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2019
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
TREASURY LAWS AMENDMENT (PUTTING MEMBERS' INTERESTS FIRST)
BILL 2019
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on behalf of the Government
(Circulated by authority of the
Assistant Minister for Superannuation, Financial Services and Financial Technology,
Senator the Hon Jane Hume)
Table of contents
Glossary................................................................................................. 1
General outline and financial impact ...................................................... 3
Chapter 1 Insurance for superannuation members
(Schedule 1) ................................................................ 5
Chapter 2 Statement of Compatibility with Human Rights .......... 11
Glossary
The following abbreviations and acronyms are used throughout this
Explanatory Memorandum.
Abbreviation Definition
APRA Australian Prudential Regulation Authority
Bill Treasury Laws Amendment (Putting
Members' Interests First) Bill 2019
1
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.
3
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
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Treasury Laws Amendment (Putting Members' Interests First) Bill 2019
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
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Insurance for superannuation members (Schedule 1)
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
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Treasury Laws Amendment (Putting Members' Interests First) Bill 2019
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.
8
Insurance for superannuation members (Schedule 1)
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.
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Treasury Laws Amendment (Putting Members' Interests First) Bill 2019
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.
10
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.
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