following:

In 2017, Fletcher sought personal financial advice. As a result, Fletcher now has a single product, to which he is making ongoing contributions. He has a balance of $4,000 and he holds individually underwritten insurance within his superannuation given his unusual personal circumstances.

The trustee of Fletcher's fund is satisfied that Fletcher has actively chosen to take out insurance in his superannuation account, as the insurance in the account was not offered on automatic acceptance terms, nor could he be defaulted into the product.

As a result, Fletcher's fund maintains his insurance cover after 1 October 2019 despite his superannuation savings having a balance of less than $6,000.

Chapter 2 - Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Treasury Laws Amendment (Putting Members' Interests First) Bill 2019

2.1 The Amendments to the Bill are compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

2.2 The Amendments to the Bill amend Schedule 1 to the Bill to allow trustees to provide opt out insurance to new members aged under 25 years and new members with balances below $6,000 where the member is engaged in a dangerous occupation;

Human rights implications

2.3 These Amendments are compatible with human rights as they do not raise any human rights issues.

Conclusion

2.4 These Amendments are compatible with human rights as they do not raise any human rights issues.