6.2 Evidence

6.2.1Payments to Suncorp Life

SPSL and Suncorp Life share the administration of the Master Trust. SPSL currently provides administration services to 75% of its membership, and Suncorp Life provides administration services to the remaining 25%.[1] Before a recent rebalancing between investment through life insurance policies and investments managed through the Suncorp Group Trust, ‘Suncorp Life was administering 45 per cent of the membership and SPSL was administering the remaining 55 per cent’.[2]

SPSL does not recover the costs of its administration of the Master Trust directly from the fund. Instead, administration and other fees are determined for each product and charged to members. Once paid, the fees form part of SPSL’s general revenue.[3] This differs from the administration reserve model generally adopted by ‘not for profit’ RSE licensees. Under that model, a trustee charges fees to cover its estimated expenses. The fees are paid into a reserve from which the trustee’s expenses can be paid or reimbursed. By contrast, SPSL simply receives fees as general revenue rather than paying them into a reserve.[4] However, as trustee, SPSL still has the usual right to be indemnified for a liability incurred in its capacity as trustee.[5]

SPSL maintains a reserve in the Master Trust that it applies to meet or to reimburse itself for the liabilities it incurs as trustee. The reserve is mostly made up of surplus contributions tax amounts.[6] This tax surplus arises because SPSL collects 15% of every taxable superannuation contribution.[7] However, in some circumstances SPSL is entitled to tax deductions. As a result, not all of the 15% it collects needs to be remitted to the ATO to pay the tax due on taxable superannuation contributions. SPSL keeps the difference.[8]

The Trustee Reserve Policy provides that SPSL has a right of reimbursement for properly incurred expenses that SPSL has paid from its own funds.[9] The board is required to satisfy itself that expenses are of a reasonable amount.[10]

A services deed made between SPSL and Suncorp Life provides that SPSL will pay any tax surplus to Suncorp Life in consideration for the provision of ‘Additional Services’.[11] ‘Additional Services’ is defined by reference to services listed in various schedules, and include ‘Administration Services’, ‘Fund Accounting Services’, ‘Investment Services’ and ‘Compliance Services’, as well as any other services agreed by the parties.[12] The expression expressly excludes services provided under the life insurance policies issued by Suncorp Life to SPSL.

Each financial year between 2013 and 2016, management recommended to the SPSL Board that all of the tax surplus should be paid to Suncorp Life.[13] The annual submission by management generally included a breakdown of the cost of services.[14] The management submission referred to a ‘four step test’ for the board in reaching its decision:[15]

  • Understand the quantum of the surplus.
  • Understand the quantum of Additional Services.
  • Consider the appropriateness of paying Suncorp Life the surplus in consideration of those Additional Services. It was said that the reasonableness of the payment could be determined by: the disparity of the fee payable for a particular year with previous financial years; the services provided by Suncorp Life in the particular year and over the life of the services deed; and the risk sharing nature of the agreement.
  • If SPSL determines that the ongoing value of the fee exceeds the ongoing value of the Additional Services, it should initiate negotiations with Suncorp Life to seek a reduction.

On its face, this process required the board to compare the ‘value’ of the fee with the ‘value’ of the Additional Services. But there was no evidence that any attempt was made to value the Additional Services. Rather, the evidence suggested that the cost incurred by SPSL was used as a ‘proxy’ for the value attributed to the Additional Services.[16]

A 2017 board submission (for the 2016 financial year) acknowledged that a number of Additional Services could not be accurately valued, but asserted that the value of Additional Services would be significantly higher than the fee actually charged if there was a more reliable methodology for their allocation.[17]

Mr Pinto told the Commission that an equivalent submission has not yet been made to the board in 2018 (for the 2017 financial year).[18]

6.2.2MySuper transition and ADA transfers

The Commission also heard evidence about SPSL’s transition to the MySuper regime.[19]

As I have noted elsewhere, in 2013 the law was changed to require all RSE licensees to transfer accrued default amounts (ADAs) to a MySuper default option by 1 July 2017.

SPSL started transferring ADAs to its MySuper default option on 9 June 2017, and finished on 19 June 2017 13 days before the five year time limit expired.[20] Mr Pinto told the Commission that the timing of the transition of ADAs was a deliberate strategy to reduce the implementation risk of the transfer of approximately $790 million of members’ funds.[21] He said that the transfer happened after SPSL finished a ‘Super Simplification Program’.[22] This program ran from 2015 to November 2017 and had a number of components, including information technology outsourcing, business process outsourcing, and the simplification of SPSL’s existing suite of products.[23]

One consequence of not transferring ADAs sooner was that members with ADAs continued to be charged grandfathered commissions until just before the statutory deadline. After the transfer, commissions could not be charged because of the MySuper rules. But if members gave an investment direction and opted out of the transfer, they would remain in a choice product, the MySuper rules would not apply and grandfathered commissions would continue to be paid.

Members were notified of the transfer on 6 March 2017. Yet SPSL had started communicating with advisers much earlier. Suncorp, in one 2013 email, told advisers that commissions would be payable on products that contained ADAs ‘until’ 2017.[24] It said that, for choice members who had made an investment decision, ‘[g]randfathered commissions [will still be] paid on insurance and [funds under administration].[25]

SPSL also emailed advisers recommending that ‘you call or write to your key MySuper customers and encourage them to make an investment decision’.[26] It emailed advisers lists of their clients who would be affected by the MySuper changes. Mr Pinto said that the trustee had provided the lists and files to an ‘intermediaries’ team, which was set up to ‘assist advisers’ and ‘build relationships with advisers’, without knowing what the documents would be used for.[27] Mr Pinto accepted that an effect of making an investment decision was that the member would not transition into a MySuper product and would continue to pay commissions.[28]

6.2.3FoFA and grandfathering of commissions

The FoFA legislation was passed by Parliament on 25 June 2012 and commenced on 1 July 2012. Compliance with the FoFA reforms, including the ban on conflicted remuneration, became mandatory from 1 July 2013. Less than one week before that deadline, amendments were made to the Product Issue and Distribution Agreement between SPSL, Suncorp Life and Suncorp Financial Services Pty Ltd (Suncorp Financial).[29]

Clause 7 of the Agreement as amended provides for payment of commission and other fees by SPSL to Suncorp Financial as consideration for distribution of SPSL and Suncorp Life’s products, including superannuation products.

Internal Suncorp emails from June 2013 said (in relation to the amendments): ‘It is critical that these are finalised by this date to ensure that commissions can continue to be paid for any new clients into our products for the next 12 months and can be Grandfathered after 1 July 2014’.[30] SPSL, as trustee of the Master Trust, agreed to these amendments.

The amount of commissions paid to licensees from the Master Trust has decreased somewhat, from $19,570,000 to $14,717,000 between 1 January 2013 and 1 January 2018.[31] But even if that rate of decrease continues, grandfathered commissions will continue to be paid for many years to come.


[1] Transcript, Maurizio Pinto, 13 August 2018, 4813.

[2] Transcript, Maurizio Pinto, 13 August 2018, 4813.

[3] Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, 38 [91]. This is expressly authorised by the trust deed: Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, Exhibit EAC-1 [SUN.1506.0001.0007 at 0035].

[4] Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, 38 [91].

[5] Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, Exhibit EAC-1 [SUN.1506.0001.0007 at 0035].

[6] Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, 33 [77].

[7] Transcript, Maurizio Pinto, 13 August 2018, 4807.

[8] Transcript, Maurizio Pinto, 13 August 2018, 4808.

[9] Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, 412 [97]; Exhibit 5.320, Witness statement of Edward Cooley, Exhibit EAC-1 [SUN.1501.0005.6886].

[10] Exhibit 5.320, Witness statement of Edward Cooley, 25 July 2018, 412 [97]; Exhibit 5.320, Witness statement of Edward Cooley, Exhibit EAC-1 [SUN.1501.0005.6886].

[11] Transcript, Maurizio Pinto, 13 August 2018, 4809–10; Exhibit 5.166, 18 April 2018, Board Submission.

[12] Transcript, Maurizio Pinto, 13 August 2018, 481011.

[13] Transcript, Maurizio Pinto, 13 August 2018, 4809; Exhibit 5.320, Witness statement of Maurizio Pinto, 27 July 2018, Exhibit MP-2 [SUN.1501.0005.5563]; Exhibit 5.320, Witness statement of Edward Cooley, Exhibit EAC-2 [SUN.1506.0011.0267]; Exhibit 5.320, Witness statement of Edward Cooley, Exhibit EAC-2 [SUN.1506.0011.0260].

[14] See, eg, Exhibit 5.166, 18 April 2013, Board Submission.

[15] See, eg, Exhibit 5.166, 18 April 2013, Board Submission; see also Exhibit 5.320, Witness statement of Edward Cooley, Exhibit EAC-2 [SUN.1501.0004.6602]; Exhibit 5.320, Witness statement of Edward Cooley, Exhibit EAC-2 [SUN.1501.0005.0948].

[16] Exhibit 5.320, Witness statement of Maurizio Pinto, 27 July 2018, Exhibit MP-2 (Tab 19) [SUN.1501.0005.5563].

[17] Exhibit 5.320, Witness statement of Maurizio Pinto, 27 July 2018, Exhibit MP-2 (Tab 19) [SUN.1501.0005.5563].

[18] Transcript, Maurizio Pinto, 13 August 2018, 4809.

[19] Exhibit 5.170, 2013, MySuper Transition Plan.

[20] Exhibit 5.164, Witness statement of Maurizio Pinto, 5 August 2018, 30 [32]; Transcript, Maurizio Pinto, 14 August 2018, 4838.

[21] Exhibit 5.164, Witness statement of Maurizio Pinto, 5 August 2018, 30 [32].

[22] Exhibit 5.164, Witness statement of Maurizio Pinto, 5 August 2018, 30 [32].

[23] Exhibit 5.164, Witness statement of Maurizio Pinto, 5 August 2018, 1920 [21].

[24] Transcript, Maurizio Pinto, 14 August 2018, 4837–8; Exhibit 5.165, Witness statement of Maurizio Pinto, 6 August 2018, Exhibit MP-4 (Tab 3) [SUN.1508.0007.4238].

[25] Exhibit 5.165, Witness statement of Maurizio Pinto, 6 August 2018, Exhibit MP-4 [SUN.1508.0007.4238].

[26] Exhibit 5.165, Witness statement of Maurizio Pinto, 6 August 2018, Exhibit MP-4 [SUN.1508.0007.4238]; Transcript, Maurizio Pinto, 14 August 2018, 4839.

[27] Transcript, Maurizio Pinto, 14 August 2018, 4840–1.

[28] Transcript, Maurizio Pinto, 14 August 2018, 4839.

[29] Exhibit 5.375, 24 June 2013, Document Approval Process Form for Distribution Agreement (SFS, SPSL and Suncorp Life), 17.

[30] Exhibit 5.375, 24 June 2013, Document Approval Process Form for Distribution Agreement (SFS, SPSL and Suncorp Life), 5.

[31] Exhibit 5.164, Witness statement of Maurizio Pinto, 5 August 2018, 32 [33].