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ASIC Class Order [CO 11/1227]

Authoritative Version
CO 11/1227 Orders/ASIC Class Orders as amended, taking into account amendments up to ASIC Class Order [CO 14/870]
Administered by: Treasury
Registered 18 Nov 2014
Start Date 13 Nov 2014

ASIC Class Order [CO 11/1227]

Relief for providers of retirement estimates

This instrument has effect under s926A(2)(a) and 951B(1)(a) of the Corporations Act 2001.

This compilation was prepared on 13 November 2014 taking into account amendments up to [CO 14/870]. See the table at the end of this class order.

Prepared by the Australian Securities and Investments Commission.

Australian Securities and Investments Commission
Corporations Act 2001 — Paragraphs 926A(2)(a) and 951B(1)(a) — Exemption

 

Enabling legislation

 

1.         The Australian Securities and Investments Commission makes this instrument under paragraphs 926A(2)(a) and 951B(1)(a) of the Corporations Act 2001 (Act).

 

Title

 

2.         This instrument is ASIC Class Order [CO 11/1227].

 

Commencement

 

3.         This instrument commences on the date it is registered under the

Legislative Instruments Act 2003.

 

Note:    An instrument is registered when it is recorded on the Federal Register of Legislative Instruments (FRLI) in electronic form: see Legislative Instruments Act 2003, s 4 (definition of register). The FRLI may be accessed at http://www.frli.gov.au/.

 

Exemption

 

4.    A trustee (the trustee) of a superannuation entity (the fund) who provides financial product advice in a statement (the estimate) that complies with paragraphs 6 and 7 and, to the extent applicable, paragraphs 6A and 6B to a member of the fund does not have to comply with:

 

(a)   the requirement in subsection 911A(1) of the Act to hold an Australian financial services licence covering the provision of that advice; or

 

(b)  where the trustee is a financial services licensee—Divisions 2, 3 and 4 of Part 7.7 of the Act in relation to that advice.

 

Where the relief applies

 

5.        The trustee may rely on the exemption in paragraph 4 only if both of the following apply:

 

(a)   The estimate:

 

(i)            is given by the trustee at the time the member is given a periodic statement; and

 

(ii)          either:

 

(A)    is included in the periodic statement; or

 

(B)    accompanies the periodic statement.

 

(b)  The member:

 

(i)          has been a member of the fund for the year ending on the date of the estimate; and

 

(ii)        is younger than 67 at the date of the estimate.

 

The estimate

 

6.         The estimate must include all of the following:

 

(a)   the amount (the lump sum) worked out in accordance with paragraph 8, specified as an amount in dollars rounded to the nearest three significant figures together with a statement to the effect that this amount is the estimated balance of the member’s account with the fund when the member is 67;

 

(b)  the amount (the annual income stream amount) worked out in accordance with paragraph 9, specified as an amount in dollars rounded to the nearest three significant figures together with a statement to the effect that this amount is the estimated amount the member may get every year if the estimated balance of the member’s account with the fund when they retire were converted into an annual income stream for 25 years;

 

(c)   the statements specified in paragraph 10.

 

6A. The estimate may include an amount (age pension amount) representing the amount (if any) that would be payable to the member as an age pension if the following applied in relation to the member:

(a)   the member qualifies for an age pension under section 43 of the Social Security Act 1991;

(b)   the member has a partner;

(c)   the member and their partner jointly own their own home;

(d)   the member and their partner each have a single superannuation fund retirement benefit equal to the lump sum and these benefits are applied on the date of the estimate to purchase superannuation pensions that provide each of the member and their partner with income in that year equal to the annual income stream amount;

(e)   the member and their partner have no other assets or income affecting the amount of the age pension payable to the member or their partner, including any other superannuation accounts.

6B. If the estimate includes the age pension amount:

(a)   the estimate may also include the amount (total annual amount) which is the sum of the annual income stream amount and the age pension amount; and

(b)   the estimate must include the statements specified in paragraph 10A.

 

  1. Apart from the lump sum, annual income stream amount, age pension amount and total annual amount, the estimate must not specify other amounts or figures representing or purporting to represent the member’s expected retirement benefit (however described).

 

8.         The lump sum is to be worked out in accordance with the following formula if f is not 3%:

 

         A   + C;

B

 

and otherwise in accordance with the following formula:

 

(adjusted current contributionsF) x (67 – age) + current balance

 

where:

 

A = (adjusted current contributions – F) x ((1.03 – f) (67 – age) – 1).

 

B = ln(1.03 – f).

 

C = current balance x (1.03 – f) (67 – age).

 

F = (a) where the trustee charges administration fees in relation to the member on a relevant basis—the total in dollars of the administration fees charged in relation to the member on that basis during the year ending on the date of the estimate; or

 (b) otherwise—0.

 

adjusted current contributions = the total contributions that are paid into the member’s account with the fund during the year ending on the date of the estimate, less contributions tax and insurance premiums, and excluding amounts transferred into the member’s account with the fund from another account with another superannuation entity.

 

age =   the age of the member at the date the estimate is prepared measured in years and part years, rounded to one decimal place.

 

current balance = the balance of the member’s account with the fund at the date of the estimate.

 

f = (a) where the trustee charges administration fees in relation to the member based on a percentage of the balance of the member’s account with the fund or different percentages of different parts of that balance—the annual or annualised percentage rate at which administration fees have been charged in relation to the member on that basis during the year ending on the date of the estimate; or

 

(b)  otherwise—0.

 

 

Note 1:    The formula to work out the amount of B involves working out the natural logarithm of the result of the bracketed calculation.

 

Note 2:    The following are examples of how the value of f is worked out:

 

(a)            If fees are charged at a rate of 0.25% of a member’s account balance each quarter, f is 1%.

 

(b)           If fees are charged on the final day of the reporting period at a rate of 1% for the first $100,000 of a member’s account balance plus 0.75% of each dollar above $100,000 of that balance and the member’s balance was $150,000 on that day, f is 0.917%.  This is the result of the following calculation (rounded to 3 decimal places for illustrative purposes – actual numbers should be used in applying the relevant formula):

 

(100,000 x 0.01 + 50,000 x 0.0075)/150,000.

 

(c)            If fees are charged each quarter at a rate of 0.25% for the first $100,000 of a member’s account balance plus 0.1875% of each dollar above $100,000 of that balance; and the member’s balance was $130,000, $128,000, $140,000 and $150,000 on the dates fees were charged, f is 0.933%.  This is the result of the following calculation (rounded to 3 decimal places for illustrative purposes – actual numbers should be used in applying the relevant formula):

 

((100,000 x 0.0025) + ($30,000 x 0.001875))/130,000 + ((100,000 x 0.0025) + ($28,000 x 0.001875))/128,000 + ((100,000 x 0.0025) + ($40,000 x 0.001875))/140,000 + ((100,000 x 0.0025) + ($50,000 x 0.001875))/150,000.

 

Note 3: The calculation required by paragraph 8 involves an assumption that the investment return (before administration fees, but net of investment and other fees and tax) will exceed inflation by 3% per annum.

 

9.         The annual income stream amount is to be calculated in accordance with the following formula:

 

lump sum x 0.0566.

 

Note:    This calculation converts the lump sum into an annual income amount. It assumes the lump sum is drawn down progressively from age 67 and is completely exhausted after 25 years, and that there an investment return (before administration fees, but net of investment and other fees and tax), exceeding inflation by 3% per annum.

 

10.     The estimate must include all of the following text (with the relevant information substituted for the instructions in square brackets):

 

(a)   What this estimate means

The projection is just an estimate, not a guarantee.  The actual money you get in your retirement may be very different from this estimate.

 

The superannuation amounts are shown in today’s dollars. The age pension estimate is shown based on current pension amounts.

 

This estimate does not consider any other superannuation accounts that you may hold or other assets that you own.”.

 

(b)   “How the estimate is worked out

This estimate has been worked out using these assumptions and figures:

 

·           $ [insert member’s current balance (see paragraph 8)] in your super fund now

·           your wages will increase at the same rate as inflation

·           investment earnings of 3% per year after inflation and investment fees

·           annual administration fees and costs of [insert the figure (as a dollar amount or as a percentage or as a combination of both as relevant) representing the administration fees charged in relation to  the member during the year ending on the date of the estimate] (note that this amount may change over time)

·           your rate of super contributions during the previous year will continue unchanged until retirement

·           you retire at age 67

·           you want your super to last for 25 years, that is, until age 92. Around one in six men and one in four women who reach age 67 will live beyond age 92

·           annual insurance premiums of [insert a dollar amount representing the insurance premiums the member has been charged during the year ending on the date of the estimate] (note that this amount may change over time), and

·           current tax and superannuation laws remain unchanged.

 

These are standard assumptions and have been set with input from the Australian Government Actuary. They may not match your actual circumstances either now or in the future. Also the figures used may differ from those shown in your member statement. The annual income shown does not include any deductions for any income tax you may have to pay.

 

If you want to know more about the way this estimate has been worked out, or the assumptions, contact [insert contact phone number] or visit [insert website address].”

 

(c) What you will actually get when you retire

 

The actual amount of money you get in retirement may vary considerably from the estimate.

 

Factors that influence what you will get include:

 

·         the investment options you choose (e.g. conservative, balanced, growth)

·         the performance of your investment

·         the total fees charged in relation to your account

·         when you retire and get access to your super

·         the super contributions you and your employer make

·         whether you choose to buy an account-based pension or non-account-based income stream when you retire

·         any allowance you make for a pension for your spouse or partner, and

·         whether you receive any age pension or other government benefit.

 

This estimate has been calculated assuming all current rules concerning super and taxing super remain in place.

 

This estimate only applies to your super account with this fund.”.

 

(d)       where the trustee makes available a retirement or superannuation calculator on the website for the fund:

 

Getting help

 

Don’t make changes to your retirement savings arrangements based on this estimate. Before you make changes, you should get further information or advice.

 

Online calculators let you explore your potential retirement income in more detail. They let you personalise the estimate, and show how you can improve your retirement income.

 

These calculators include:

 

·         [insert the name and title of the fund’s retirement or superannuation calculator] available at [insert website address], and

·         ASIC’s MoneySmart retirement planner: www.moneysmart.gov.au.”.

 

(e)        where the trustee does not make available a retirement or superannuation calculator on the website for the fund:

 

Getting help

 

Don’t make changes to your retirement savings arrangements based on this estimate. Before you make changes, you should get further information or advice.

 

Online calculators let you explore your potential retirement income in more detail. They let you personalise the estimate, and show how you can improve your retirement income. These calculators include ASIC’s MoneySmart retirement planner: www.moneysmart.gov.au.”.

 

Note 1:     The blocks of text set out in paragraphs (a) to (e) need not be set out in one place or included in the order of those paragraphs.

 

Note 2:     The amount to be inserted in the text in paragraph (b) for fees and costs or insurance premiums is zero if no relevant amounts have been charged.

10A. Where the estimate includes an age pension amount, the estimate must include all of the following text in close proximity to the age pension amount:

“This amount represents the amount payable to you and does not include any estimate of the age pension payable to your partner. It assumes that at retirement your partner has the same amount of super as you, that you and your partner jointly own your own home and that you and your partner have no other assets or income, including other superannuation accounts.

You may not be eligible for some or all of this age pension amount if you (or your partner) have income or assets in addition to these superannuation amounts or your home.

Age pension rates and eligibility rules may change between now and when you retire. The age pension amount shown at retirement age may also change during retirement as your personal circumstances change.

The Department of Human Services rate estimator lets you estimate your payment rate of age pension, based on your current or proposed circumstances. It does not work out if you will be eligible for a payment. To use the rate estimator go to humanservices.gov.au/estimators.”

 

Interpretation

 

11.     In this instrument:

 

administration fees has the same meaning as in section 29V of the Superannuation Industry (Supervision) Act 1993.

 

age pension means an age pension under Part 2.2 of Chapter 2 of the Social Security Act 1991.

 

age pension amount has the meaning given to that term in paragraph 6A.

 

annual income stream amount has the meaning given to that term in subparagraph 6(b).

 

date in relation to an estimate, means the date of the last day of the reporting period covered by the periodic statement which includes the estimate or which the estimate accompanies (see subparagraph 5(a)).

 

lump sum has the meaning given to that term in subparagraph 6(a).

 

partner has the same meaning as in subsection 4(1) of the Social Security Act 1991.

 

periodic statement has the same meaning as in subsection 1017D(1) of the Act.

 

relevant basis means, in relation to the charging of administration fees, the charging of fees on either or a combination of, the following:

 

(a) on a flat dollar basis (for example, $1 per week);

 

(b)          based on a percentage of the member’s contributions into their account with the fund (for example, 1% of each contribution).

 

superannuation entity has the same meaning as in the Corporations Act 2001.

 

total annual amount has the meaning given to that term in subparagraph 6B(a).

 

Notes to ASIC Class Order [CO 11/1227]

Note 1

ASIC Class Order [CO 11/1227] (in force under s926A(2)(a) and 951B(1)(a) of the Corporations Act 2001) as shown in this compilation comprises that Class Order amended as indicated in the tables below.

Table of Instruments

Instrument number

Date of FRLI registration

Date of commencement

Application, saving or transitional provisions

[CO 11/1227]

5/12/2011 (see F2011L02553)

5/12/2011

 

[CO 14/870]

13/11/2014 (see F2014L01509)

13/11/2014

-

Table of Amendments

ad. = added or inserted     am. = amended     rep. = repealed     rs. = repealed and substituted

Provision affected

How affected

Para 4..........................

am. [CO 14/870]

Subpara 5(b)(ii) ..........

am. [CO 14/870]

Subpara 6(a) ...............

am. [CO 14/870]

Subpara 6(b) ..............

am. [CO 14/870]

Para 6A.......................

ad. [CO 14/870]

Para 6B.......................

ad. [CO 14/870]

Para 7..........................

am. [CO 14/870]

Para 8..........................

am. [CO 14/870]

Para 9..........................

am. [CO 14/870]

Subpara 10(a)..............

rs. [CO 14/870]

Subpara 10(b) ............

rs. [CO 14/870]

Subpara 10(c) .............

am. [CO 14/870]

Para 10, Note 2...........

am. [CO 14/870]

Para 10A.....................

ad. [CO 14/870]

Para 11........................

am. [CO 14/870]