Darryl Pereira | November 2012 | Insurance & Financial Services
The Government has released for comment the Exposure Draft of the Superannuation Legislation Amendment Regulation 2012 (draft regulations) relating to accrued default amounts, MySuper and insurance. The draft regulations contain key details regarding how insurance in superannuation can be offered from 1 July 2013. In a welcome development the draft regulations make provision for existing members to have their insurance grandfathered.
Who does this impact? Insurers and trustees of regulated superannuation funds.
What action should be taken? Insurers and trustees should consider how the draft regulations will impact on current insurance benefit designs. Steps should be taken to ensure that new members who join from 1 July 2013 are not able to access insurance benefits that are not consistent with the relevant conditions of release.
TurkAlert
Stronger Super Regulations What it means for Insurance
Background The draft regulations give effect to insurance within superannuation changes arising from the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012 (the third tranche bill).1 The proposed changes include that regulated superannuation funds will be prohibited from providing new members who join a fund from 1 July 2013 with externally insured benefits that do not satisfy the conditions of release in the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) for death, terminal medical condition, permanent incapacity and temporary incapacity. Significantly, under the draft regulations the proposed prohibition will not affect insurance arrangements that existed for members who joined a fund prior to 1 July 2013. The final version of prudential standard SPS 250 Insurance in Superannuation has also removed the requirement proposed in draft SPS 250 requiring RSE licensees to phase out non permitted insurance products. In the circumstances existing members insurance arrangements that were in place before 1 July 2013 will be allowed to continue. This resolves for trustees the dilemma on how to phase-out existing members insurance benefits that would no longer be permitted from 1 July 2013 without infringing their duties as a trustee.
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Key provisions Requirements for benefits in respect of death Regulation 9A of the Superannuation Guarantee (Administration) Regulations 1993 (SGA Regulations) sets out the minimum levels of death cover that funds are required to offer their members in order to comply with the choice of fund requirements. From 1 July 2013 for a MySuper member who does not opt out of death cover, Regulation 9A will be amended to require trustees to provide (rather than simply offering) death cover at the specified minimum levels. For a Choice member or a MySuper member who opts out of death cover or requests death cover at a lower level than provided in the SGA Regulations, the requirement is that death cover be offered at the specified minimum levels rather than actually provided.
Definition of Permanent Incapacity The existing definition of permanent incapacity in the SIS Regulations will apply for the purposes of the Superannuation Industry (Supervision) Act 1993. This will allow the existing definition of permanent incapacity to be used in defining the types of insured benefits RSE licensees must provide to meet the third tranche requirement of ensuring that the fund provide permanent incapacity cover to each MySuper member of the fund.
Operating Standard – self-insurance The draft regulations prescribe an operating standard under which self-insurance will not be permitted from 1 July 2013 for trustees of regulated funds that do not self-insure on 1 July 2013. For these trustees insurance benefits can only be provided to members if the provision of the benefit is covered by an insurance policy provided by an insurer. A trustee of a regulated superannuation that self-insures on 1 July 2013 has until 1 July 2016 to cease self-insuring subject to certain exceptions. Transitional arrangements will apply to ensure that members of these funds that were
entitled to benefits before 1 July 2016 will remain entitled to those benefits after 1 July 2016.
Operating Standard – permitted types of insurance The third tranche bill provided that operating standards would prescribe the kinds of benefits that must not be provided by taking out insurance. This operating standard was highly anticipated and is contained within the draft regulations. The proposed operating standard provides that a benefit must not be provided to new members after 1 July 2013 by taking out insurance if the benefit is “not consistent” with the conditions of release in Schedule 1 of the SIS Regulations for death, terminal medical condition, permanent incapacity and temporary incapacity. As a result certain existing benefits and definitions contained within group insurance contracts will not be permitted to be made available to new members from 1 July 2013.
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Stronger Super Regulations - What it means for Insurance Darryl Pereira | November 2012
For example an “own occupation” TPD definition or a partial disability benefit that provides benefits where a member remains gainfully employed will no longer be permissible under the proposed operating standard because they are not consistent with the relevant conditions of release.
Grandfathering of existing insurance arrangements Under the draft regulations the restrictions on the types of insured benefits that can be offered after 1 July 2013 will not apply to: (a) (b)
the continued provision of benefits to members who joined a fund before 1 July 2013; or the provision of benefits under an approval granted by APRA before 1 July 2013.
The restrictions set out in the operating standard on the types of insurance cover that can be provided within superannuation will therefore apply to new members who join a fund from 1 July 2013 and will not affect the existing insurance cover provided to members who joined a fund prior to 1 July 2013.
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Accordingly, to meet the proposed operating standard RSE Licensees will still be required to take steps to ensure that benefits or definitions that are not consistent with the conditions of release are not made available to eligible new members who join from 1 July 2013 and that member communications reflect this position. Draft Prudential Standard SPS 250 Insurance in Superannuation had indicated that there would be no grandfathering of existing insurance arrangements to the extent that it required an RSE licensee who had been offering insurance benefits other than those permitted by the SIS Regulations to phase-out the non-permitted insurance products. The final version of SPS 250 has removed this requirement which ensures no inconsistency between the prudential standards and the draft regulations regarding the transition of existing members insurance arrangements.
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any other information that the member needs to understand the attribution or transfer.
Exception to requirement to provide opt-out insurance for MySuper members Funds will not be required to provide members holding a MySuper product with the option of opting-out of life or permanent incapacity cover where the trustee is “reasonably satisfied” that the insurance cannot be placed with an insurer at a reasonable cost. The trustee must certify in writing that this is the case. The draft regulations and related materials can be found here: www.treasury.gov.au/ConsultationsandReviews/Submissions/2012/StrongerSuper-Regulations-Insurance-and-MySuper
Notification – accrued default amount attributed to a MySuper Product A new regulation within the SIS Regulations will provide that an RSE licensee must notify a member of an intended attribution or transfer of the member’s accrued default amount at least 90 days before the attribution or transfer.
TurkAlert
Stronger Super Regulations - What it means for Insurance Darryl Pereira | November 2012
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For further details on the third tranche bill please see our TurkAlert “Third Tranche of Stronger Super: What it means for Group Insurance” http://www.turkslegal.com.au/TurkAlerts/355/28-05-12-TURKALERT-ThirdTranche-of-Stronger-Super-What-it-means-for-Group-Insurance.cfm
In the context of insurance where the attribution or transfer results in a reduction in an insured benefit that the member is entitled to receive or an increase in an insurance premium that is attributable to the member the notice must mention the following: • • • • • • •
the amount that will be attributed or transferred; the name of the MySuper product to which the amount will be attributed or transferred; how the member can elect, in writing, to opt out of the attribution or transfer; how the member may obtain a product disclosure statement for the MySuper product; any change to the fee or charge that applies to the amount; any change to the member’s insured benefits as a result of the attribution or transfer; any change to the investment strategy applicable to the amount as a result of the attribution or transfer;
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For more information, please contact: Darryl Pereira Partner T: 02 8257 5718 M: 0418 223 798 darryl.pereira@turkslegal.com.au
TurkAlert
Stronger Super Regulations - What it means for Insurance Darryl Pereira | November 2012
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