Are super fund frequent flyers tantamount to early release?

A panel of superannuation fund executives and experts has openly questioned whether superannuation funds which encourage people to join via offers of frequent flyer points are not only breaching the sole purpose test but also allowing members early use of their funds.

A roundtable conducted by Money Management’s sister publication Super Review during last week’s Conference of Major Superannuation Funds (CMSF) expressed concern that the offer of frequent flyer points by big industry fund, AustralianSuper, was entering worrying and unchartered territory.

Discussion of the AustralianSuper frequent flyer points offer came just a day after a panel discussed the sole purpose test contained within the Superannuation Industry (Supervision) Act and the fact that the Australian Prudential Regulation Authority (APRA) had never publicly acted on breaches of the legislation.

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NGS Super chief risk and governance officer, Ben Facer said the offer of frequent flyer points to attract new members had raised a number of questions, particularly in terms of the way in which new members then used the frequent flyer points.

Mercer sales leader, Investments and Financial Services, Brian Zanker said that it appeared that by using frequent flyers, funds were “converting an asset of the fund which is meant to provide for their retirement into an immediate benefit”.

“To me that is not sole purpose,” he said.

“This is a really grey one, because existing members are funding a benefit to attract new members.  How does that differ from normal advertising or marketing? It is costing existing members.”

Australian Institute of Superannuation Trustees, Eva Scheerlinck acknowledged the dilemma, noting that a member could spend her points now, but that superannuation was intended for retirement.

However, she noted that other funds had similar, if somewhat different offers, including providing health-related benefits such as boost juice vouchers and subsidised gym memberships.

Scheerlinck said it could therefore be argued that the benefits were helping drive down the fund’s group insurance premiums.

Zanker said that the question had to be asked about “at what point does it cross the line, and if it is deemed to cross the line where does it actually stop”.

“By this one starting now, others will think of creative ways.” he said.

Facer said that if the practice was allowed to continue, then the industry might be seen as effectively sanctioning it, albeit that it could be argued that such an offer created membership growth and therefore helped drive down overall costs.

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If it was a bank or AMP doing it they would be dragged through the mud and sanctioned. But because it is an union fund, who APRA and ASIC give a green light to do whatever they want nothing will happen. The union funds know this and continue to breach sole purpose test, provide personal advice in the guise of general advice, accept conflicted benefits such as tennis tickets etc, they know they are a protected species.

That's a long bow to draw, giving away boost juice vouchers will help drive down group insurance premiums? They don't even separate smokers and non smokers, they have no idea of the risk on those books! The industry fund could always rebate its commission on the group insurance to drive down costs if they wanted to.....

Interesting. Even super fund execs are querying this policy of Frequent flyer points, but APRA is still asleep at their desk.

The sole purpose test is a test that ensures a superannuation fund is maintained for the purpose of providing benefits to its members upon their retirement (or attainment of a certain age), or for beneficiaries if a member dies. If a super fund trustee, a super fund member or relative enjoys a direct or indirect benefit before retirement from a super fund’s investment, that is, more than an incidental or insignificant benefit, then it is probably that the super fund has breached the sole purpose test.
about time Australian super get investigation on the compare the pair as well I don't trust the numbers bet they cherry picked old retail funds that are closed to new business too..... fudging the numbers

I had the auditor of one of my SMSF clients come back to me and ask that the frequent flyer membership details be removed from their OnePath life policies as they believed it was a contravention of the sole purpose test. It was a surprise to me but when you think about it, it's probably correct. There'd be a lot of SMSF clients out there getting points on their OnePath policies.

Without getting into a full analysis of whether this type of benefit is potentially a breach of the Sole Purpose Test, ss 62(1) specifies benefits that are provided to, or in respect of a superfund member on or after the member's retirement, employment termination or death. Benefits provided before these events (sometimes referred to as current day benefits) do raise questions about compliance with the SPT. But does the frequent flyer deal equate to a member benefit? A superannuation benefit is defined in the table in s 307-5(1) ITAA 1997. Benefits that are not superannuation benefits are described in s 307-10. Neither are specific on the sort of extraneous or 'fringe' benefit on offer here. Possibly s 307-15 brings us closer which defines 'payments for your benefit'. The definition of 'payment' takes us into a new world but is included in s 103-5 on 'giving property as part of a transaction' (in the context of capital gains tax). Long story short, I believe it does need to be clarified, particular keeping in mind APRA and ATO's view on the Coles Myer Discount Card shares from May 2002 ( which is how the industry has viewed accessing current day benefits since.

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