Q. I have a super account with MLC and have been surprised to find that they are imposing a fee on me to fund their Operational Risk Financial Reserve.  Is this legal? Why are they charging me to fund the reserve instead of rearranging their investments to fund the reserve?


A.  On 16 December 2010, the Government announced the Stronger Super package of reforms in response to the recommendations of the Super System Review. As part of these reforms the Government announced that the capital requirements for superannuation fund trustees should be replaced with a risk-based system applying to all funds regulated by the Australian Prudential Regulation Authority (APRA) for holding capital reserves against “operational risk”. (Prudential Standard SPS 114)

An “operational risk” is the risk of loss to a member of a fund as a result of inadequate or failed internal process, people, systems or risk management from the Superannuation entity. Think of it like an insurance policy for a member of a Super fund protecting the members from the wrongful actions of the Superannuation fund. From 1 July 2013 Superannuation Funds were obligated to build this reserve within their fund.  The target level of the reserve is determined by the Trustees of the fund and approved by APRA.  Trustees had 3 years from 1 July 2013 to comply with the this new requirement.

In MLC’s case, they have determined that they will hold .25% of total assets under management in reserve to satisfy their obligations by 1 July 2016. To fund this they have imposed a levy on all Superannuation fund members of .1% of your fund balance for the 2014-2015 Financial year and the 2015-2016 Financial Year.  They subsequently will reserve the right to charge you additional amounts to top up the fund if they deem it necessary from time to time. I.e if they have to dip into the fund to compensate members of the fund, the members may need to pay more to replenish the fund!

Is it legal? Yes.  Are you happy about it? Most likely not.  What are your options? Grit your teeth and pay it or shop around to find another Super fund that doesn’t charge the member to protect them from the Fund’s operational risks….

Follow Andrew on Twitter @AndrewHeavenFP. This article was originally published in The Australian