Transfer to Another Fund

In most trusts the issue of beneficiaries being transferred from one trust to another does not arise, however this is an important issue with respect to superannuation trusts.

The general law provides some guidance.

Most occupational pension schemes and superannuation trusts confer a wide measure of discretion upon the trustees. In accordance with the ordinary principles of trust law, any powers which are held by a trustee will prima facie be held by them in a fiduciary capacity {Re Hay’s Settlement Trusts [1981] 3 All ER 786}.

The Trustees must therefore consider the best interest of the beneficiaries and exercise the power impartially and in accordance with its purpose. The power will not be validly exercised if it is exercised for an improper purpose or an ulterior motive {Hillsdown Holdings plc v Pensions Ombudsman [1997] 1 All ER 862}.

The UK Court of Appeal in Standard v Fisons Pension Trust Ltd [1992] IRLR 27 held that transfer payments made with respect to a group of employees transferring to another scheme could not be made solely by the scheme actuary, but had to be approved as fair by the trustees.

There are two main types of superannuation trusts (funds):

  • Defined Benefit funds, and
  • Defined Contribution funds (or Accumulation funds)

Member of Defined Contribution funds how have a right to transfer their entitlements to another fund under “Choice of Funds” legislation. Members of Defined Benefit funds do not have this right given the nature of their fund.

However the situation can arise when members are transferred from one fund to another without their consent as beneficiaries.

The Parliament of Australia has enacted legislation to protect the rights of members when they are forcibly transferred from one fund to another.

 Regulation 6.29 of the Superannuation Industry (Supervision) Regulations 1994 provides that a member’s consent is required to transfer his or her benefit to another fund, unless the transfer is to a “successor fund“.

The Superannuation Industry (Supervision) Act 1993 makes provision for the amalgamation of funds under Part 18 of the Act. Members of one fund may be transferred to a “successor fund” provided certain conditions are satisfied.

The Prudential Regulator APRA has to approve the transfer pursuant to Section 144.

An Approved Application Form signed by the trustees both the transferor fund and the transferee fund has to be submitted to APRA pursuant to Section 145.

A copy of the Approved Application Form can be obtained here.

A copy of the “Governing Rules” of the transferor fund has to be submitted with the Approved Application Form to APRA.

Following the lodgement of the Approved Application Form. APRA may approve the “success fund transfer” if and only if APRA is satisfied that a number of conditions have been met pursuant to Section 146, including subsection 146(c):

 “the transfer would not adversely affect the interests of the members and beneficiaries of the transferee fund“.

Section 350 of the Superannuation Industry (Supervision) Act 1993 states:

It is the intention of the Parliament that this Act is not to apply to the exclusion of a law of a State or Territory to the extent that that law is capable of operating concurrently with this Act.”

Therefore the terms of the trust whose assets are being transferred to another fund, must empower the Trustee or Trustees to transfer the assets without committing a Breach of Trust. It may therefore be necessary to amend the terms of the trust before a “successor fund transfer” can proceed. If a Trustee is in doubt as to whether the Trust Estate can be lawfully transferred to another fund, the Trustee should seek directions from a court of competent jurisdiction.

In some cases depending on the protective terms of the trust, it may require an Act of Parliament of the State in which the trust was established to amend the terms of the trust to allow the Trust Estate to be transferred to another Trust Estate.

APRA has produced a document titled: Superannuation Circular No. I.C.4 – “Equivalent Rights” for Members in Successor Fund Transfers.

The Objective of this Circular is stated as:

“The aim of this Circular is to set out APRA’s views as to the requirements of the Superannuation Industry Supervision Act 1993 (the SIS Act) for the transfer of member benefits from regulated superannuation funds, particularly where reliance is not placed on the consent of members”.

Regulation 1.013 (1) of the SIS Regulations defines a successor fund in relation to the transfer of benefits of a member from a fund (called “the original fund“) as a fund which satisfies the following conditions:

  • (a) the fund confers on members equivalent rights to the rights the member had under the original fund in respect of the benefits;
  • (b) before the transfer, the trustee of the fund has agreed with the trustee of the original fund that the fund will confer on the member equivalent rights to the rights that the member had under the original fund in respect of the benefits.

The Circular also notes at Paragraph 4:

“It must be remembered that any interpretation of benefits and the right of a member to those benefits must be considered in the context of the governing rules of the fund as well as legislative requirements.

The Approved Application Form {FORM APT 08/13} requires:

In support of the Application for approval of transfer, applicants should provide APRA with up-to-date copies of the governing rules together with a submission addressing all issues to be considered in accordance with s. 146 of the SIS Act.”

Butterworths Australian Legal Dictionary defines “governing rules” as follows:

“In relation to a superannuation fund……,any trust instrument, other document or legislation, or combination of these, governing the establishment and operation of the fund {Refer to s10 of the Superannuation Industry (Supervision) Act 1993}.

Section 10 of the Superannuation Industry (Supervision) Act 1993 defines “governing rules” as:

  • (a) any rules contained in a trust instrument, other document or legislation, or combination of these, or
  • (b) any unwritten rules;

governing the establishment or operation of the fund,scheme or trust.

There for “governing rules” will consist of a set of documents including:

  • The founding Trust Deed,
  • All subsequent Deeds of Variation,
  • Another other instrument in writing purporting to vary the terms of the trust
  • Any Court Direction
  • The relevant State Trustee Act
  • Any relevant State Legislation specific to the trust
  • Relevant Commonwealth Legislation (eg Section 52 of the SIS Act)

Paragraph 8 of the APRA Circular states:

“Prior to the transfer, the trustee of the new fund must have agreed with the original fund’s trustee that it will confer equivalent rights on the member. In additional to the agreement, the new fund must actually confer those equivalent rights”.

Paragraph 12 of the APRA Circular states:

“The trustees of the original fund must be satisfied that the accrued benefits of the member are protected (see paragraph 14) and that the transfer is in the best interests of the transferring members (see paragraph 22). Trustees of both funds must satisfy themselves that equivalent rights will be conferred.”

Paragraph 22 of the APRA Circular states:

“In deciding if members should be transferred to a new fund, the trustees of both funds must also decide if the transfer is in the best interests of members. This is an obligation imposed on the trustee by the governing rules (in light of section 52(2)(c) of the SIS Act) as well as the general law.”

Paragraph 23 of the APRA Circular states:

“Whilst the equivalence of the benefits of the transferring members must be established before the transfer can be made under the successor fund provisions, the “new” trustee should also carefully consider the position of the members in the transferee fund to ensure that their interests are not adversely affected (having regard to its trust deed)”.

Paragraph 24 notes:

“…Of course, there is an overriding obligation to comply with the SIS Act and Regulations, where these impose relevant obligations”.

In the case of Employer-Sponsored fund an important obligation is SIS Regulation 4.08.

This Regulation requires that at least two-thirds of the total number of Trustee (both Member-elected and Employer-nominated) must agree to any Resolution including a Resolution to transfer members to another fund.

Under the general law the Trustees of both funds must have been lawfully appointed to the office of trustee since a Trustee who has not been lawfully appointed to office will not have the power to consent to any proposed “successor fund transfer“. Refer to Meier v Dorzan Pty Limited & Anor [2010] NSWSC 664

 

 

 

 

 

 

 

 

 

 

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