Tell 'em they're dreamin': AMP says vibe of new super plan hurts

WEALTH management giant AMP has invoked the section of the constitution made famous in The Castle in a push to water down laws requiring the transfer of billions in superannuation savings to commission-free accounts.

By InvestSMART · 11 Oct 2012

By InvestSMART ·
11 Oct 2012

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In the 1997 film, fictional Melbourne man Darryl Kerrigan wins a High Court battle to stop the government from acquiring his home because the purchase would not have occurred "on just terms".

Now AMP says the same section of the constitution is at risk of being breached by bills before Parliament.

But while the legal debate in the film was about acquiring a house, this is a dispute about taking away advisers' income. Under the proposed laws, trustees of super funds will be required to transfer all balances held in default super funds to low-cost, commission-free, MySuper products by July 2017.

The government says this will save fund members hundreds of millions in fees a year because they will no longer be paying for services many don't use.

But AMP, which has the largest financial advice network in the country, says it has obtained preliminary legal advice that raises "doubt about the constitutionality" of the forced transfer of default balances.

In a submission to a parliamentary committee, AMP said the compulsory transfer would deprive fund trustees and advisers "of their entitlement to fee income" that had been agreed to in a pre-existing contract.

It also rejected claims that the government was allowing a gradual "transition" to the new regime by delaying the start date to 2017.

"The requirement . . . does not really provide a transition at all," AMP's submission said.

"On the contrary, it is an overt taking away of the existing entitlement to the remuneration that the advisers currently receive through existing contractual arrangements."

AMP said it had sought the legal advice after a number of non-employee advisers raised concerns about a breach of section 51 (xxxi), which deals with the acquisition of property "on just terms".

It urged the government to scrap the "retrospective elements" of the bill, saying this would "remove constitutional doubts".

The chief executive of the Association of Financial Advisers, Richard Klipin, said there was likely to be a legal challenge to the bill from advisers in its current form.

"It will absolutely end up being tested in court at some point in time if it goes through as is," Mr Klipin said. The government, however, appears less concerned.

Treasury officials who were asked about the constitutional concerns said the government had received legal advice that the legislation would operate as intended.

Labor members of the parliamentary joint committee on corporations and financial services this week called for the bill to be passed. But committee members from the Coalition which opposes the changes cited the constitutional issue as a concern in a dissenting report.

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Frequently Asked Questions about this Article…

What are the proposed superannuation changes that AMP is disputing?

The proposal would require trustees to transfer all balances held in default super funds into low‑cost, commission‑free MySuper products by July 2017. The government says the change will save members hundreds of millions in fees, while AMP has raised legal objections to the forced transfer.

Why is AMP arguing the super transfer could be unconstitutional?

AMP says preliminary legal advice raises doubts under section 51(xxxi) of the Constitution (the acquisition of property on just terms). It argues the compulsory transfer would deprive fund trustees and non‑employee advisers of fee income they were contractually entitled to, amounting to an overt taking of existing entitlements.

How would the proposed MySuper transfers affect financial advisers' fees?

According to AMP, the compulsory movement of default balances to commission‑free MySuper products would remove the fee income advisers currently receive under existing contractual arrangements. That loss of remuneration is central to AMP's constitutional concern.

What is section 51(xxxi) and how does it relate to this superannuation dispute?

Section 51(xxxi) of the Constitution deals with the acquisition of property on just terms. AMP and some advisers contend the forced transfer of default balances effectively acquires contractual fee entitlements without just terms, while Treasury says the government has legal advice the legislation would operate as intended.

Are legal challenges to the bill likely if it becomes law?

Yes. The chief executive of the Association of Financial Advisers, Richard Klipin, said a legal challenge is likely if the bill proceeds in its current form, and AMP has already obtained preliminary legal advice raising constitutional doubts.

What are the 'retrospective elements' AMP wants removed from the bill?

AMP has urged the government to scrap the bill's retrospective elements because it says those provisions remove previously agreed entitlements to remuneration and create constitutional doubt. Removing retrospective elements, AMP argues, would reduce the risk of an acquisition‑on‑unjust‑terms claim.

How have politicians and Treasury responded to the constitutional concerns?

Labor members of the parliamentary joint committee urged the bill be passed, while Coalition committee members dissented and cited the constitutional issue. Treasury officials told the committee the government has received legal advice that the legislation would operate as intended.

What should everyday super fund members know about these proposed changes?

The government says transferring default balances to commission‑free MySuper products will cut fees and save members hundreds of millions of dollars a year. However, AMP and adviser groups have raised constitutional and contractual concerns and a legal challenge is possible, so the final outcome and timing may change as the legislation and any court challenges proceed.