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MySuper authorisation, investment options and lost members

MySuper authorisation, investment options and lost members.

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We are pleased to announce that Commonwealth Superannuation Corporation (CSC) has been granted a MySuper authorisation. We have also made some changes to streamline your PSSap investment options and implemented an operational risk reserve to protect your interests should an operational failure occur. We would like to inform you of the new requirements for lost accounts and unclaimed superannuation monies.

MySuper authorisation

Obtaining authorisation is important to the ongoing operation of PSSap. CSC was amongst the first group of superannuation trustees to be authorised by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product, receiving authorisation in February this year.

MySuper is a Government initiative designed to improve the simplicity, transparency and comparability of default superannuation investment options (which in the PSSap is the Trustee Choice investment option).

How does this impact my PSSap account?

The changes do not adversely affect your PSSap superannuation benefits; you do not need to take any action. 

If you have an investment in Trustee Choice, you need to be aware that from 1 July 2013, the option will be renamed MySuper Balanced and that you will be regarded as a MySuper member from that date.

Contributing PSSap members will also have new insurance choices from 1 July 2013. You will be able to choose either Death and Total & Permanent Disablement cover; Death Only cover or to opt out of cover. Further information about this change will be available from the PSSap website from 1 July.

Investment objectives and asset allocations

From 1 March 2013, CSC changed the investment return objectives and target asset allocations for some of the PSSap investment options.

The new investment objectives for the relevant investment options are set out in the table below:

Investment option
Investment option Investment return objective Investment horizon
Aggressive CPI + 4.5% 15 years
Trustee Choice CPI + 3.5% 10 years
Balanced CPI + 3.5% 10 years
Conservative CPI + 2% 5 years

CSC changed the investment objectives for these options because we expect that, for the same level of risk taking, average investment returns in the decade ahead will be lower than those generated in the stronger growth environment of the 1980s -2000s. This reflects the ongoing impact of the global financial crisis. As developed economies reduce their debt, growth in economic activity and in corporate earnings is likely to be lower, on average, than in the decades preceding the crisis.

CSC believes that it is important to reflect our view on future investment returns into investment objectives.

This allows you to make informed choices about which investment options are most suitable for you, based on those objectives and the tolerance for risk within each investment option.

For the Trustee Choice (default) option, tolerance for risk is defined as a 20% probability of loss. This is broadly equivalent to an expectation that the Trustee Choice option is likely to generate at least one year of negative returns in every five years. CSC expects that, to maintain this tolerance for risk, real returns for Trustee Choice (in other words, returns above inflation) are likely to average around 3.5% per annum over the next decade. Importantly though, in any one year, real returns may vary materially.

Target asset allocations for investment options have also changed. More information is available on the PSSap website and the PSSap Product Disclosure Statement, which is also accessible via the website.

Renaming investment options

In addition to Trustee Choice becoming MySuper Balanced, the Conservative option will be renamed Income Focused from 1 July 2013. The Conservative investment option is being renamed to better reflect the underlying objectives of the option.

Closing investment options

A little over 93% of members’ benefits in PSSap are currently invested via three pre-mixed investment options (Trustee Choice, Conservative, Aggressive). A further 2% of members’ benefits are invested via the Cash option. The remaining 5% of members’ benefits are spread over the other seven investment options currently offered.

Given the predominance of investment in the Trustee Choice, Conservative and Aggressive options, as well as the costs and complexity of maintaining numerous investment choices, CSC has decided to streamline the number of the investment options it offers to members.

The table below sets out the planned changes:

Investment option Planned changes
Pre-mixed options
Trustee Choice Renamed MySuper Balanced
Conservative Renamed Income Focused
Aggressive

No change

Balanced From 1 July 2013 you will not be able to switch into this option and it will no longer be offered to new members. From November 2013, closed to PSSap members
Individual asset class options
Government Bonds

From 1 July 2013 you will not be able to switch into these options and they will not be offered to new members. From November 2013, closed to all PSSap members

International Shares
International Shares (Unhedged)
Australian Shares
Property
Sustainable
Cash No change

I am invested in one of the investment options that is closing. What do I need to do?

You do not need to do anything straight away.

Unless you choose to switch your investment or change your future contributions profile, your investment will remain in your chosen investment option through to October this year. From 1 July 2013, you will not be able to switch monies into the closing investment options, or elect to change to receive future contributions into the closing investment options.

Towards the end of October, any monies in the closing investment options will be transferred into the PSSap default option (Trustee Choice, being renamed MySuper Balanced). Any contributions being made into the closing investment options will be directed to the default option from November this year.

As is the case now, you can choose to switch your current and future investments by completing the Investment Choice form available from the website or online via your PSSap Member Services Online account.

If you are invested in an option that is about to close, we will remind you again about your options closer to October this year. If you have any questions in the meantime, please contact us on 1300 725 171.

Operational Risk Reserve

The Government’s Stronger Super reforms require trustees of all super funds to establish and maintain an operational risk reserve from 1 July 2013. The purpose of a risk reserve is to provide a source of financial resources to protect members’ interests should an operational failure occur that results in losses to the Scheme or to members. An operational failure may occur due to inadequate or failed internal processes, people and systems or from external events. Use of an inaccurate unit price to process a transaction is an example of an operational failure that could lead to a Scheme or member loss, which may be addressed through the use of the operational reserve.

CSC has set a target funding level for the risk reserve of $15M (which represents approximately 0.40% of funds held within PSSap).

CSC will build up the risk reserve over time to minimise the impact on current members. Based on the current funds held within PSSap, from 1 July 2013 an amount of 0.14% p.a. will be accrued from unit prices of the PSSap investment options. This will result in a minor impact on the unit prices and investment earnings of investment options. It is expected that the target funding level will be met after three years, but this could change if an operational failure occurs within that period which requires use of the reserve. CSC will provide an update if there are material changes to the operation of the risk reserve. CSC will be monitoring the build up of the operational risk reserve quarterly to ensure it remains on track.

Lost members

The Government recently made changes to the treatment of lost accounts and unclaimed superannuation monies. As a result of these changes, the key thing you need to do is make sure that we have up to date contact details for you. If you become un-contactable, CSC may need to transfer your superannuation benefit to the Australian Taxation Office (ATO) and this could have implications for you, such as the potential loss of an insurance benefit.

The recent changes require CSC to transfer accounts on the Lost Members Register to the ATO where an account balance is $2,000 or less (previously the threshold was $200).

Most commonly, a member in PSSap will be placed on the Lost Members Register when two pieces of correspondence have been returned to PSSap and no contribution or rollover has been received from a member within the last 12 months.

A member may also be placed on the Lost Members Register if their account is inactive. A member’s account becomes inactive if they have been a member for more than two years and no contributions or rollovers have been received from them within the past five years.

Refer to the ATO website for more information about the treatment of lost superannuation accounts and unclaimed superannuation monies.

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