The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) today announced that they have each accepted an Enforceable Undertaking from the trustee of the AXA Australia Staff Superannuation Plan (the Fund).
The Undertakings relate to a decision to change the method of calculating the interest rate on members’ benefits, and an offer by the employer to buy out future pension entitlements.
The trustee provided the Enforceable Undertakings following its own investigations, and investigations by APRA and ASIC into the affairs of the Fund. The trustee will:
- reinstate for 2001-02 and 2002-03 the earlier method of calculating interest on members’ superannuation, giving an aggregate increase in benefits of some $10 million;
- offer certain former members the opportunity to re-enter the Fund on actuarially-determined terms; and
- provide disclosure to members of both of these decisions. Affected members and former members should receive individualised correspondence from the trustee around mid-June.
The restoration means that the superannuation benefits of more than of 2,000 current and former members of the AXA Australia Staff Superannuation Plan will be adjusted upwards, with an estimated $9.2 million of the aggregate total to go to 288 ‘deferred benefits members’.
The investigations by APRA and ASIC followed complaints by some members, and concerns by the regulators about the prudential and disclosure aspects of a decision in 2002 to change the method of calculating the interest rate on termination benefits left in the Fund from a ‘smoothed’ rate to an actual earnings rate.
The regulators also had concerns that the trustee had not given members of the Fund all the information they needed to make an informed decision about whether to accept an offer made by the employer to members in April 2003.
‘APRA welcomes the trustee’s decisions to address its concerns. The right outcome has been achieved for members,’ APRA Deputy Chairman Mr Ross Jones said.
‘Timely disclosure of accurate and relevant information by superannuation trustees is critical, particularly in situations where members are exercising choices based on that information. This is particularly important in an era of superannuation choice,’ ASIC’s Executive Director of Enforcement, Ms Jan Redfern said.
APRA has no concerns about the safety of member entitlements and confirms that the Fund is currently financially sound.
Following the acceptance of the enforceable undertaking, ASIC’s investigations into the matter are now concluded.
Until APRA’s investigation is formally concluded, APRA proposes to make no further comment.
The undertakings given by the trustee revisit, and effectively reverse, earlier decisions by the trustee regarding:
- the crediting rate to be applied to deferred benefits in 2002; and
- the offer to members by the employer in 2003.
Prior to 24 June 2002, a ‘smoothed rate’ was applied to deferred benefits in the Fund. On 24 June 2002, the trustee decided to discontinue the ‘smoothed’ rate and apply a new ‘actual earnings’ crediting rate policy with effect from 1 July 2001. The implementation of the actual earnings crediting rate policy led to deferred benefit members having -5.8 per cent credited to their accounts for the 2001/02 financial year and –0.1% credited for 2002/2003. This was less than the smoothed rates which would have been positive 3.9% and 2.0% respectively.
As set out in the Enforceable Undertakings, the trustee will reinstate the old ‘smoothed’ crediting rate policy for the financial years 2001/2002 and 2002/2003. The current ‘cash’ crediting rate will apply from the financial year 2003/04.
AXA Asia Pacific has acknowledged that the additional cost will be taken into account in determining its funding obligations.
In 2003, 47 former members accepted an offer by the employer to buy out their future pension entitlement for a 10 per cent supplement to their accrued lump sum benefit.
APRA and ASIC had expressed concern to the trustee that, at the time members were required to make a decision whether to accept the employer offer, members had not been given all the information they needed to make an informed decision.
As set out in the Enforceable Undertakings, the trustee will give these members the opportunity to re-enter the Fund on actuarially-determined terms. These members will also have the benefit of additional information, and reimbursement by the employer of up to $2,000 each for obtaining independent financial advice.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $2.0 trillion in assets for 20 million Australian depositors, policyholders and superannuation fund members.