Senator Nick Sherry, Minister for Superannuation and Corporate Law, has been a vocal critic of the lack of specific disclosure about long-term investment returns in superannuation fund member statements since the Labor Party came to office in November 2007. In his view, such disclosure can give fund members context about the long-term nature of investing in superannuation in the current environment of negative returns, but also puts the spotlight on under-performing funds so members can make an informed choice when deciding who will manage their superannuation.
Treasury has now released regulations that will amend the Corporations Act 2001 to require trustees to disclose five and ten year average returns in periodic member statements from 1 July 2009. The new obligations will not apply to self-managed superannuation funds, or to exit statements provided on the death of a member.
What are the obligations?
For the 2009-2010 financial year, trustees must disclose in member benefit statements in respect of that period the five year compound average effective rate of net earnings of the member's investment in the relevant investment option or sub-plan or, if there is no investment option or sub-plan, for the fund for the period before the end of the last financial year or reporting period.
For the 2010-2011 financial year, trustees must disclose in the member benefit statements both the five year and 10 year compound average effective rate of net earnings for the period before the end of the last financial year or reporting period.
If the fund has not been in operation for the relevant period, the trustee must provide members with the long-term return for the period the relevant investment option, sub-plan or fund has been operating.
As five year returns will be disclosed in the member benefit statements, the requirement to include the five year average return in the annual report has been removed.
The member benefit statement must note that the five and 10 year returns being disclosed are not the member's returns (this was one of industry's main criticisms about the proposal - that members might be misled into thinking the disclosure relates to their actual portfolio, rather than applying across the investment option, sub-plan or fund).
Electronic reporting
The amending regulations also formalise the no-action position that ASIC took in June 2008 (see 08-128 - 'Less Paper in Super') which allowed trustees to make the fund's annual report available to member's via a website. The amending regulations largely mirror the conditions of the ASIC conditions of relief:
- the trustee must advise each member that the information is available, how to access the website and where to find the annual report and that the member may request a hard copy or electronic copy (if available) of the annual report free of charge; and
- if a member requests a hard copy or electronic copy, the trustee must provide the annual report to the member in that format each year until the member advises that a hard copy is not required.
Action items
Trustees should:
- amend their template member benefit statement to include five and ten year average returns, in a format that draws the attention of members, together with the disclaimer about the information not relating to the member's actual balance;
- consider whether they want to remove the five year average return information from the annual report; and
- consider making the fund's annual report available to members via the fund's website, and notifying members of where to locate the annual report on the website.