ASIC backs super funds on use of member reserves
The Australian Securities and Investments Commission (ASIC) has backed the ability of superannuation funds to use their member reserves to fix mistakes and, in doing so, has cited the precedent set by the Australian Prudential Regulation Authority’s (APRA’s) Federal Court loss against former IOOF managing director, Chris Kelaher.
At the same time, the regulator has dampened questioning from NSW Liberal Senator Andrew Bragg who had asked: “How is it equitable to use one members' reserves to pay another members' remediation?”
Bragg, as part of a Joint Parliamentary Committee hearing, had been referring to an ASIC media release regarding a number of superannuation funds which had been obliged to compensate members wrongly classified as smokers.
After telling the Senator that member reserves had not been used to compensate the members affected by the incorrect smoker classification, ASIC explained that superannuation fund reserves were “monies that have been set aside for a particular purpose”.
“As the monies have been set aside, as opposed to be being allocated to members, reserve balances do not form part of a member’s allocated benefit,” the ASIC answer said.
“Generally, reserves are established by superannuation trustees to provide a source of funding to deal with contingent events and operational risks resulting from inadequate or failed internal processes, people and systems. One reason trustees may establish a reserve is to spread potential costs across different generations of members, which is an issue of equitable treatment.”
Citing APRA’s failed case against IOOF’s Chris Kalaher, ASIC pointed out that the Federal Court had “recognised that a superannuation trustee’s reserves can be used for the purposes for which they were established and maintained, including the compensation of members”.
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