EXPLANATORY STATEMENT

Select Legislative Instrument 2009 No. 52

Issued by authority of the Minister for Superannuation and Corporate Law

Corporations Act 2001

Corporations Amendment Regulations 2009 (No. 3)

The Corporations Act 2001 (the Act) and the Corporations Regulations 2001 (the Principal Regulations) provide for the regulation of corporations, financial markets, products and services, including in relation to licensing, conduct, financial product advice and disclosure. 

Subsection 1364(1) of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Subsection 1017D(5) of the Act specifies what must be included in a periodic statement for retail clients holding a financial product, including a superannuation product that has an investment component.  Paragraph 1017D(5)(g) provides that the regulations may prescribe details that are to be included in a periodic statement as appropriate to the respective financial product. 

The Principal Regulations currently set out the specific requirements of periodic statements for members of a superannuation fund (other than a self managed superannuation fund), the specific nature of information that is required to be disclosed and the ways of providing annual report information to members.

The purpose of the Amending Regulations is to amend the Principal Regulations to assist superannuation fund (other than self managed superannuation fund) members to engage with the long-term performance of their superannuation by requiring the disclosure of five- and ten-year average returns in periodic member statements.  The Amending Regulations also reduce the impediments to superannuation trustees providing a superannuation fund annual report to members via a website. 

The Amending Regulations address a concern that the disclosure of only recent negative periodic returns for superannuation products may lead to inappropriate responses by investors, for example a flight to cash or low-risk investments, with consequent lower longer term returns.  This type of response may be avoided if members are aware and able to engage effectively with the long-term nature of superannuation and the importance of a longer term perspective with respect to returns. 

The Amending Regulations:

•                require superannuation trustees (other than self managed superannuation fund trustees) to include a statement of long-term average returns of the investment options, sub-plan or the whole of the superannuation fund in the superannuation fund member’s periodic statement; 

•                provide specific requirements for the calculation, positioning and effectiveness of the disclosure of the long-term returns;

•                allow a more flexible approach for the disclosure of the long-term returns in the 2009-2010 reporting period by requiring trustees to provide only five-year figures and allowing for provision of the statement on an insert attached to the member’s periodic statement;

•                remove the requirement to provide a five-year return in superannuation funds’ annual reports; and

•                state that the trustee of a superannuation fund is able to provide the superannuation fund annual report to a member by electronic means, including by providing it on a website.  Appropriate notification requirements are included to ensure that members are informed about their options for receiving the annual report and have the opportunity to elect the option they like.

Details of the Amending Regulations are set out in the Attachment.

Under the Corporations Agreement 2002, the Commonwealth must consult with the Ministerial Council for Corporations before making amendments to certain provisions of the Principal Regulations.  The responsible Ministers of the States and Territories have been consulted about the Amending Regulations.

There has been targeted consultation on the Amending Regulations with industry representative organisations in the investment, financial services and superannuation sectors.  Concerns were expressed that many trustees would not be able to implement the new requirements in time for the 2009 reporting season.  It was considered essential that in the first year of operation the Amending Regulations provide funds with flexibility of how to implement the requirements.  It was also noted that reference must be made to disclosure of investment options in order for any new regulations to be appropriate to the modern superannuation industry.  These concerns were taken into account in the drafting of the Amending Regulations.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.  The Regulations commence on 1 July 2009.

ATTACHMENT

Details of the Corporations Amendment Regulations 2009 (No. 3)

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Corporations Amendment Regulations 2009 (No. 3).

Regulation 2 – Commencement

This regulation provides for the Regulations to commence on 1 July 2009.

Regulation 3 – Amendment of Corporations Regulations 2001

This regulation provides that the Corporations Regulations 2001 (the Principal Regulations) are amended as set out in the Schedule.

Schedule – Amendments

Item [1] – Paragraph 7.9.20(1)(m)

This item removes the full-stop and inserts a semi-colon to allow for the inclusion of a new requirement under subregulation 7.9.20(1).

Item [2] – After paragraph 7.9.20(1)(m)

This item inserts a new requirement on superannuation trustees (other than self managed superannuation trustees) to provide a statement of long-term returns in periodic member statements.  The statement is provided at the investment option level, sub-plan or whole of fund level.  Where it is provided at the investment option level, the requirement applies to all investment options that the member has invested in at the end of the reporting period or financial year.

The long-term return statement required under the Amending Regulations is not considered ‘relevant to the product’ under section 1017D(2) of the Corporations Act 2001 where the disclosure is provided in an exit statement provided on the death of the member. 

Item [3] – After regulation 7.9.20

This item introduces a set of specific requirements for the disclosure of the long-term return for each periodic member statement that is issued during the periods from 1 July 2009 to 30 June 2010 and from 1 July 2010.

For each periodic member statement that is issued during the period 1 July 2009 to 30 June 2010, the Amending Regulations provide that the long-term return statement is able to be provided either in the periodic member statement or on a separate document that is provided with the periodic member statement.  The Amending Regulations allow the statement of the long-term return to be made at the investment option level for all investment options that the member was invested in, or at the sub-plan or whole of fund level.

The long-term return statement required under the Amending Regulations is not considered ‘relevant to the product’ under section 1017D(5) of the Corporations Act 2001 where the disclosure is provided in an exit statement provided on the death of the member. 

For each periodic member statement that is issued during the period 1 July 2009 to 30 June 2010, the Amending Regulations require that the long-term average return requirement is satisfied where the trustee states the five-year average returns in the member’s periodic statement. 

Where a member exits his, her or its superannuation fund before the declaration of the final crediting rate, resulting in the trustee utilising an interim rate for the previous financial year, and a separate interim rate used for the financial year to the date of the return, the trustee is considered to be required to use the interim crediting rate for the previous financial years for the purpose of calculating and reporting the effective net earning of the previous five-year period.

For each periodic member statement that is issued during the period 1 July 2009 to 30 June 2010, the long‑term returns are required to be calculated for a five-year period in the same manner as previously calculated for inclusion in the annual report, as specified under the former subparagraph 7.9.37(1)(j)(ii) of the Principal Regulations.

For each periodic member statement that is issued during the period 1 July 2009 to 30 June 2010, it is expected that some funds will wish to provide an insert containing the long‑term returns of all the available investment options in the fund.  If this occurs, and the member has invested in an investment option or options, the periodic member statement is required to notify which investment options the member has invested in at the end of the reporting period.

For each periodic member statement that is issued during the period 1 July 2009 to 30 June 2010, if the trustee provides the long-term return statement on the member’s periodic statement, the trustee is required to include a statement that informs the member that the member’s personal long-term returns are not the same as the returns shown in the long-term return statement.

For each periodic member statement that is issued during the period 1 July 2009 to 30 June 2010, if the trustee provides the long-term return statement on an insert to the periodic statement, the trustee is required to include a statement that informs the member that the member’s personal long-term returns are not the same as the returns shown in the long-term return statement.  This statement is required to be provided on the periodic statement itself and on the insert that includes the long-term returns.  

The Amending Regulations also introduce a set of specific requirements for the disclosure of the long-term return for each periodic member statement that is issued from 1 July 2010.

For each periodic member statement that is issued from 1 July  2010, the Amending Regulations require the long-term return statement to be provided in the periodic member statement.  The Amending Regulations also require the trustee to provide a long-term return statement for the investment option/s that the member has invested in at the end of the reporting period.  The trustee is only able to provide a long-term return statement at the sub-plan or whole of fund level, if the member is not invested in any investment options at the end of reporting period.

The long-term return statement required under the Amending Regulations is not considered ‘relevant to the product’ under section 1017D(5) of the Corporations Act 2001 where the disclosure is provided in an exit statement provided on the death of the member. 

Where a member exits his, her or its superannuation fund before the declaration of the final crediting rate, resulting in the trustee utilising an interim rate for the previous financial year, and a separate interim rate used for the financial year to the date of the return, the trustee is considered to be required to use the interim crediting rate for the previous financial year for the purpose of calculating and reporting the effective net earning of the previous five- and ten-year period.

For each periodic member statement that is issued from 1 July 2010, the long‑term returns are required to be calculated for a five-year period in the same manner as previously calculated for inclusion in the annual report, as specified under the former subparagraph 7.9.37(1)(j)(ii) of the Principal Regulations.

For each periodic member statement that is issued from 1 July  2010, the Amending Regulations require the trustee to include a statement close to the statement of long‑term returns that informs the member that the member’s personal long‑term returns are not the same as the returns shown in the long-term return statement.  This provision requires that the trustee disclose that the long-term return is not necessarily reflective of the member’s return over the same period.  As an example, this could be due to the member moving into the investment option, sub-plan or fund at a time prior to the five- or ten-year period, or due to the member splitting their superannuation across more than one investment option.

The Amending Regulations also provide for where the fund, sub-plan or investment option have not been in operation for either the required five- or ten-year period to be reported on.  Where this occurs, the average return since inception must be included along with the date of inception.

The Amending Regulations require that if the long-term returns were provided within the periodic statement, they are required to be positioned close to the annual return, to facilitate comparison of the returns by the member. 

The Amending Regulations require that the disclosure of the long-term returns be clear, concise and effective.  The disclosure is considered to be clear, concise and effective where it is accurate, clearly stated and presented in a manner that attracts the member’s attention.  The long-term returns are expected to be given equal prominence to the information about the member’s 12 monthly returns.

The specific meaning of ‘clear, concise and effective’ varies according to how the information is provided.  For instance, from 1 July 2009 until 30 June 2010, the long‑term returns may be provided on an insert to a hard copy periodic statement.  In such a case, the insert may be expected to be marked, positioned or presented in a way that draws the members’ attention.  If the long-term returns are provided with, but not in, a periodic statement that is provided electronically, instructions on where the long‑term returns are located or how they can be accessed are expected to be provided and marked, positioned or presented in a way that draws the member’s attention.  

Item [4] – Paragraph 7.9.37(1)(j), including the note

This item removes paragraph 7.9.37(1)(j) which includes the requirement on trustees to disclose the five-year average superannuation return in the fund annual report.  The requirement to disclose the five-year average superannuation return in the fund annual report is no longer considered necessary as the return is provided in the periodic member statement.  The retention of this requirement creates unnecessary duplication and imposes an avoidable cost to industry. 

Item [5] – Subregulation 7.9.37(4)

This item removes the requirement for trustees to disclose the long-term return of the fund since inception where the fund was not in operation for the required five-year period.  This requirement only applied to the operation of paragraph 7.9.37(1)(j) removed by item 4.

Item [6] – After regulation 7.9.75B

This item allows superannuation trustees to discharge their obligation to provide each member with a copy of the fund’s annual report by electronic means.  This includes by making a copy of the report available on a website.  The website is required to be maintained by the trustee, or on his, her or its behalf.  The changes bring the annual report disclosure requirements for superannuation trustees into line with those of companies and managed investment schemes under section 314 of the Corporations Act 2001 (the Act). 

The Amending Regulations require the annual report to be readily accessible from a website. This is analogous to the annual report requirement under paragraph 314(1AA)(b) of the Act for companies and managed investment schemes.

The Amending Regulations require the trustee to notify each member that the annual report is available to be viewed on the website, and explain how the website can be accessed.  The trustee is also required to inform the member that the member can still be provided with a hard copy or electronic version of the annual report free of charge.  The Amending Regulations impose an obligation to notify superannuation fund members where a trustee is taking advantage of the ability to provide the annual report online for the first time.  A trustee is not able to rely on the fact that the annual report had been made available on a website before the Amending Regulations commenced.

All notification information is required to be provided in the one document.

If a member wishes to receive a hard copy or electronic version of the annual report, the trustee is required to oblige until the member notifies the trustee that this is no longer required.  This provision is analogous to section 314(1AC) of the Act that applies to companies and managed investment schemes.

If a member does not respond to the notification by electing to receive a hard copy or electronic copy of the annual report, the Amending Regulations require the trustee to notify the member that the annual report is available to view on the website and explain how the website can be accessed each financial year or reporting period.

The Amending Regulations allow for the notification to be included in any information or materials sent to the holder by the trustee.