Review of Your Future, Your Super Measures
The Legal Practice Section of the Law Council of Australia’s Superannuation Committee (the Committee) prsubmission in response to the Treasury’s review of the Your Future, Your Super Measures (Review) and the accompanying Consultation Paper.
In relation to the best financial interests duty in the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), the Committee remains of the view that the word ‘financial’ ought to have never been added to the covenants in paragraphs 52(2)(c) and 52A(2)(c) by the Treasury Laws Amendment (Your Future, Your Super) Act 2021 (Cth) (Amendment Act).
The Committee recommends that the word ‘financial’ from paragraphs 52(2)(c) and 52A(2)(c) of the SIS Act be removed, such that the covenants would revert to imposing a best interests duty, which has a well-established legal meaning. This amendment would still require financial decisions to be made in the financial interests of members, but would avoid the fallacy and the fiction of non-financial decisions being made in the financial interests of members.
However, if the best financial interests duty is to remain in the SIS Act, a question then arises as to whether exceptions and/or a materiality threshold are needed. Legal practitioners are divided on this issue—an unintended consequence of the previous reform, as legal practitioners were overwhelmingly aligned with regard to the traditional best interests duty, whereas the best financial interests duty has created legal uncertainty which had not previously manifested:
- On one view, the best financial interests duty (interpreted in the way in which the Explanatory Memorandum to the Amendment Act posited and parts of industry have adopted) gives rise to anomalies which should be addressed by creating exceptions and/or a materiality threshold.
- Under the other view, the so-called best financial interests duty should properly be construed as having a different and narrower meaning than provided in the Explanatory Memorandum to the Amendment Act (and different from how many have in practice interpreted the reform). Under that view, no exceptions or materiality thresholds are needed.
The Committee considers that the Treasury may find these differences in legal opinion of interest in themselves, because they indicate that legal uncertainty has been increased, not reduced, by this reform. This is the opposite of what this amendment sought to achieve, as the Explanatory Memorandum to the Amendment Act states that ‘the new best financial interests duty test is intended to clarify the existing best interests duty.’1
1Explanatory Memorandum, Treasury Laws Amendment (Your Future, Your Super) Act 2022 36.
Last Updated on 04/09/2024