ASFA Action 24 September 2024

ASFA Action Issue 965, 24 September 2024

In this issue:

Legacy retirement product conversions: consultation

The Government is consulting on draft regulations to implement a 2021-22 Budget announcement about allowing individuals to exit certain ‘legacy’ retirement income products.

The draft regulations will relax commutation restrictions for a specified range of legacy retirement products and create a more flexible avenue for allocations from superannuation reserves. This will allow individuals to exit products that are no longer suitable for their circumstances, remove barriers that currently prevent the closure of obsolete funds and legacy products, and allow for the allocation of reserves that no longer serve an ongoing purpose.

The measure will apply to legacy lifetime, life expectancy and market-linked superannuation income stream products that commenced prior to 20 September 2007, or were commenced as a result of a conversion of an earlier legacy product that commenced prior to that date (‘legacy products’).

The draft regulations differ from the earlier Budget announcement by allowing a period of five years from commencement for the conversion of the legacy products, instead of two years as originally proposed.

If you have any feedback you would like ASFA to consider in relation to a submission on the draft regulations, please forward it to Fiona Galbraith by close of business Wednesday 2 October.

Bills referred to Committee: AML/CTF, privacy

Two recently introduced Bills have been referred to the Senate Legal and Constitutional Affairs Legislation Committee:

the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 has been referred for inquiry and report by 13 November – see ASFA Action issue 964 for background on this Bill. If you have any feedback you would like ASFA to consider in relation to a submission to the Committee, please forward it to Fiona Galbraith by close of business Friday 4 October.

the Privacy and Other Legislation Amendment Bill 2024 has been referred for inquiry and report by 14 November – see ASFA Action issue 964 for background on this Bill. If you have any feedback you would like ASFA to consider in relation to a submission to the Committee, please forward it to Sebastian Reinehr by close of business Friday 4 October.

Refer ASFA Action issue 964 for background on these Bills.

Assisting customers who don’t have standard ID: AUSTRAC consultation on updated guidance

AUSTRAC is seeking submissions on draft updated guidance on alternative identification processes reporting entities can use to assist customers who may have difficulty providing standard identification.

The draft guidance provides information about using a flexible, risk-based approach to customer identification to ensure that those with diverse backgrounds or facing challenging circumstances can access the financial services that they need, resulting in better financial inclusion.

This guidance will update the current webpage Assisting customers who don’t have standard forms of identification.

The updates would clarify that reporting entities:

are not limited to use alternative identification procedures for low-risk customers only. They must assess and take appropriate steps to mitigate and manage the money laundering and terrorism financing (ML/TF) risks associated with accepting alternative identification

can continue to rely on alternative identification when a customer faces systemic and long-term barriers to accessing standard identification

can apply ongoing customer due diligence based on a customer’s overall ML/TF risks, rather than applying a higher level of ongoing customer due diligence solely on the basis that a customer has been identified using alternative procedures

should use reliable and independent documents or data to verify a customer’s identity to reduce ML/TF risk, rather than stating they must do this

can use recently expired identification documents as a form of alternative identification.

If you have any feedback you would like ASFA to consider in relation to a submission on the draft updated guidance, please forward it to Fiona Galbraith by close of business Friday 4 October.

Collapse of wealth management companies: new Parliamentary Committee inquiry

The Senate Economics References Committee will undertake a new inquiry into the reasons for the collapse of wealth management companies, and the implications for the establishment of the Compensation Scheme of Last Resort (CSLR) and challenges to its ongoing sustainability, with particular reference to Dixon Advisory & Superannuation Services Pty Limited (Dixon Advisory) as an example.

The terms of reference call for the Committee to examine:

the underlying cause of the collapse of wealth management companies such as Dixon Advisory, including the business model and influence of the sale of related party products

how the actions of directors of wealth management companies and related entities, senior management and the individual advisers contribute to the collapse of these companies

the role of the financial services regulatory regime in the context of how matters involving the collapse of an investment product promoted by a vertically integrated business are assessed and how fault is attributed

evaluation of the placement of wealth management companies into administration and the related insolvency issues, including with respect to the appropriateness of actions by directors and senior management and the transfer of advisers and clients to a related party entity for no consideration

assessment of the period for which wealth management companies can remain a member of the Australian Financial Complaints Authority

the role of ASIC, including providing consumer information to investors affected by corporate collapse and consideration of the most appropriate arrangements for future cases of insolvency

ASIC’s role investigating corporate collapse and the appropriateness of any regulatory intervention that may reduce scale of loss for consumers

options for enforcement action, including litigation, that ASIC has available to it in relation to wealth management companies following collapse

the implications of the collapse of wealth management companies on the establishment of the CSLR, including with respect to design considerations and the potential implications for future matters

any other related matters.

The Committee is due to report by the last sitting day of March 2025 and is seeking submissions by close of business Friday 1 November.

Update on other Bills: super on PPL, climate-related financial disclosures

In addition to the referral of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 and the Privacy and Other Legislation Amendment Bill 2024 to the Senate Legal and Constitutional Affairs Committee (see earlier item), there have been updates on two other relevant Bills since the last ASFA Action. 

Superannuation on Government-funded Paid Parental Leave (PPL) 

The Paid Parental Leave Amendment (Adding Superannuation for a More Secure Retirement) Bill 2024 has now concluded its passage through Parliament without amendment. The Bill proposes to add a superannuation contribution to the Commonwealth-funded Paid Parental Leave Scheme, for eligible recipients of Parental Leave Pay (PLP) under the Scheme (see ASFA Action issue 961 for background).

During debate in the Senate, the Opposition unsuccessfully moved again amendments already proposed in the House of Representatives, that would have given eligible recipients of PLP a choice between receiving: 

superannuation contributions on government funded PPL as proposed by the Government’s Bill; or

an additional two weeks of government funded PPL; or

a one-off payment equal to the total value of the superannuation entitlement for government funded PPL.

Ultimately, the Bill was passed without amendment and now awaits Royal Assent.

Climate-related financial disclosures

Legislation to implement a framework for mandatory climate-related disclosures has been formalised with Royal Assent to the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024 (see ASFA Action issue 940 for background).

The reporting requirements will be phased in over the next three years across three groups of reporting entities, with the first reporting cohort required to prepare annual sustainability reports for the financial year commencing on or after 1 January 2025. The second and third reporting cohorts are required to prepare annual sustainability reports for the financial years commencing on or after 1 July 2026 and 1 July 2027 respectively. Registrable superannuation entities with $5 billion or more of assets under management are in the second cohort and must prepare sustainability reports for reporting periods starting on or after 1 July 2026.

ASIC is urging all reporting entities, including those in the second and third reporting cohorts, to begin preparing for the new climate disclosure regime. ASIC has called on impacted entities to ensure they implement appropriate governance arrangements and sustainability record-keeping processes ahead of the requirements taking effect. To assist reporting entities, ASIC has established a dedicated sustainability reporting webpage to provide information about the new regime and how ASIC will administer it. 

Inquiry into Australia’s retirement system: Senate Committee’s second interim report

In May, the Senate Economics References Committee inquiry  into improving consumer experiences, choice and outcomes in Australia’s retirement system tabled an interim report focussed on the use of superannuation to support home ownership. The Committee, chaired by Senator Andrew Bragg, then reopened the inquiry to submissions on policies to advance home ownership such as allowing individuals to use their superannuation as a mortgage offset. (See ASFA Action issue 947 for background.)

The Committee has now tabled its second interim report, making a single detailed recommendation.

The Committee recommended that the Government further explore the potential design of a super mortgage offset product applicable to a homeowner’s primary residence; the pros and cons of different options; and the regulatory settings that would be needed to permit development of such a product. Issues for further investigation should include:

the amount of superannuation a homeowner could roll into a ‘super mortgage offset account’ product issued by an Authorised Deposit-taking Institution (ADI)

what regulatory permissions would be needed for such a product, and how these might be legislated through the relevant superannuation and banking supervision legislation

whether an ADI issuing such a product would be required to apply for a license variation through APRA as the regulator

what the tax implications would be, for individuals and the government, of allowing an amount of a person’s superannuation to be rolled into a ‘super mortgage offset account’

whether the superannuation amount in the ‘Super mortgage offset account’ would need to be held as cash by the ADI

the way in which the amount in the ‘super mortgage offset account’ is required to be returned to the homeowner’s superannuation account once the outstanding mortgage falls below the amount in the offset account (and, ultimately, is discharged)

whether eligibility for any ‘super mortgage offset account’ should be limited, either initially or on an ongoing basis, to first-home buyers.

Government Senators on the Committee made a dissenting report, stating the view that the proposal to allow ‘super mortgage offset accounts’ would not assist first home buyers, would not address supply-side issues, risked individuals’ retirement savings and undermines universal superannuation.

Payday Super: further policy design details

The Government has released further design details for Payday Super, confirming that employers will be required, from 1 July 2026, to pay their employees’ Superannuation Guarantee (SG) contributions at the same time as their salary and wages.

As outlined in a new factsheet:

an updated SG charge framework will ensure employees are fully compensated for any delay in receiving their superannuation, incentivise employers to catch-up on any missed payments quickly, and increase the severity of consequences for employers that deliberately or repeatedly do the wrong thing

businesses will become liable for the updated SG charge if super contributions are not received by their employees’ superannuation fund within seven days of payday. This allows time for payment processing to occur, as well as for swift action to be taken against those employers that are not meeting their obligations

revised choice of fund rules will make it easier for employees to nominate their existing fund when they start a new job, reducing unintended duplicate accounts and giving employers more timely and accurate details.

The Government notes that legislative design will progress through the second half of 2024 ahead of draft legislation being released for consultation.

Payday Super was announced just prior to the 2023-24 Budget, and the Government undertook initial consultation in October-November (see ASFA Action issues 918, 898 and 896 for background.

Improved transparency in superannuation: new APRA performance metrics and insights

APRA has released a Comprehensive Product Performance Package (CPPP) of metrics and insights to increase transparency and sharpen superannuation trustees’ focus on improving member outcomes. The CPPP includes an insights paper, statistical publications and interactive product performance lookup tools.

The CPPP brings together the product performance metrics underpinning the legislated performance test and APRA’s superannuation heatmaps. It covers 876 MySuper and choice products which, collectively, represent most types of investment offerings for accumulation members. 

APRA notes there was a significant drop in the number of products that failed the performance test in 2024 (37 down from 97) with 52 products that failed the 2023 test exiting the market. When looking at investment performance more broadly to factor in asset class selection and performance relative to peers, the CPPP identifies additional products that have underperformed. 

Deputy Chair Margaret Cole said:

“Product performance is a key element that trustees must consider when managing the retirement savings of their members. While performance of products across the entire superannuation industry has improved following the introduction of the performance test and APRA’s heatmaps, there are still underperforming products that need improvement particularly among choice product offerings.

APRA has no tolerance for members to remain in poorly performing products without credible and timely rectification by a trustee.”

APRA data reporting: phase 2 ‘depth’ – response to consultation

APRA has provided a partial response to the consultation on phase 2 of its Super Data Transformation project, focussed on the depth of the data collection.

The response addresses changes to the data collection in relation to investment costs and financial statements, comprising a letter outlining its response to the consultation and final versions of:

SRS 101.0 Definitions for Superannuation Data Collections

SRS 332.0 Expenses and Investment and Transaction Fees and Costs

SRS 340.0 RSE Licensee Financial Statements.

APRA has also provided a document mapping reporting tables to existing reporting.

APRA intends to determine SRS 332.0, SRS 101.0 and SRS 340.0 later in 2024. It will also consult on confidentiality and publication proposals for Reporting Form SRF 332.1 Investment and Transaction Fees and Costs and SRS 340.0 to then release updated publications in 2026.

APRA will release a second response package later in 2024, covering the remaining topics addressed in the phase 2 consultation, on investments, RSE licensee profile and RSE profile.

APRA consulted on the phase 2 proposals from November 2023 to March 2024 (see ASFA Action issue 925 for background.)

Issues related to menopause and perimenopause: Parliamentary Committee report

The Senate Community Affairs References Committee has concluded its inquiry into issues related to menopause and perimenopause, tabling its report.

The inquiry’s terms of reference were broad and included the economic consequences of menopause and perimenopause including, but not limited to, reduced workforce participation, productivity and retirement planning. (See ASFA Action issue 927 for background.)

The Committee made one recommendation specifically relating to retirement incomes:

The committee recommends that the Australian Government commission research to undertake a comprehensive study to assess the economic impacts of menopause which clearly delineates the impact of symptoms of menopause on women’s workforce participation, income, superannuation, and age of retirement.

ASFA REGULATORY WATCHLIST

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

and other regulatory announcements relevant to superannuation.