Notifying members about superannuation transfers without consent

The Corporations Act 2001 provides a framework for notifying members of superannuation funds about ‘material changes’ or ‘significant events’. Section 1017B imposes an ongoing obligation on issuers of financial products to notify the holders of a product about any material change to a matter or significant event that affects a matter. This is information that would have to be specified (or incorporated by reference) in a Product Disclosure Statement (PDS) or shorter PDS, if you prepared one on the day before the change or event occurred. For superannuation products, these events include the transfer of a member to a different category of membership or to a different fund: s1017B(5E).

In our view, any decision that fundamentally affects a member’s investment, including a decision to transfer a member’s benefit without their consent, is a change or event that must be disclosed.

For example, as a superannuation trustee, you must notify members when you decide to:

  • transfer member benefits into a successor fund under reg 6.29 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations)
  • transfer member benefits from one category to another within a fund (e.g. a member that was in an employer-sponsored division has left that employer and must be moved to another personal division of the same fund that is not linked to any particular employer), change the class of members affected by your eligible rollover fund (ERF) policy, or transfer member benefits to a different fund (s1017B(5E))
  • transfer the benefits of a particular class of members covered by your ERF policy to an ERF (see also reg 7.9.37(1)(q) of the Corporations Regulations 2001 (Corporations Regulations))
  • seek approval from the Australian Prudential Regulation Authority (APRA) to transfer benefits under Pt 18 of the Superannuation Industry (Supervision) Act 1993 (e.g. a merger of two superannuation funds), or
  • transfer a member’s ‘accrued default amount’ to a MySuper product under reg 9.46 of the SIS Regulations (see also Information Sheet 169 Notifying members about superannuation transfers: Accrued default amounts (MySuper transition) (INFO 169)).

When do I need to notify members?

You must notify members of material changes or significant events either before, or as soon as practicable (but no more than three months) after, your decision: see s1017B(5). In our view, ‘as soon as practicable’ means that you must be able to demonstrate that you have given the notice at the first reasonable opportunity.

When a decision is made to transfer member benefits, you must notify members as soon as practicable before the transfer of benefits takes place: see, for example, s1017B(5A). This is because a fund member would reasonably expect to be informed of such an event before it occurs.

Although there are circumstances where you can notify members more than three months after making a decision, this option is unlikely to be available to you when decisions relate to member transfers without consent.

Notifying members of a change or event before it occurs enables members to make an informed decision about whether to exercise their portability rights to transfer or roll over benefits under choice of superannuation. Delayed notice of such a change or event would, in our view, be adverse to a member’s interests, and members would be expected to be concerned about the delay in receiving such information: see s1017B(6).

You must notify members of material changes or significant events at various times relating to the change or event, as set out in the table below.

Table 1: Time for giving notice of a material change or significant event

Nature of change or event Time for giving notice
1 Change or event is not an increase in fees or charges Before the change or event occurs, or as soon as practicable after the change or event occurs (not more than three months after)
2 Change is an increase in fees or charges 30 days before the change takes effect

We expect these to be minimum requirements for providing significant event notices, and expect you can provide additional disclosures to members, depending on the circumstances of the impending change or event.

Delaying making an ‘official’ decision will not give you more time to notify members about changes you have been actively working towards. The existence of an official decision does not determine whether there has been an actual decision (which is a material change or significant event) that requires disclosure. Whether there has been a material change or significant event will depend on all the circumstances (e.g. if you are taking the steps necessary to plan for and implement member transfers, this is a change or event that must be disclosed to members).

What about information already given in the PDS?

Your ongoing obligation to disclose material changes and significant events is additional to the PDS disclosure obligations. This means that, if information about a matter would have to be included in a PDS or shorter PDS, if you prepared one on the day before the change or event occurred, then members must be notified: see s1017B(1) and (1A).

This is the case even if a PDS that has been provided to the affected members describes what would or might occur if such a change or event took place.

What information do I need to give?

You must give members information that reasonably enables them to understand the nature and effect of the change or event: see s1017B(4). Disclosure that does not explain the full scope of the change, such as the differences between the two funds or two categories within a fund, would not satisfy this requirement.

To help members understand the material changes or significant events affecting them, the information you provide could include:

  • informing the member about the Australian financial services (AFS) licensee’s intention to move their existing member account to a new specified product
  • informing the member about the implications of the change, including the impact on their benefit, insurance, fees and insurance premiums, investment options and any other consequences
  • providing the member with the opportunity to opt out of the transfer (if available) by advising the AFS licensee in a specified method
  • if an opt-out opportunity is not available, notifying the member about what other options are available, such as the ability to exercise a choice of superannuation fund, and
  • providing a copy of the PDS applying to the new product that the member will be transferred into.

Drip-feeding information about particular changes or individual events without explaining the consequences of the changes or events as a whole is not acceptable.

How should I notify members?

While sending notifications by mail may be suitable in all circumstances, you may choose to notify members electronically in some circumstances. Electronic disclosure is generally more cost-effective and may be used if it is appropriate in the circumstances and you can meet all the requirements for doing so: see also reg 7.9.75B of the Corporations Regulations and Regulatory Guide 221 Facilitating online financial services disclosures (RG 221).

 

The manner in which you choose to notify members must be appropriate in the circumstances, and you must ensure that it is effective. In deciding how to notify members, you should consider:

  • the type of information the notice contains, including whether it contains personal information, general information or both
  • whether members have online access behind a secure wall to their superannuation account, where a significant event notice containing personal information may be made available
  • whether you have a member’s current email address
  • whether you have a member’s current mailing address, and
  • the normal practice that you follow, which members are used to, for issuing significant event notices and other disclosure.

Where can I get more information?

This is Information Sheet 90 (INFO 90). Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.

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Last updated: 15/09/2016 11:16