Royal Commission

The news, analysis and insights into the fifth round of public hearings covering superannuation

NAB questioned over timeframe for MySuper transfer

The former chair of National Australia Bank trustee NULIS Nominees, Nicole Smith, said criticism that retail superannuation funds had deliberately lagged on the transfer of member funds from higher-fee accounts into low-fee MySuper products was a “generalisation”.

During a second day of questioning by counsel assisting Michael Hodge at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Melbourne, Smith said she “was aware of issues” that had been raised about how long it took bank-owned super funds to move member superannuation accounts that had been identified as “accrued default amounts” (ADAs) to MySuper licensed products.

“The trustee did turn its mind to how safely we could consolidate the complexity of our default arrangements that had been built up over many years of employers designing a default from both an investment and insurance perspective,” she told the royal commission on Wednesday, “and to how quickly we could move from that and change asset allocation and move to what was designed to be the MySuper option.”

Under the MySuper laws the Gillard government initiated, funds were required to transfer ADAs, or members in default investment options, to a low-fee MySuper product by July 1, 2017.

 The Australian has reported that ASIC has reason to believe a number of super funds deliberately lagged on transitioning billions in assets into MySuper products.

Hodge presented figures revealing that super funds at MLC, NAB’s wealth management arm, accounted for more than one-third of ADAs by June 30, 2016. He asked Smith if she found this “striking” to which she responded she “didn’t recall” thinking it was, because the transition was taking place, with timing “approved by the board”.

More figures Hodge presented showed that, as at June 20, 2014, total ADAs across the entire super sector represented $73.1 billion. At this time, MLC held $17 billion.

By the same time a year later, ADAs for the super sector totalled $59.2 billion but, Hodge pointed out, MLC’s ADA funds had fallen only to $16.1 billion. In 2016, super sector ADAs had dropped even further, to $41.3 billion, with MLC still retaining $13.9 billion.

Hodge told the royal commission that one of the features of MySuper was that it was a simple, “no-commission” product – unlike legacy products. He questioned whether the board considered the idea that the transition was “too slow”.

“Now one of the consequences of that…can I suggest, is that more members remain for longer in a higher fee-paying ADA before moving over into the MySuper product?” Hodge said.

Smith agreed some members would have been “higher fee paying” and were also paying higher administration fees.

“It was part of the (board) discussion and deliberation around what’s the right balance between safely delivering within the required timeframe and the fact that members would benefit by paying lower fees in the new MySuper option,” she said. “We later put in place a transition plan commensurate with the complexity of work to move from many defaults…There was a great deal of conversation about whether we were moving fast enough and how we could manage risk and complexity during that process.”

Earlier in the day, Commissioner Kenneth Hayne lobbed a bombshell question at Smith, asking whether it might have been criminal behaviour when the bank didn’t clearly outline to customers that they could opt-out of financial advice for some super products .

“[Was there] any contemplation of a criminal proceeding, ever?” Hayne asked.

Smith said there was not. Hayne then asked: “Did you think yourself that taking money to which there was no entitlement raised a question for criminal law?”

Smith replied that she did not.

Later in the day, Smith told the royal commission that across two trustees – MLC Nominees and PFS Nominees – more than 40 different defaults had to be transferred into one MySuper product over four years.

“There are two facts that I think are important,” Smith said. “The first one is most industry funds actually had one default, which meant they didn’t have any ADAs to transition…So it was a much easier process.

“So, that’s a generalisation in itself from my perspective”.

MLC, in early 2015, sent letters to more than 400,000 members to let them know about the impending transition, giving them a deadline of June 5 to opt out.

Hodge referenced a document outlining a meeting of the combined MLC Nominees, NULIS and PFS nominees, which stated there would be a 5 per cent transfer of ADAs per quarter in 2014-15 and then a gradual transition of the remaining ADAs in 2016.

The transition was completed in March 2017, Smith told the royal commission.

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ABOUT

Royal Commission

into Misconduct in the Banking, Superannuation and Financial Services Industry

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established on 14 December 2017 by the Governor-General of the Commonwealth of Australia, His Excellency General the Honourable Sir Peter Cosgrove AK MC (Retd).

The Governor-General issued Letters Patent which formally appoint the Royal Commissioner and outline the Terms of Reference for this inquiry.

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