2017 ended on a typically busy note, with several new superannuation-related announcements added to the already crowded agenda for 2018. This month’s rules and regs highlights some of the significant recent developments and updates the status of the government’s superannuation bills.
Royal Commission into banking, superannuation and financial services
The government has formalised the details for its Royal Commission into misconduct in the banking, superannuation and financial services industry.
Of particular relevance for superannuation, the terms of reference require the Commissioner, Kenneth Hayne, to inquire into whether:
- the use by financial services entities of superannuation members’ retirement savings, for any purpose, does not meet community standards and expectations or is otherwise not in the best interests of those members
- any conduct, practices, behaviour or business activities by financial services entities fall below community standards and expectations
- mechanisms for redress for consumers of financial services who suffer detriment as a result of misconduct by financial services entities are effective.
The Commissioner may provide an interim report to the government by 30 September, and is required to provide his final report and recommendations by 1 February 2019.
Status of superannuation–related bills
Bills to implement the government’s May 2017 Budget superannuation housing measures were passed by Parliament in December. The First Home Super Saver Tax Bill 2017 and Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 1) Bill 2017 implement the government’s May 2017 Budget measures to allow individuals to make an amount of voluntary contributions to superannuation and then access those contributions and earnings to purchase a first home. They also allow individuals aged 65 and older to make a ‘downsizer’ contribution to superannuation from the proceeds of the sale of their main residence.
A number of superannuation-related bills were still before the Parliament at the end of its 2017 sittings:
- Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 – this proposes to replace the Superannuation Complaints Tribunal (SCT) with a new external dispute resolution (EDR) body, the Australian Financial Complaints Authority (AFCA). It also provides ASIC with the power to specify new internal dispute resolution requirements for financial firms, including superannuation trustees. The Bill has been passed by the Senate and awaits debate in the House of Representatives.
- Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.1) Bill 2017 – this includes amendments to strengthen APRA’s powers in relation to registrable superannuation entity (RSE) licensees and provide APRA with the ability to obtain information on expenses incurred by RSEs and RSE licensees in managing or operating the RSE. It also introduces an annual ‘member outcomes’ test for MySuper products, requires RSE licensees to hold annual members’ meetings, and amends the portfolio holdings disclosure rules. In December the Government placed debate on hold in the Senate (the Bill is yet to come before the House of Representatives).
- Superannuation Laws Amendment (Strengthening Trustee Arrangements) Bill 2017 – this requires superannuation trustees to have at least one third independent directors. The Government has placed debate on hold in the Senate (the Bill is yet to come before the House of Representatives).
- Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017 – this amends the superannuation guarantee (SG) law to give employees under workplace determinations or enterprise agreements made from 1 July 2018 the right to choose their fund. It also ensures that salary sacrificed amounts will not reduce an employer’s mandated SG contributions. The Bill has been passed by the House of Representatives, but debate was placed on hold in the Senate in December.
- National Disability Insurance Scheme funding Bills – these bills will increase the Medicare levy, and certain tax rates tied to the top marginal tax rate, to fund the National Disability Insurance Scheme. Some will impact the tax to be withheld from superannuation fund members’ benefits or paid by funds. The bills have been passed by the House of Representatives and are before the Senate.
- Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 – this consolidates the financial system whistleblower regimes into a single, strengthened whistleblower protection framework covering the corporate and financial sectors – including superannuation funds. It also introduces a comprehensive regime for the protection of individuals who report tax-related breaches or misconduct. The Bill was introduced into the Senate in December.
- Superannuation Objective Bill 2016 – this Bill, which sought to specify primary and subsidiary objectives for the superannuation system, has not been debated since November 2016 and remains before the Senate.
MYEFO: SCT funding, SG measures, reporting
The government’s mid-year economic and fiscal outlook 2017/18 (MYEFO) contained a number of superannuation-related measures, including:
- AFCA and SCT – the government will provide funding for the expert reference panel that is assisting with the establishment of AFCA. The SCT will receive additional funding – to be offset by an increase in the annual APRA levy to resolve its outstanding complaints by 30 June 2020, when it will cease operations
- closing salary sacrifice loopholes – from 1 July 2018, the government will prevent employers from using salary sacrificed contributions to reduce their SG contribution obligations. Amendments to implement this measure are included in the Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2017
- reporting – the government will provide funding to the ATO to support the modernisation of payroll and superannuation fund reporting. As part of this measure, Single Touch Payroll reporting will be extended to employers with fewer than 20 employees, streamlining the reporting of the employer’s Pay-As-You-Go withholding and SG obligations to the ATO. The funding will also support APRA-regulated funds as they move to event-based reporting of contributions to the ATO
- SG measures – the ATO will receive funding to improve its processes for recovering unpaid SG and establish a compliance taskforce. The government will also strengthen the SG penalty regime, enabling the Commissioner to direct employers to undertake specified actions such as education and training where they have failed to comply with their SG obligations.
Fee and cost disclosure
ASIC has extended the time period for some interim arrangements for fee and cost disclosure for product disclosure statements (PDSs) and periodic statements.
ASIC Corporations (Amendment) Instrument 2017/1138 was made in late December in response to a joint application to ASIC made by ASFA, the Australian Institute of Superannuation Trustees and the Financial Services Council. It extends the time period for some interim arrangements for fee and cost disclosure for periodic statements, originally in place until 30 June 2018, to allow them to operate for an additional year. It also extends the time period for some interim arrangements for PDSs, originally in place until 30 September 2018, to allow them to operate for an additional year.
Strengthening member outcomes
APRA has released a consultation package on proposed changes to the prudential framework designed to enhance strategic and business planning, oversight of fund expenditure and the assessment of outcomes for members of RSEs.
This follows the release of a letter to industry in August 2017 outlining APRA’s proposals to strengthen operational governance and the introduction into Parliament of the Treasury Legislation Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Bill 2017 (Member Outcomes Bill).
The consultation package proposes measures including:
- changes to prudential standard SPS 220 Risk Management relating to strategic and business planning and fund expenditure policies and processes
- a new standard, SPS 225 Outcomes Assessment, requiring all RSE licensees to annually assess the outcomes provided to members using a broader range of measures
- new prudential practice guides to assist RSE licensees with their strategic and business planning and the outcomes assessment
- amending SPS 250 Insurance in Superannuation to require RSE licensees to provide straight-forward processes for opting-out of all insurance products.
APRA has indicated that its proposals are independent of the Member Outcomes Bill, which has not yet been approved by the Parliament. The final standards will reflect feedback from the consultation and any legislation that may be passed by Parliament. APRA expects to release the new and revised prudential measures by mid-2018, with a proposed commencement date of 1 January 2019.
Early release of superannuation
The government has asked Treasury to review the current rules governing early release of superannuation on grounds of severe financial hardship and compassionate grounds, and whether superannuation assets should be available to pay compensation or restitution to victims of crime.
Key issues raised in a consultation paper released by Treasury include:
- the rapid increase in the use of superannuation for medical treatment
- whether the mortgage foreclosure ground should be extended to rental eviction
- whether the current rules for release on grounds of severe financial hardship appropriately balance the need for simplicity and consistency with fairness
- whether, and in what circumstances, an offender’s superannuation should be available to pay compensation or restitution to victims of crime.
Other existing grounds for early release of superannuation benefits, such as for terminal medical conditions, incapacity, or departing Australia will not be considered as part of the review. However, the paper does ask whether the existing compassionate grounds for early release should be expanded – for example to allow a release to victims of domestic violence.
Treasury will provide a report and recommendations to government in March.
The government has also announced that the regulatory role of administering the early release of superannuation on compassionate grounds will be transferred from the Department of Human Services to the Australian Taxation Office (ATO) during 2018. As part of this change, the government will allow the ATO to notify a superannuation fund when it has authorised early release of superannuation benefits, reducing the need for manual, paper based processes.
Design and distribution obligations and product intervention power
Treasury has released a draft of legislation to implement proposed new ‘design and distribution’ obligations for financial services providers and a product intervention power for ASIC, taking up recommendations made in the final report of the Financial System Inquiry.
The proposed design and distribution obligations will generally apply to financial products—including superannuation products other than MySuper products—that require a PDS. Key elements of the proposals include:
- offerors must make target market determinations for affected products, and develop and abide with a plan for reviewing determinations
- offerors and distributors must not deal and provide advice in relation to a product unless a determination is in place offerors and distributors must take reasonable steps to ensure dealings and advice are consistent with the most recent determination.
ASIC’s enforcement powers will include the ability to request necessary information and issue stop orders. A person who suffers loss or damage because of a contravention of the design and distribution obligations may recover that loss by civil action.
The obligations are intended to commence—and apply to new financial products—12 months after the legislation receives Royal Assent. Existing financial products will become subject to the new regime 24 months after Royal Assent.
Under the proposed product intervention power, ASIC will be able to intervene in relation to financial products by making orders to prohibit specified conduct related to the product. The power can be used where ASIC is satisfied that a product or class of products has resulted, or is likely to result, in significant detriment to retail clients. The power is intended to apply only in relation to products acquired by consumers from the day after the legislation receives Royal Assent.
Submissions on the draft legislation close on 9 February.
Compensation scheme of last resort
The government has released the supplementary final report from the Ramsay Review of the EDR framework, focusing on the establishment of a compensation scheme of last resort (CSLR) and providing redress for past disputes.
The report recommends that a CSLR should be established, but should initially be restricted to financial advice failures where a financial adviser has provided personal and/or general advice on ‘relevant financial products’—including superannuation products—to a consumer or small businesses. However, a CSLR could be expanded over time to cover other types of financial and credit services, should evidence of significant problems of uncompensated losses emerge. Any CSLR should only apply to unpaid EDR determinations, court judgments and tribunal awards made after the CSLR is established.
The Review also considered the provision of access to redress in circumstances where a dispute was of a type that could be resolved via EDR but, for various reasons, was not resolved. The Review noted that while there is merit in considering providing access to redress in some circumstances, a number of complex issues would need to be resolved.
The government has indicated it will defer its consideration of, and response to, the report until the conclusion of the banking, superannuation and financial services Royal Commission.