Advice may be missing as schemes wound up

There are concerns some members of superannuation plans that are being wound up ahead of the introduction of the Financial Markets Conduct Act are not getting enough advice on what to do with the resulting windfalls.

Wednesday, November 2nd 2016, 6:00AM

by Susan Edmunds

Richard James

Many providers and employers have opted to close individual super savings schemes rather than transition them to the new FMCA environment, under which it is more challenging to meet regulatory requirements.

Sovereign has been in the news this week as it winds up its Personal Superannuation Plan, citing the increased cost of managing it under the FMCA. Some members said they were not given enough information about the tax and governance implications of that.

Richard James, of NZ Funds, said there were lots of schemes closing down because it was too hard to bring them up to standard under the new legislation.

"It's a shame for clients who have spent decades accumulating wealth in a super scheme. Then the manager pays it out with no guidance supplied, they could end up frittering away that money. There is millions being paid out because the institutions can't be bothered bringing these schemes up-to-date."

He said the industry risked letting those clients down, if there was inadequate advice provided for what could potentially be an important amount of money. He said many people would face the temptation to splash out on something such as a new car when a wiser choice might be to reinvest.

David Boyle, group manager of investor education at the Commission for Financial Capability, agreed. "People are unexpectedly receiving money they hadn't thought would be available. in most cases they have no idea what they want to do."

He said providers who were cashing out the schemes should explain clients' options to them.

"Show them what that lump sum might mean in the long-term if they invested it. I would hope there is support for people to make better decisions than leaving them to their own devices."

A direction of where to go for help should be a minimum requirement of providers, he said. Many employer schemes had been set up with the express purpose of helping staff, he said, and further advice was in the spirit of that.

A Sovereign spokeswoman said the FMCA changes had not been anticipated when the policies were sold.

"The decision to wind up the scheme was made as the new FMCA compliance requirements would add significant costs to the management of the schemes, which we do not wish to pass on to members, as this would reduce their retirement savings over time," she said.

"Wherever we could, we have given customers the opportunity to continue with their investment. For eight of the 12 superannuation schemes on wind up, the affected schemes will cease to be a ‘registered superannuation scheme’, and the trust deed governing the schemes will no longer apply. Once the schemes are wound up, ownership of the investment policies will transfer from the trustee [Sovereign Superannuation Trustees Limited] to the customers. At this stage any lock-in provisions that were in place on the customer’s scheme will no longer apply. In other words, customers will not be financially penalised by the scheme wind-up."

She said there were no changes to terms and conditions, except benefits becoming accessible to customers that had previously had them locked.

Four other schemes will pay out to members. "Sovereign has no on-sale investment products, but encourage members to seek advice from an authorised financial adviser who will be able to assist customers to review their current investment goals and find alternative investment options where necessary."

Tags: financial advisers Sovereign superannuation