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Unravelled: Protecting accrued superannuation benefits from adverse changes

6 September 2016

Written by Senior Regulatory Counsel Michael Mathieson

For a long time now, superannuation lawyers have tried to work out the meaning of the following words: 'a beneficiary's right or claim to accrued benefits, and the amount of those accrued benefits, must not be altered adversely to the beneficiary by amendment of the governing rules or by any other act carried out, or consented to, by the trustee of the fund'. Two recent court decisions suggest that that endeavour may be unrewarding. One judge concluded that this legislative protection – found in regulation 13.16 of the SIS Regulations – should be 'reviewed and recast by the Commonwealth'.

Commonwealth Bank v Beck

This was a judgment of the NSW Court of Appeal, allowing an appeal by the Commonwealth Bank against a Supreme Court judgment in favour of Mr Beck.

A trustee of a superannuation fund, of which Mr Beck had been a member, had removed from the fund's trust deed, while he was still employed, a provision for early retirement benefits. The entitlement conferred by the provision was heavily qualified. First, there were three pre-conditions: it only applied to members who were not entitled to any other benefit from the fund, it required that 'exceptional circumstances' exist and it required that, usually, the member have a long period of service. Secondly, even if the pre-conditions were satisfied, entitlement to the benefit was a matter for the trustee's discretion. Thirdly, the trustee's discretion could not be exercised without the consent of the sponsoring company.

Mr Beck persuaded the trial judge that the removal of the early retirement benefit provision involved a contravention of regulation 13.16. This was an arresting conclusion for a superannuation lawyer. It suggested that regulation 13.16 had a much broader scope than most would have thought. It cast doubt on a wide range of trustee actions.

In the Court of Appeal, the Commonwealth Bank argued that the trial judge's finding that Mr Beck, at the time of the amendment, had a right to consideration for an early retirement benefit was plainly wrong, as he remained employed and no occasion to give consideration to that question had arisen. The Court of Appeal agreed.

The Court of Appeal said that where a member 'has not yet achieved the qualifying characteristic stipulated in a discretionary benefit provision' (eg retirement at a certain age), the benefit, being either the right to be considered or the pension entitlements, has not accrued. It is, at best, 'an inchoate right in the process of accrual but subject to a variety of contingencies'. The fact that a beneficiary has a right to due administration of the fund does not mean that any potential benefit is an accrued benefit.

The Court of Appeal's analysis of the accrued benefits issue, in those circumstances, seems conventional and correct. But it does raise an interesting question – what, then, does regulation 13.16 protect? For example, does it protect a defined benefit member's normal retirement benefit only from normal retirement age? Or only from retirement after reaching normal retirement age? Is a trustee really free to adversely alter a member's normal retirement benefit on the day before they reach normal retirement age? Or on the day before they retire? The maker of regulation 13.16 may not have thought so.

REST v Pain

This was a judgment of the Supreme Court of South Australia, allowing an application by the REST trustee for judicial amendment of the fund's trust deed, including amendments to the power of amendment.

In the course of a lengthy and detailed judgment, Justice Blue considered the scope of regulation 13.16 and concluded that two competing interpretations were available.

On the first available interpretation, Justice Blue said that the reference to a beneficiary's right or claim to accrued benefits might be confined to a member's right or claim to benefits that become payable because a member reaches retirement age, dies or becomes totally and permanently disabled, or becomes entitled to payment under an insurance policy, and the reference to the amount of accrued benefits applies to the balance in a member's account at that time. On this interpretation, regulation 13.16 would have very little work to do. This interpretation seems to align with the approach of the Court of Appeal in Beck.

On the second available interpretation, Justice Blue said: 'if it is not so confined, it might potentially encompass all rights or claims of a member under the governing rules'. On this interpretation, regulation 13.16 would have a lot of work to do - indeed it could leave a trustee's power of amendment with little scope to operate. This interpretation seems to align with the approach of the trial judge in Beck.

Justice Blue did not say which of these interpretations he preferred. What Justice Blue did say was that any formula to limit amendments 'that is apt for an accumulation fund is not apt for a defined benefit fund and vice versa'. This makes sense. Accumulation benefits and defined benefits are different such that it is unlikely that the same verbal formulation will be suitable in both cases. This, in part, explains the court's suggestion that law reform is required.


The completing interpretations identified by the court in REST v Pain bring to mind the judicial dispute about the scope of the statutory constraint on the power of a responsible entity to amend a registered scheme's constitution without seeking member approval. The statutory constraint had been interpreted as either very modest in its reach (see, eg, Re Centro Retail Ltd (2011)) or very far-reaching (see, eg, 360 Capital Re Ltd v Watts (2012)). For now, the weight of opinion seems to be that it is very far-reaching (see Lewski v ASIC (2016)).

In a superannuation context, the position is less clear. The approach of the Court of Appeal in Beck suggests that regulation 13.16 may not mean very much at all. Some will say that, if that is correct, it does not matter, because a superannuation trustee is appropriately constrained by its fiduciary obligations and its statutory covenants. However, the maker of regulation 13.16 may not agree. Justice Blue would be unlikely to. And I am not sure I would either. Carefully considered law reform is certainly desirable.

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