Putting Members’ Interests First – frequently asked questions
The recent passage through Parliament of the Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 (the PMIF) will require all RSE licensees to cease the provision of insurance to members on an opt-out basis where:
a) the member has an account balance below $6,000 (active low balance accounts); or
b) the member is a new member who is under the age of 25.
The PMIF reforms build on the Treasury Laws Amendment (Protecting Your Superannuation) Act 2019 (the PYSP) that was passed by the Government in March 2019. Both reforms are intended to protect members’ account balances from erosion from insurance premiums for cover that members may not want or need.
RSE licensee may elect to adopt a ‘dangerous occupation’ exception which will exempt certain members from these reforms.
APRA issued a letter, accompanied by these frequently asked questions, to RSE licensees informing them of this change.
Updated: 20 March 2020.
Initial compliance with the Putting Members’ Interests First requirements
Note to industry:
The Government has indicated to APRA that it will pursue amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) to ensure the Government’s original policy intent is achieved in a number of areas that have been raised by industry. APRA understands the Government will seek to amend the SIS Act to provide that:
a) the legislative requirements allow for the aggregation of a member’s interest in one or more products held within a superannuation account;
b) the rights of members under fixed term insurance cover are not affected, so that this type of insurance cover is not removed. Legacy products providing fixed term insurance cover that do not receive ongoing contributions are not intended to be subject to these reforms. This may affect conventional products where the switching off of cover would have a demonstrable adverse financial effect on the member, such as products that are already fully paid up or non-premium paying, whole of life and endowment products; and
c) a member’s election to maintain insurance cover under the PYSP reforms is considered to be a valid election under the PMIF reforms, and vice versa.
d) elections regarding the provision of insurance under sections 68AAA, 68AAB and 68AAC of the SIS Act remain valid following a successor fund transfer (SFT). (Added 15 May 2020).
e) the application and transition provisions of the Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 apply such that members who were not required to make an election under the Act (such as members who provided an election before 1 November 2019 or members under 25 prior to 1 April 2020, or members with an account balance that is less than $6000 but who had an account balance equal to or greater than $6000 on or after 1 November 2019) are not required to elect following an SFT. (Added 15 May 2020) (Revised 21 October 2021).
General questions
1. What action should a trustee take if it anticipates it will be unable to comply with any part of the Putting Members’ Interests First reforms?
The PMIF Act commenced on 3 October 2019, the day after it received Royal Assent.
Where a trustee determines that any breaches of the PMIF legislation relate to either the product level application or the ‘fixed term’ insurance issue (refer Note to industry above), the trustee should inform APRA and provide details of how it intends to apply the law, including whether it is taking into account future law changes that have been signalled by the Government.
Where it determines that a significant breach has occurred or will occur, a trustee must ensure it follows its standard breach assessment procedures and reports any breaches to APRA within the required timeframe. Where the breach may relate to future law changes, a trustee may rely on identifying this matter in its breach report, subject to further advice from APRA regarding whether any additional action is required.
Where the breach relates to any other matters other than the product level application or the ‘fixed term’ insurance issue, the breach notification must contain a clear outline of the nature of the breach, its impact on members and the trustee’s plan and timeframe for rectification and remediation. Further details on APRA’s breach reporting requirements are available here: https://www.apra.gov.au/notify-a-breach
Trustees should note that ASIC is responsible for the administration of Schedule 1, Part 2 (Application) of the PMIF Act. Trustees will therefore need to consider raising non-compliance, or potential non-compliance issues, with ASIC as well.
2. Do the insurance changes in the PMIF apply to Defined Benefit members?
No, the requirement to not provide insurance benefits to low balance accounts under section 68AAB and to members under 25 years old under section 68AAC do not capture Defined Benefit members.1
1Note that funds offering both Defined Benefit and Defined Contributions (DC) components will be affected, as the DC aspects of the fund (as defined to be choice products) will be subject to the reforms.
3. Does an election made by a member for their insurance to continue, even if the member has an account balance less than $6,000 and/or is under the age of 25 years, last indefinitely?
Yes. APRA considers that once a member makes an election in relation to the member's insurance, that election continues indefinitely until the member advises the trustee otherwise.
Updated at 3:15pm 14 November 2019
4. Under the PMIF, when a member elects for their insurance to continue, do they need to make separate elections if they have an account balance below $6,000 and they are also under 25 years old?
No, under section 68AAB(3) and section 68AAC(3) an election by a member for insurance to continue, in circumstances where they have an account balance of less than $6,000, will also be taken to be an election for insurance to continue in circumstances where the member is also under 25 years old, and vice versa.
5. If a member elects for their insurance to continue under the Protecting Your Superannuation Package, do they need to make a separate election for PMIF?
No (see Note to industry above).
Updated at 3:15pm 14 November 2019
6. Is a trustee required to provide insurance benefits to MySuper members once an account balance reaches $6000 and/or a member turns 25?
Once an account balance reaches $6,000 and/or a member turns 25, a trustee is required to comply with section 68AA in relation to MySuper members and is required to provide permanent incapacity benefits and death benefits to those members on an opt out basis (unless the member opts out of insurance), as the exceptions under section 68AA(8A) and (8B) will no longer apply.
The Explanatory Memorandum to the Bill states that ‘the requirement under the MySuper rules for the trustee to provide opt-out death and permanent disability insurance applies again once a member no longer meets the criteria of sections 68AAB or 68AAC.3
3 Explanatory Memorandum, Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019, p. 8.
7. Are insurance products where members are on claim, including income protection claims and lump sum claims, subject to the insurance reforms?
Yes. Insurance products where members are on claim are subject to the PMIF reforms, as these types of offerings are not excluded under section 68AAB.
Where members are on claim, APRA considers that the rights of these members in relation to the insurance benefit currently being paid would ordinarily not be affected by the PMIF reforms. That is, the operation of section 68AAB relates to the taking out or maintenance of insurance cover and not to the rights of members in respect of the insurance cover. As such, while members currently on claim would ordinarily maintain their rights to the insurance benefits being paid, their insurance cover (for future claims) may be removed as a result of the PMIF reforms, unless they make an election to opt in.
To reduce confusion to members currently on claim, APRA recommends that trustees ensure that all affected members are able to make a written election for the continued provision of their insurance cover for any future claims.
Dangerous occupation exception
8. When a trustee makes an election that members are covered by the dangerous occupation exception, how do they give APRA their election?
A trustee should use the dangerous occupation exception election template provided by APRA which can be found below.
The trustee will be required to sign the election template and specify the member occupations it seeks to include in the dangerous occupation exception. The trustee will need to attach a scanned copy of the election to a return email to APRA at PMIF@apra.gov.au
A hard copy of a dangerous occupation exception election is not required to be provided to APRA.
APRA expects that a trustee would keep a record of the information it has relied upon to make its election under section 68AAF(2).
9. When a trustee seeks to withdraw its dangerous occupation exception election, how should it give APRA its withdrawal?
A trustee should use the dangerous occupation exception withdrawal template provided by APRA which can be found below.
The trustee will be required to sign the election withdrawal template. The trustee will need to attach a scanned copy of the withdrawal to a return email to APRA at PMIF@apra.gov.au
A hard copy of the withdrawal of an election will also need to be sent by post to APRA.
Address the withdrawal of written elections to:
Data Analytics and Insights - Super Strategic Insights
Australian Prudential Regulation Authority
Level 12, 1 Martin Place, Sydney NSW 2000
10. When would APRA expect RSE licensees to review their dangerous occupation exception election?
APRA expects RSE licensees to, at minimum, review whether their dangerous occupation exception election is still appropriate at policy renewal or when other significant changes are made to their insurance contract in relation to the members captured by the election.
Successor Fund Transfer
11. In a Successor Fund Transfer (SFT), if the RSE licensee of a successor fund does not seek or obtain from a member an insurance opt-in election, on the basis that:
- the member had previously provided an insurance opt-in election to the transferring RSE licensee, or
- the member was captured by the application and transition provisions of the PMIF Act,
what action is required from the RSE licensee of the successor fund?
In line with the Government’s policy intent to amend the relevant provisions of the SIS Act, APRA will take a facilitative approach to breaches in these circumstances.
Where an RSE licensee of a successor fund determines that any breach of the SIS Act relates to not seeking an insurance opt-in election from a member (who had previously provided their insurance opt-in election to the transferring RSE licensee, or who was captured by the application and transition provisions of the PMIF Act) following a SFT (refer Note to industry above), the RSE licensee of the successor fund should inform APRA and provide details of how it intends to apply the law, including whether it is taking into account future law changes that have been signalled by the Government.
Where the RSE licensee determines that a significant breach has occurred, or will occur, the licensee must ensure it follows its standard breach assessment procedures and reports any breaches relevant to APRA within the required timeframe. Where the breach relates to future law changes, the RSE licensee may rely on identifying this matter in its breach report, subject to further advice from APRA regarding whether any additional action is required.
Where the breach relates to any other matter, other than the RSE licensee not seeking an insurance opt-in election from a member (who had previously provided their insurance opt-in election to the transferring RSE licensee) following a SFT, the breach notification must contain a clear outline of the nature of the breach, its impact on members and the trustee’s plan and timeframe for rectification and remediation.
ASIC expects members will have been provided with information about any change to insurance arrangements resulting from the transfer through the significant event notification requirements for successor fund transfers: see ASIC Information Sheet 90 Notifying members about superannuation transfers without consent.
Further details on APRA’s breach reporting requirements are available here.
Updated 22 May 2020.
These FAQs are published for discussion purposes only. The content of these FAQs is not legal advice. Users are encouraged to obtain professional advice about the application of any legislation or prudential standard to their particular circumstances. Users should exercise their own skill and care when relying on any material contained in the FAQs. APRA disclaims any liability for any loss or damage arising out of any use of or reliance on these FAQs. The FAQs may include links to external websites that are beyond APRA’s control. APRA accepts no responsibility for the accuracy, completeness or currency of the content of these FAQs.