11 Mar 2014

Trustees with a MySuper authority at risk of being locked out of the default superannuation market

Existing grandfather clauses in modern awards are being removed, so superannuation trustees risk losing access to award employees for MySuper offerings. Unless trustees successfully navigate the Fair Work Commission's review of default fund terms, they could be prevented from serving default fund employees who are covered by modern awards. The decision that two Expert Panel Members have potential conflicts will not cause any significant delays. The President of the Fair Work Commission appears set to reconstitute the Expert Panel.

Call to action

  • The Fair Work Commission will soon invite applications from trustees for the Default Superannuation List and the Schedule of Approved Employer MySuper Products.
  • Trustees should be preparing their applications now in anticipation of a relatively short time limit for making applications.

MySuper and default superannuation funds in modern awards

A trustee of a superannuation fund that holds a MySuper authority has been able to offer a MySuper product from 1 July 2013.

Under the current standard superannuation clause in most modern awards, unless an employee has chosen a superannuation fund, the employer must make contributions to a superannuation fund, or its successor fund, that is:

  • listed in the modern award; or
  • an eligible choice fund (under s 32D of the Superannuation Guarantee (Administration) Act 1992 (Cth)) to which the employer was making superannuation contributions for the benefit of its employees before 12 September 2008 (the grandfather clause).

Effective 1 January 2014, the Fair Work Commission made variations to modern awards to ensure that they only list superannuation funds that offer MySuper products.

Review of default fund terms     

The Fair Work Commission has to conduct a review of the default fund terms of modern awards every four years, starting as soon as practicable after 1 January 2014. The Fair Work Commission has been progressing this review swiftly. It has already received comments on its draft notices and draft forms for the review, and is expected to launch its two-stage review process very soon.

The first stage will start when the Fair Work Commission publishes a notice on its website that invites superannuation funds that offer a standard MySuper product to apply to have the product included on the Default Superannuation List. The notice must specify the period in which an application may be made. At this stage, it is not known how long that period will be, but there has been some stakeholder support for a six-week period.

If an application is made in time, the Fair Work Commission must make a determination about whether to include the product on the Default Superannuation List. For the purpose of making that determination, the Fair Work Commission must be constituted by an Expert Panel.

Justice Ross, President, has made a statement that he considered two of the Expert Panel Members have potential conflicts and should no longer deal with the matter. The Fair Work Act 2009 (Cth) contains a mechanism for reconstitution of an Expert Panel where a member becomes unavailable. We anticipate that, in the coming days, the President will direct a member of the expert panel for annual wage reviews to join the expert panel for assessing default superannuation funds so that it can continue with the review.

In the second stage, the Fair Work Commission must:

  • review the default fund term of each modern award;
  • remove the grandfather clauses (it can also make transitional arrangements); and
  • make a determination varying that term to remove every superannuation fund that is specified in the term and specify from two to 15 funds on the Default Superannuation List that satisfy the second stage test.

As part of its review, the Fair Work Commission must also make and publish the Schedule of Approved Employer MySuper Products. Trustees that wish to have an employer MySuper product included need to apply in the period specified by the Fair Work Commission in a notice inviting applications. This will also be a two-part process.

What superannuation trustees should be doing now to get their MySuper products listed

In our view, six weeks is a relatively short period of time for a trustee to prepare and lodge an application to have a MySuper product included in the Default Superannuation List. We recommend that a trustee act now to:

  • identify modern awards that currently list the trustee's superannuation fund;
  • identify other modern awards where the trustee considers that a MySuper product that it issues should be added;
  • start preparing information regarding why, having regard to the nine first stage criteria, it would be in the best interests of covered default fund employees (or a particular class of those employees) for the modern award to include a MySuper product issued by the trustee - this information needs to make the best available case for the product being included on the Default Superannuation List and be evidence based, in order to deter adverse submissions being made in relation to the application;
  • put a process in place to ensure that the trustee becomes aware when the Fair Work Commission invites applications; and
  • engage with employers, employees and organisations representing their industrial interests that might be prepared to make written submissions requesting that the trustee's MySuper product be specified in the default fund term of a modern award.

It seems to us that the Fair Work Commission's first review will be completed before any changes are made to the Fair Work Act based on submissions received in response to the discussion paper "Better regulation and governance, enhanced transparency and improved competition in superannuation".

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.