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

THE 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, Darryl Kerrigan wins a High Court battle to stop the government 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 laws 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 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 in a pre-existing contract.

It also rejected claims 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 because a number of non-employee advisers has 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, though this was still a long way off.

"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 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 influential parliamentary joint committee on corporations and financial services this week called for the bill to be passed. However, 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 laws that would force transfers of default superannuation balances to MySuper products?

The proposed laws would require trustees to transfer all default balances held in default super funds into low‑cost, commission‑free MySuper products by July 2017. The government says the change is intended to cut fees and save fund members hundreds of millions of dollars a year by removing payments for services many members don't use.

Why is AMP opposing the forced transfer of default super balances?

AMP says it has obtained preliminary legal advice raising doubts about the constitutionality of the compulsory transfer, arguing it would deprive trustees and non‑employee advisers of fee income agreed under pre‑existing contracts. AMP describes parts of the bill as an overt taking away of existing remuneration and wants changes to remove constitutional concerns.

What constitutional concern does AMP cite about the super transfer law?

AMP and some advisers cite Section 51(xxxi) of the Constitution, which covers acquisition of property on just terms. They argue the forced removal of contractual fee entitlements could amount to an acquisition of property without just terms, and they want retrospective elements of the bill removed to avoid that doubt.

Could financial advisers or trustees legally challenge the bill 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 goes through in its current form. Treasury, however, says it has received legal advice that the legislation would operate as intended, so the issue could end up being tested in court.

How will the proposed MySuper transfers affect everyday super fund members?

According to the government, members should benefit because default balances would move to lower‑cost, commission‑free MySuper products, reducing fees and saving members collectively hundreds of millions of dollars a year. The article does not provide specific member‑level savings or detailed impacts for individual accounts.

What change has AMP asked the government to make to the bill?

AMP urged the government to remove the bill's 'retrospective elements' — language it says would help eliminate constitutional doubts about taking away advisers' and trustees' existing contractual fee entitlements.

What are the political positions on the bill in Parliament?

Labor members of the parliamentary joint committee on corporations and financial services have called for the bill to be passed. Coalition committee members oppose the changes and cited constitutional concerns in a dissenting report, so the bill has divided opinion across parties.

What should everyday investors watch for next regarding the forced MySuper transfers?

Investors should watch parliamentary progress on the bill, whether the government amends or removes the retrospective elements, and any legal challenges from advisers or trustees. The proposed start date mentioned in the article is July 2017, so developments around implementation timing and court outcomes will be important to follow.