Superannuation Industry (Supervision) Act 1993

PART 6 - PROVISIONS RELATING TO GOVERNING RULES OF SUPERANNUATION ENTITIES  

SECTION 52   COVENANTS TO BE INCLUDED IN GOVERNING RULES - REGISTRABLE SUPERANNUATION ENTITIES  

Governing rules taken to contain covenants

52(1)    
If the governing rules of a registrable superannuation entity do not contain covenants to the effect of the covenants set out in this section, those governing rules are taken to contain covenants to that effect.

Note:

There are civil and criminal consequences for contravening a covenant: see sections 54B , 54C , 55 and 202 . Civil consequences may arise from an act or omission resulting in a contravention of a covenant regardless of whether or not the act or omission was intentional. Criminal consequences under section 202 require proof of dishonesty or intention in relation to a contravention of a covenant.

General covenants

52(2)    

The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to act honestly in all matters concerning the entity;

(b)    to exercise, in relation to all matters affecting the entity, the same degree of care, skill and diligence as a prudent superannuation trustee would exercise in relation to an entity of which it is trustee and on behalf of the beneficiaries of which it makes investments;

(c)    

to perform the trustee ' s duties and exercise the trustee ' s powers in the best financial interests of the beneficiaries;

(d)    where there is a conflict between the duties of the trustee to the beneficiaries, or the interests of the beneficiaries, and the duties of the trustee to any other person or the interests of the trustee or an associate of the trustee:

(i) to give priority to the duties to and interests of the beneficiaries over the duties to and interests of other persons; and

(ii) to ensure that the duties to the beneficiaries are met despite the conflict; and

(iii) to ensure that the interests of the beneficiaries are not adversely affected by the conflict; and

(iv) to comply with the prudential standards in relation to conflicts;

(e)    to act fairly in dealing with classes of beneficiaries within the entity;

(f)    to act fairly in dealing with beneficiaries within a class;

(g)    to keep the money and other assets of the entity separate from any money and assets, respectively:

(i) that are held by the trustee personally; or

(ii) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the entity;

(h)    not to enter into any contract, or do anything else, that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee ' s functions and powers;

(i)    if there are any reserves of the entity - to formulate, review regularly and give effect to a strategy for their prudential management, consistent with the entity ' s investment strategies and its capacity to discharge its liabilities (whether actual or contingent) as and when they fall due;

(j)    to allow a beneficiary of the entity access to any prescribed information or any prescribed documents.

Superannuation trustee

52(3)    
In paragraph (2)(b) , a superannuation trustee is a person whose profession, business or employment is or includes acting as a trustee of a superannuation entity and investing money on behalf of beneficiaries of the superannuation entity.

Payments to third parties must be in best financial interests of beneficiaries

52(3A)    

To avoid doubt, the obligations of the trustee under paragraph (2)(c) apply in respect of payments to a third party by, or on behalf of, the entity.

Obligations to beneficiaries override obligations under certain other Acts

52(4)    
The obligations of the trustee under paragraph (2)(d) override any conflicting obligations an executive officer or employee of the trustee has under:

(a)    Part 2D.1 of the Corporations Act 2001 ; or

(b)    

Subdivision A of Division 3 of Part 2-2 of the Public Governance, Performance and Accountability Act 2013 (which deals with general duties of officials) or any rules made for the purposes of that Subdivision.

Trustee not prevented from engaging or authorising persons to act on trustee ' s behalf

52(5)    
A covenant referred to in paragraph (2)(h) does not prevent the trustee from engaging or authorising persons to do acts or things on behalf of the trustee.

Investment covenants

52(6)    
The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to formulate, review regularly and give effect to an investment strategy for the whole of the entity, and for each investment option offered by the trustee in the entity, having regard to:

(i) the risk involved in making, holding and realising, and the likely return from, the investments covered by the strategy, having regard to the trustee ' s objectives in relation to the strategy and to the expected cash flow requirements in relation to the entity; and

(ii) the composition of the investments covered by the strategy, including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification; and

(iii) the liquidity of the investments covered by the strategy, having regard to the expected cash flow requirements in relation to the entity; and

(iv) whether reliable valuation information is available in relation to the investments covered by the strategy; and

(v) the ability of the entity to discharge its existing and prospective liabilities; and

(vi) the expected tax consequences for the entity in relation to the investments covered by the strategy; and

(vii) the costs that might be incurred by the entity in relation to the investments covered by the strategy; and

(viii) any other relevant matters;

(b)    to exercise due diligence in developing, offering and reviewing regularly each investment option;

(c)    to ensure the investment options offered to each beneficiary allow adequate diversification.

Insurance covenants

52(7)    
The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to formulate, review regularly and give effect to an insurance strategy for the benefit of beneficiaries of the entity that includes provisions addressing each of the following matters:

(i) the kinds of insurance that are to be offered to, or acquired for the benefit of, beneficiaries;

(ii) the level, or levels, of insurance cover to be offered to, or acquired for the benefit of, beneficiaries;

(iii) the basis for the decision to offer or acquire insurance of those kinds, with cover at that level or levels, having regard to the demographic composition of the beneficiaries of the entity;

(iv) the method by which the insurer is, or the insurers are, to be determined;

(b)    to consider the cost to all beneficiaries of offering or acquiring insurance of a particular kind, or at a particular level;

(c)    to only offer or acquire insurance of a particular kind, or at a particular level, if the cost of the insurance does not inappropriately erode the retirement income of beneficiaries;

(d)    to do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary, if the claim has a reasonable prospect of success.

Covenants relating to risk

52(8)    
The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to formulate, review regularly and give effect to a risk management strategy that relates to:

(i) the activities, or proposed activities, of the trustee, to the extent that they are relevant to the exercise of the trustee ' s powers, or the performance of the trustee ' s duties and functions, as trustee of the entity; and

(ii) the risks that arise in operating the entity;

(b)    to maintain and manage in accordance with the prudential standards financial resources (whether capital of the trustee, a reserve of the entity or both) to cover the operational risk that relates to the entity.

Retirement income covenants

52(8A)    
The covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to formulate, review regularly and give effect to a retirement income strategy that meets the requirements in section 52AA ;

(b)    to take reasonable steps to gather the information necessary to inform the formulation and review of the strategy;

(c)    to record the strategy in writing;

(d)    to record in the document in which the strategy is recorded:

(i) each determination made by the trustee for the purposes of the strategy, and the reasons for the determination; and

(ii) each other decision made by the trustee in formulating, reviewing or giving effect to the strategy that the trustee considers to be significant, and the reasons for the decision; and

(iii) the steps taken to gather the information that informed the formulation of the strategy, and the reasons for taking those steps;

(e)    to make a summary of the strategy publicly available on the website of the entity.

52(8B)    
Subsection (8A) does not apply if the entity is a regulated superannuation fund, and the only benefits it provides to, or in respect of, its members are any of the following:

(a)    death benefit;

(b)    permanent incapacity benefit;

(c)    a benefit provided if, and only if, a member is suffering temporary incapacity (within the meaning of the superannuation data and payment standards).

Covenants relating to regulated superannuation funds - annual outcomes assessments

52(9)    

If the entity is a regulated superannuation fund (other than a regulated superannuation fund with no more than 6 members), the covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    

to determine, in writing, on an annual basis, for each MySuper product and choice product offered by the entity, whether the financial interests of the beneficiaries of the entity who hold the product are being promoted by the trustee, having regard to:

(i) if the product is a MySuper product - a comparison of the MySuper product with other MySuper products offered by other regulated superannuation funds, based on the factors mentioned in subsection (10) , and a comparison of the MySuper product with any other benchmarks specified in regulations made for the purposes of this subparagraph; and

(ii) if the product is a choice product - a comparison of the choice product with the comparable choice products in relation to the choice product, based on factors mentioned in subsection (10A) , and a comparison of the choice product with any other benchmarks specified in regulations made for the purposes of this subparagraph; and

(iii) the factors mentioned in subsection (11) ; and

(iv) the latest determination (if any) made by APRA under subsection 60C(2) for the product;

(aa)    to determine, in writing, on an annual basis, whether each trustee of the entity is promoting the financial interests of the beneficiaries of the fund, as assessed against benchmarks specified in regulations made for the purposes of this paragraph;

(b)    to make the determination referred to in paragraph (a) , and a summary of the assessments and comparisons on which the determination is based, publicly available on the website of the entity;

(c)    to do so within 28 days after the determination is made;

(d)    to keep the determination, and the summary of the assessments and comparisons on which the determination is based, on the website until a new determination is made as referred to in paragraph (a) .

52(10)    

In comparing a MySuper product with other MySuper products, the trustees must compare each of the following:

(a)    the fees and costs that affect the return to the beneficiaries holding the MySuper products;

(b)    the return for the MySuper products (after the deduction of fees, costs and taxes);

(c)    the level of investment risk for the MySuper products;

(d)    any other matter set out in the prudential standards.

52(10A)    

In comparing a choice product with the comparable choice products in relation to the choice product, the trustees must compare each of the following:

(a)    the fees and costs that affect the return to the beneficiaries holding the choice products;

(b)    the return for the choice products;

(c)    the level of investment risk for the choice products;

(d)    any other matter specified in the prudential standards.

52(11)    

In determining whether the financial interests of the beneficiaries of the entity who hold a MySuper product or choice product are being promoted by the trustee, the trustee must assess each of the following:

(a)    whether the options, benefits and facilities offered under the product are appropriate to those beneficiaries;

(b)    whether the investment strategy for the product, including the level of investment risk and the return target, is appropriate to those beneficiaries;

(c)    whether the insurance strategy for the product is appropriate to those beneficiaries;

(d)    whether any insurance fees charged in relation to the product inappropriately erode the retirement income of those beneficiaries;

(e)    any other relevant matters, including any matters set out in the prudential standards.

Covenants relating to regulated superannuation funds - promoting financial interests of beneficiaries

52(12)    

If the entity is a regulated superannuation fund (other than a regulated superannuation fund with no more than 6 members), the covenants referred to in subsection (1) include a covenant by each trustee of the entity to promote the financial interests of the beneficiaries of the entity who hold a MySuper product or a choice product, in particular returns to those beneficiaries (after the deduction of fees, costs and taxes).

Covenants relating to regulated superannuation funds - MySuper products

52(13)    

If the entity is a regulated superannuation fund that offers a MySuper product, the covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to include in the investment strategy for the MySuper product the details of the trustee ' s determination of the matters mentioned in paragraph (9)(a) ;

(b)    to include in the investment strategy for the MySuper product, and update each year:

(i) the investment return target over a period of 10 years for the assets of the entity that are attributed to the MySuper product; and

(ii) the level of risk appropriate to the investment of those assets.

Covenants relating to regulated superannuation funds - failing annual performance assessments

52(14)    

If the entity is a regulated superannuation fund (other than a regulated superannuation fund with no more than 6 members), the covenants referred to in subsection (1) include the following covenants by each trustee of the entity:

(a)    to comply with subsection 60E(2) (notifying beneficiaries);

(b)    to comply with subsection 60F(2) (consequences of 2 consecutive fail assessments).