Before 1986, there was no compulsory superannuation system in Australia. In the June 1986 National Wage Case, the Conciliation and Arbitration Commission awarded an increase of 3% of ordinary earnings to be paid into superannuation accounts.
In the following year, 1987, the Commonwealth Parliament enacted the Occupational Superannuation Standards Act 1987 (Cth) (the OSSA Act) and established the Insurance and Superannuation Commission to administer the Act. Regulations made under the Act set operating standards for superannuation funds.
In 1992, the Parliament enacted legislation establishing the Superannuation Guarantee, in effect, making superannuation contributions by employers compulsory. Starting at 3%, the Superannuation Guarantee rate is now 9.5% and will rise to 12% by 1 July 2025.
In 1993, the Parliament repealed the OSSA Act and enacted the SIS Act.
As enacted, the SIS Act provided, and it continues to provide, that if the governing rules of a superannuation entity did not contain covenants to the effect of covenants set out in the Act, the rules were taken to do so. The covenants were all expressed as covenants by the trustee, and have since been amended, but in general terms they were and remain covenants that include covenants of honesty, care, skill and diligence, as well as a covenant to perform the trustee’s duties, and exercise the trustee’s powers ‘in the best interests of the beneficiaries’. The Act provided, and still provides, that the trustee of a regulated superannuation fund must ensure that the fund is maintained solely for one or more specified purposes. Those purposes can be summarised as being the provision of retirement benefits and the provision of benefits in respect of a member after the member’s death. This provision of the Act is often referred to as ‘the sole purpose test’.
Following the Wallis Inquiry, APRA was established in 1998, and took over responsibility for prudential supervision of the banking, superannuation and insurance sectors of the financial services industry. Administrative responsibility for self‑managed superannuation funds (SMSFs) was given to the ATO.
In 2004, the SIS Act was amended to require all registrable superannuation entities (RSEs) to be licensed.
Until 2005, industrial awards providing for superannuation contributions generally nominated the fund that was to receive the contributions. Commonly, the nominated fund was an industry fund. The Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2005 (Cth) permitted most employees to choose the superannuation fund that would receive their superannuation contributions. Today, if an employee does not nominate a fund, and the default fund is not specified in a relevant industrial instrument, it is the employer who will select the default fund. Treasury told the Commission that ‘around one million working Australians cannot currently choose their own fund, as their “choice” is deemed through an enterprise bargaining arrangement or workplace determination.’
In 2009, the Government appointed a panel, chaired by Mr Jeremy Cooper, to review the governance, efficiency, structure and operation of Australia’s superannuation system. The 1997 Wallis Inquiry report had taken as a ‘key tenet’ that superannuation fund members should be treated as rational and informed investors. The Cooper Review challenged that proposition.
The Cooper Review concluded that ‘a compulsory system needs to be able to cater for … different degrees of engagement: the significant proportion of members who are not engaged with their super, or in a position to make the sorts of decisions required of them; and the informed, financially literate, or well–advised members.’ Hence, the Review recommended the creation of a new type of superannuation product – MySuper – and re‑casting the architecture of the superannuation industry to recognise four types of members. The Review described those members as:
- ‘… [M]embers who simply want someone else to take care of it all for them. MySuper is particularly designed to cater to these members.
- … [M]embers who want to exercise choice over the investment strategies applied to their superannuation balances, but want to have their accounts administered for them. These members can elect to be in the choice segment, though they might decide that a MySuper product meets their needs and elect to have their money invested there (or in a combination of MySuper and choice products).
- … [Members], and the number has increased sharply in recent years, who choose to be fully responsible for the investment and administration of their superannuation arrangements. These members can choose to operate an SMSF.
- … [M]embers who have lost their superannuation account. The objective here is to reconnect members and their accounts quickly and efficiently and to introduce measures that make this less likely to occur in future’.
The Review said that the ‘MySuper component of the choice architecture model aims to provide a simple, cost effective product with a single, diversified portfolio of investments for the vast majority of Australian workers (roughly 80% of members) who are in the default option in their current fund’.
What is now Part 2C of the SIS Act (sections 29R–29XC) makes provision for MySuper products and was inserted in the Act in 2012. The substantive provisions took effect from 1 July 2013. The stated intention is that all MySuper products ‘will be simple products sharing common characteristics’. The characteristics, specified in section 29TC, include that the fund have a ‘single diversified investment strategy’.
Under the Superannuation Guarantee legislation, employers need to pay contributions for an employee without a chosen fund into a fund that offers a MySuper product if they are to avoid becoming liable to pay an increased superannuation guarantee shortfall. In addition, if a person is a member of an RSE (other than a defined benefit member) and a contribution is made to the fund for the benefit of that person, and the person has not given the trustee ‘a direction that the contribution is to be invested under one or more specified investment options’ the trustee must treat the contribution as a contribution to be paid into a MySuper product of the fund. Contravention of the provision is an offence.
An RSE licensee may offer a MySuper product only with the authority of APRA.
National Wage Case June 1986 (1986) 14 IR 187, 212–19; Background Paper No 23, 3.
Superannuation Guarantee Charge Act 1992 (Cth) and Superannuation Guarantee (Administration) Act 1992 (Cth). See also, Roy Morgan Research Pty Ltd v Commissioner of Taxation (2011) 244 CLR 97.
Background Paper No 23, 3.
See now SIS Act s 52(2)(a).
See now SIS Act s 52(2)(b).
See now SIS Act s 52(2)(c). As the SIS Act was originally enacted, the covenant was ‘to ensure’ that the trustee’s duties and powers were performed and exercised in that way.
SIS Act s 62.
 SIS Act s 62(1)(a).
Superannuation Safety Amendment Act 2004 (Cth).
Background Paper No 23, 5.
Background Paper No 23, 6.
Cooper Review, Final Report, 8.
Cooper Review, Final Report, 9.
Cooper Review, Final Report, 10–11.
Cooper Review, Final Report, 11.
Superannuation Legislation Amendment (MySuper Core Provisions) Act 2012 (Cth) and Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 (Cth).
SIS Act s 29R(1).
SIS Act s 29TC(1)(a).
SIS Act ss 29V–29VE.
SIS Act ss 29VN, 29VO.
SIS Act s 29R(4).
SIS Act s 29WA.
SIS Act s 29WA(3).
SIS Act s 29T.