ASFA Action Issue 960, 20 August 2024

In this issue:

 

Financial regulatory framework and home ownership: new Senate Committee inquiry

The Senate Economics References Committee, chaired by Senator Andrew Bragg, will undertake a new inquiry into whether the present financial regulatory framework adequately prioritises the goal of home ownership for Australians.

The terms of reference require the Committee to have particular reference to: 

  1.  APRA prudential standards and Corporations Act 2001 provisions for lending
  2.  the nature and type of debt and equity arrangements being used to underpin housing development
  3.  the appropriate involvement (if any) of corporate and institutional funds in the provision of housing 
  4.  the effectiveness of mechanisms to monitor investment in the residential property market 
  5.  the tax treatment of residential property and impacts on demand and house prices 
  6.  the adequacy of metrics available to policymakers for monitoring the ratio of new housing supply relative to population growth 
  7.  examples of effective priority treatment for aspiring Australian homeowners that do not compromise financial stability 
  8.  any related matters.

The specific terms of reference do not include the use of superannuation for a home purchase, which is being considered in the Committee’s existing inquiry into improving consumer experiences, choice and outcomes in Australia’s retirement system. However, item 3, relating to the involvement of institutional funds in the provision of housing, may be of interest to superannuation funds as investors. 

The Committee is seeking submissions by 26 September and is due to provide a report to Parliament by 5 December. 

If you have any feedback you would like ASFA to consider in relation to the inquiry, please forward it to Ross Clare by close of business Monday 16 September.

Cyber resilience weaknesses: APRA insights 

As reported in ASFA Action issue 949, in June APRA wrote to all regulated entities to emphasise the critical role of data backups in cyber resilience. 

APRA has now written a further letter, providing additional insights and guidance on common cyber control weaknesses. The letter details the common issues observed in terms of security in configuration management, privileged access management and security testing.  

APRA has indicated it expects regulated entities to review their control environment against these common weaknesses. If the review identifies gaps that could materially impact the entity’s risk profile or financial soundness, APRA considers this a material security control weakness notifiable under paragraph 36 of the Prudential Standard CPS 234 Information Security. 

APRA also recommends that entities conduct regular self-assessments aligned with the sound practices in Prudential Practice Guide CPG 234 Information Security and adopt relevant mitigation strategies from established frameworks like the Essential Eight. 

Protecting super from scammers: AFCA warning to funds and advice to consumers 

AFCA has published a note warning trustees that instances of more sophisticated scam activity in superannuation and “trustees have a window of opportunity to act so we don’t see the sorts of issues we have seen elsewhere”.  

AFCA is urging fund trustees to review the processes they have in place to help shield members from fraud, and to ward off any escalation of activity by scammers. Heather Gray, AFCA’s Lead Ombudsman, Superannuation, said “Funds that haven’t done so already should consider using technology such as multi-factor authentication (MFA) to reduce the risk that fund members might lose money from their super accounts through scams and other fraud.” 

Ms Gray noted there were fewer than 20 complaints in relation to scams last financial year from superannuation fund members, but that is not a reason for complacency: “The average loss claimed was $88,736 and ranged as high as $344,000-plus – a potentially life-changing sum.” 

AFCA also highlighted actions that fund members can take to help keep their superannuation safe, including: 

Transfer balance cap value of non-lifetime permanent incapacity pensions: regulations  

The Government has registered the Income Tax Assessment Amendment (Transfer Balance Account Value for Certain Superannuation Income Streams) Regulations 2024, prescribing rules for dealing with certain superannuation income streams for the purpose of the transfer balance account provisions.  

The Regulations apply to certain non-lifetime permanent incapacity pensions that scheme trustees had not reported as a superannuation income stream because they did not meet relevant legislative criteria prior to the Government’s legislative response to the Federal Court decision in Commissioner of Taxation v Douglas (“the Douglas decision”; see ASFA Action issue 904 in relation to that legislative response, in the Treasury Laws Amendment (2022 Measures No 4) Act 2023). The Regulations apply where the scheme trustee has not reported to the Commissioner for transfer balance cap purposes prior to the commencement of these regulations. These pensions have subsequently been prescribed as capped defined benefit income streams and are superannuation income streams as a result of the Government’s legislative response to the Douglas decision. 

The Regulations provide that the special value for these income streams is worked out as whichever gives the lesser amount of the annual entitlement multiplied by 16, or the annual entitlement multiplied by the term remaining if the income stream has a fixed term. This approach will ensure that the special value for these superannuation income streams uses the method that is most advantageous to the member. The special value of the income stream is calculated from the later of 1 July 2017 or the date that the income stream commenced. 

The regulations also provide for a transfer balance debit to be applied if one of these income streams ceases and the cessation does not otherwise result in a transfer balance debit. The value of the transfer balance debit will be equal to the value of the original transfer balance credit, less certain other transfer balance debits that have arisen prior to cessation. This change will address an unintended consequence of the government’s legislative response to the Douglas decision, which resulted in these non-lifetime permanent incapacity pensions having to be reported as superannuation income streams for transfer balance cap purposes. It will ensure that the person does not have their transfer balance cap space taken up by that pension if it ceases and is not adversely affected when commencing a new retirement phase superannuation income stream. 

The Regulations have retrospective operation as it is necessary to prescribe a special value to determine the transfer balance credit that is to be used for the purpose of the transfer balance provisions, which commenced on 1 July 2017. It is also necessary to apply the transfer balance debit to relevant pensions that may have ceased prior to the commencement of the Regulations. The retrospective application is a consequence of the Douglas response legislation that retrospectively provided that these superannuation benefits are superannuation income streams.

 

ASFA REGULATORY WATCHLIST

ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations

and other regulatory announcements relevant to superannuation.

 

 

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