Industry Super Australia (ISA) research has not sufficiently addressed exemption regulation in its claim that banks have been involved in systemic breaches of the Superannuation Industry Supervision (SIS) Act, a superannuation legal expert said.
ISA has taken a broad brush stroke approach to section 68A of the Act summing it up as prohibiting the offering of “inducements to a person or an employer in return for choosing one superannuation fund over another”.
Commissioning research into this issue, which relied on a questionnaire, it found 26 per cent of small to medium size businesses had been offered a default superannuation account by a bank and of that group more than half had been offered inducements to change to the banks fund. The top three inducements were discounts on fees within superannuation (38 per cent), lower insurance premiums for the business (37 per cent) and free financial advice for employees (32 per cent), with other benefits, like iPads, occasionally being packaged in as well.
However, not all inducements amount to a breach of the SIS Act. The prohibition targets inducements offered as a condition of membership but also exempts certain inducements (SIS Regulation 13.18A). The research does not seem to address these two points which you would need to in order to form a strong case against retail superannuation being cross-sold, Maged Girgis, partner, Minter Ellison Lawyers said.
“The legislation allows for exemptions, notably where the employee has access to the inducements on no less favourable terms than the employer. The research doesn’t go into the context surrounding the wording of the questions and so doesn’t evidence systemic breaches of S68A,” Girgis said.
In support of this view he referenced an address to the association of superannuation funds of Australia (ASFA) by Jennifer O’Donnell, executive director of compliance at ASIC, in 2005 when the Superannuation Industry (Supervision) Act section 68 was introduced.
“Some of the detail in this requirement seems to have slipped under the radar of some trustees. The provision prohibits a trustee or a trustee’s associate from making the price or availability of the goods and services that it provides to employers conditional upon whether employees will become members of the trustee’s fund,” O’Donnell said in her speech.
“The exemptions relate to commercial arms length business loans, clearing houses, advice or administration services that relate to the payment of superannuation contributions and offers that are made available to employees on the same terms,” she added.
David Whitley, chief executive of Industry Super Australia maintains the practice of cross-selling by banks is wrong and creates a conflict of interest among employers.
“It is immoral to change the employee default arrangement where the benefit goes to the employer. If this practice is not illegal it should be. In any event the regulator should be investigating,” he said.