Second Round of Cooper Changes introduced

The Government has wasted little time in introducing the second round of Cooper Changes in Bill form.  An exposure draft of the Bill was released in early November 2011.

The first round of changes were about the “MySuper” product rules.

This round of changes is about the trustee obligations which apply to “MySuper” and “Choice” superannuation products.

Impact on SMSFs – Restated Statutory Covenants

The Bill repeals the existing s52 (which section contains the various statutory covenants) and replaces the section with a replacement s52 and new sections 52A, 52B and 52C.  The replacement s52 and new s52A will apply to APRA regulated superannuation entities.  New sections 52B and 52C apply to self managed superannuation funds.

New section 52B essentially re-states the existing statutory covenants with the following changes:

• the re-stated covenants refer to “a superannuation fund” rather than a “superannuation entity”  (this change is needed as the new section 52B only applies to self managed superannuation funds, while the repealed s52 applied to regulated superannuation funds, PSTs and ADFs)
• the best interests covenant has been reworded so that the trustee will be required to “perform” the trustee’s duties and exercise the trustee’s powers in the best interests of the beneficiaries; in the current wording the trustee was to “ensure” that the trustee’s duties and powers were exercised in the best interests of the beneficiaries;
• the investment strategy covenant has been modified and will require trustees to regularly review their investment strategies;
• the reserves covenant has been modified and will require the trustee to not only formulate and give effect to a prudential management strategy for each reserve but also to “regularly review” that strategy;

New Section 52C applies where a company is the trustee of the self managed superannuation fund.  In this situation, s52C will impose upon each director a duty to exercise a reasonable degree of care and diligence for the purpose of ensuring that the company carries out the statutory covenants set out in s52B.  The imposition of the duty upon the director is achieved by deeming each director to be a party to the governing rules.

New section 52C replaces existing subsections 52(8) and (9).

Impact on SMSFs – Additional Covenants

New Section 54A is a regulation authorisation provision.  This section will permit regulations to be made which specify additional trustee covenants.  The additional covenants may deal with a matter to which an existing covenant already applies or to any other matter to which a provision of the Act relates.

However, any additional covenant must be capable of operating concurrently with the existing covenants and with the SIS Act.

New section 54A replaces existing regulation authorisation provision of subsections 52(5), (6) and (7).