In brief
The Federal Government has released an exposure draft of new superannuation legislation and associated regulations, which refine the current rules on portfolio holdings disclosure and product dashboards for superannuation funds. The changes in the portfolio holdings disclosure area particularly (including the extended start date of 31 December 2016) are likely to be welcomed by many and, we think, do a fairly good job of achieving what the Government says they have – ie to 'provide a balance between improving member outcomes and minimising compliance costs for the superannuation industry'. Partner Geoff Sanders and Associate Georgia Cleeve report.
Portfolio holdings disclosure
Superannuation fund trustees (and their downstream investments) will be breathing a sigh of relief at seeing the government's long-awaited revised approach to portfolio holdings disclosure.
Most importantly, the Superannuation Legislation Amendment (Transparency Measures) Bill 2015 (the Bill) proposes winding back the extent of the 'look through' exercise that needs to be undertaken so that disclosure no longer needs to extend to 'assets derived from assets' of the superannuation fund and only needs to go as far as the first investment in a non-associated entity by the fund itself or by its associated entities. That is, only the details of investments in those non-associated entities need to be disclosed and not details of the investments held by those non-associated entities.
This saves funds from having to go through the potentially onerous task of negotiating existing investment documentation to seek rights to obtain the portfolio holdings information from the non-associated entities that they have invested in. It should also mean that the very real risk of superannuation funds potentially being refused entry into some private equity and hedge fund products because of the commercial disadvantage of those funds having their investments (and corresponding values) displayed publicly, is avoided.
As is currently the case in the legislation, sufficient information to identify the relevant assets will need to be made available on a super fund's website no later than 90 days after each reporting day (ie each 30 June and 31 December), as will the value of those assets as at the end of the relevant reporting day.
Interestingly, the Government has also proposed allowing a fund to choose not to make the required disclosures about 5 per cent of its assets, with the fund being able to choose which 5 per cent, at its complete discretion. While this will no doubt be a welcome concession for funds wanting to protect information about some of their more sensitive investments, it is quite a blunt tool for doing it. We are likely to see a lot of wrangling by investment entities who want to be in that 5 per cent and we query whether a more nuanced measure (eg allowing a fund not to disclose an asset's nature or value where there is a legitimate commercial reason), may have been more helpful here, even though it may lead to slightly different approaches across the industry.
Given the pared-down nature of the portfolio holdings disclosure rules, the supporting rules (eg requiring investment managers to provide super funds with the information they need to disclose and the associated penalties) are also to be removed.
Yesterday's package also included the Regulations, which provide quite a lot of detail about how portfolio holdings information needs to be organised and published (down to which headings need to be in bold). The key point is that funds will need to disclose, in table form, the following information for relevant assets:
- number for, and investment level of, each financial product or property allocated to the investment option;
- name of that product or property;
- number of units held in that product or property;
- number of units held in any final product or property;
- price per unit; and
- total invested.
An example of the required format of the portfolio holdings disclosure has also been provided.
Proposed start date: 31 December 2016 (ie disclosure relating to 31 December 2016 needs to occur by the end of March 2017).
Superannuation product dashboards
The key changes to the product dashboard rules are really to fine-tune the framework around how the rules apply for choice products, but there are also some changes that will affect MySuper product dashboards.
Until this point, choice products have been (temporarily at least) exempt from the rules, given the difficulties in comparing vastly different products that don't have the degree of standardisation inherent in a MySuper product.
The Bill sets up (and proposes changes to) the application of the product dashboard rules as follows:
- Choice product dashboards now only need to be provided for a fund's 10 largest choice investment options by funds under management (with some exclusions) rather than all choice products. For the purposes of working out a fund's largest choice investment options, a lifecycle option should be treated as one option.
- Although a choice lifecycle option should be treated as one option for the purposes of identifying its size, a separate product dashboard is required for each lifecycle stage in the option (and this applies to both MySuper and choice lifecycle options).
- Eligible rollover funds and pooled superannuation funds are specifically excluded from the product dashboard rules.
The Regulations released yesterday then propose some changes to the content of product dashboards. They replace the current detailed rules on what needs to be included in product dashboards for MySuper products and have been extended to apply to those choice investment options for which product dashboards are required.
While broadly the same dashboard content that is currently required for MySuper products is to be required for choice and MySuper products in future, the Regulations provide more prescriptive instructions about how the dashboards should look. There are also a few new requirements including that, under all the information you would expect to see in a product dashboard (eg return target, actual return, fees and costs), a super fund needs to provide an 'interactive superannuation estimator' (about which ASIC will provide yet more instructions later on).
Proposed start date: 1 July 2016.
Concluding remarks
While the proposed changes relating to product dashboards are more or less as expected, the changes to the portfolio holdings disclosure requirements may be more of a surprise (and a pleasant one at that). However, those with any concerns about the new Bill and Regulations will have until 20 January 2016 to comment on the drafts.