ASFA Action 10 December 2019

Issue 730, 10 December 2019 

In this issue: 

• APRA MySuper heatmaps 

• ASFA template investment management agreement: review 

• Making insurance claims handling a financial service 

• Consumer advocacy body for super: expression of interest 

• Miscellaneous superannuation amendments: omnibus bill introduced 

• Status of superannuation bills 

• Financial advice by superannuation funds: ASIC report 

• ASIC website: refresh of superannuation regulatory content 

 

APRA MySuper heatmaps 

APRA has today published its first heatmap providing assessments of the performance of every MySuper superannuation product, along with an information paper outlining some of the key insights from the data and frequently asked questions. 

According to APRA, the heatmap will provide additional transparency on the outcomes being delivered by all trustees providing MySuper products. It is designed to lift industry practices and enhance member outcomes by publicly identifying which MySuper products are underperforming and the areas they need to improve. Deputy Chair Helen Rowell said no trustee should be complacent; APRA expects all trustees to use the heatmap to reflect on the drivers of their current performance and identify where they can do better. 

As outlined in an earlier information paper and sample heatmap (see ASFA Action issue 727), the heatmap published today uses a graduating colour scheme to provide credible, clear and comparable insights into MySuper products across three areas: investment performance, fees and costs, and sustainability of member outcomes. 

The information paper published with today’s heatmap sets out some of the key insights from the data, including: 

• member outcomes vary widely across the industry, and underperformance is evident across all industry sectors and investment risk profiles; 

• higher fees are generally correlated with lower net returns, although there are exceptions; 

• more single strategy products outperform the investment benchmarks than lifecycle product stages 

• low balance accounts are most impacted by administration fees, while high balance accounts are most impacted by percentage-based fees. 

APRA intends to refresh the heatmap at least annually, but will update the heatmap in the first half of next year to assist trustees and other stakeholders assess any early improvements being made. 

Ms Rowell indicated that APRA “will continue to refine our models and methodology in response to industry feedback. However we stand behind the heatmap as an important piece of work, and a key plank supporting APRA’s key strategic goal of lifting outcomes for superannuation members.” 

 

 

ASFA template investment management agreement: review 

ASFA is undertaking a review of the ASFA Template Investment Management Agreement (IMA), to ensure the document remains up to date and fit for purpose (the IMA was last updated in September 2014). 

The IMA is provided as part of ASFA Best Practice Paper No 12, Negotiating investment management agreements, which focuses on the responsibilities of superannuation trustees with respect to developing and negotiating legal agreements covering their assets. 

The IMA is based on the prudential and legal responsibilities, and the investment management requirements, of superannuation funds as asset owners. 

If you would like to nominate a representative to participate in the review process, please contact Julian Cabarrus by close of business Monday 16 December. 

 

 

Making insurance claims handling a financial service 

The Government has released a consultation package of draft legislation and regulations to implement a recommendation from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that insurance claims handling should be a ‘financial service’. 

The Royal Commission recommended that the handling and settlement of insurance claims, or potential insurance claims, should no longer be excluded from the definition of ‘financial service’ (recommendation 4.8). 

The Government accepted this recommendation and conducted preliminary consultation on its implementation earlier this year (see ASFA Action issues 700 and 697 for background). 

Treasury has now released for consultation exposure draft legislation and regulations to: 

• remove the exclusion of insurance claims handling and settlement services from the definition of a ‘financial service’ in the Corporations Act 2001 

• make handling and settlement of an insurance claim, or potential insurance claim, a ‘financial service’ under the Corporations Act 

• tailor application of the existing financial services regime to the new financial service of handling and settling an insurance claim. 

Treasury is seeking submissions in response to the consultation package by 10 January. 

The explanatory material indicates that the regulation of handling and settling an insurance claim by registrable superannuation entity licensees will be addressed as part of the Government’s response to the Royal Commission recommendations related to superannuation regulators (recommendations 3.8, 6.3-6.5). Consultation on that legislation will take place in early 2020. 

 

 

Consumer advocacy body for super: expression of interest 

Treasury has called for expressions of interest in relation to its Budget commitment to establish a consumer advocacy body for superannuation. 

In the 2019-20 Budget, the Government announced its intention to establish a consumer advocacy body for superannuation (see ASFA Action issue 703), as recommended by the Productivity Commission in its report Superannuation: Assessing Efficiency and Competitiveness (see ASFA Action issue 696). 

It is intended that the advocacy body will become the voice of consumers in policy discussions and support access to information to educate and assist consumers, including vulnerable consumers, to navigate the superannuation system. The advocacy body will be required to leverage current financial literacy initiatives, such as MoneySmart. 

The call for expressions of interest is the first step in the process to inform Treasury’s advice to Government about options to establish the advocacy body. Treasury has invited interested parties to respond to this process by 13 January, addressing these topics: 

1. Functions and outcomes: What core functions and outcomes do you consider could be delivered by the advocacy body? What additional functions and outcomes could also be considered? What functions would the advocacy body provide that are not currently available? 
2. Ongoing costs: What would be the indicative ongoing costs of delivering these functions? What would be the indicative costs of delivering any additional functions? 
3. Establishment: What would be the likely set-up costs for the advocacy body and approximately how long would it take to establish such a body? 
4. Governance and accountability: What governance and accountability models (including assessment of impact and performance) do you consider to be most appropriate for the advocacy body? 

 

 

Miscellaneous superannuation amendments: omnibus bill introduced 

The Government has introduced into Parliament a bill proposing range of amendments relevant to superannuation. 

The Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 includes amendments to several aspects of the superannuation and related tax legislation. The major amendments include: 

 

1. Protecting Your Superannuation, unclaimed superannuation and lost members: the Bill addresses an issue with the application of the fee cap on low superannuation balances. 

The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (PYS Act) amended the Superannuation Industry (Supervision) Act 1993 (SIS Act) to apply a cap on the fees that could be charged by a superannuation trustee when the balance of a product held by a member was less than $6,000 at the end of the year. The PYS Act did not provide for a fee cap where the member has a balance of less than $6,000 but ceases holding the product part way through the fund’s income year. The Bill amends the existing fee cap rules to cover the situation where a member ceases holding a product part way through a fund’s income year and, at that time, the balance of the product is less than $6,000. 

The Bill also includes amendments that: 

• remove current requirements in the Superannuation (Unclaimed Money and Lost Members) Act 1999(SUMLM Act) that superannuation providers report to the ATO when certain changes occur in relation to unclaimed superannuation money, lost member accounts and low balance inactive accounts amounts 

• provide that an account is not an ‘inactive low balance account’ if the member has elected to maintain insurance on that account 

• modify two of the exceptions to the definition of ‘inactive low balance account’ to ensure they give effect to the initial policy intent 

• rectify incorrect cross-references to the SUMLM Act.
    

2. Super pensions and rollovers of death benefits: the Bill includes amendments to: 

• ensure death benefits that include life insurance proceeds are not subject to tax when they are rolled over to a new superannuation fund 

• correct an error in the way that market-linked pensions and capped defined benefit income streams are valued under the transfer balance cap when they are commuted or rolled over, resulting in a nil debit.
    

3. Employer reporting: the Bill updates the commencement of amendments contained in the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 that require employers to report salary sacrificed amounts paid to their employees’ superannuation funds under the Single Touch Payroll reporting regime. 

The commencement of these provisions was previously linked to Superannuation Guarantee integrity measures around salary sacrifice contributions that were to be introduced via the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 2) Bill 2019. That Bill lapsed when Parliament was prorogued prior to the 2019 federal election and the measure has now been implemented via the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 (Integrity Act) (see ASFA Action issue 717). 

To reflect this, the Bill aligns commencement of the employer reporting requirements with the commencement of the Bill, or the relevant part of the Integrity Act, whichever is later. This will ensure that the reporting requirements apply prospectively from the time that both the salary sacrifice measure and the amendments to the revised commencement rule commence. 

 

4. Downsizer contributions: the Bill includes amendments to ensure that the superannuation downsizer provisions operate as intended. These proposed amendments ensure that: 

• an individual can make a downsizer contribution in respect of the proceeds from a property that was held by their spouse where the property is a pre-CGT asset that would have been subject to the main residence exemption if it had been acquired after 20 September 1985 

• the cap on the amount of downsizer contributions that an individual can make is calculated correctly where their spouse has previously made a downsizer contribution in relation to another property 

• the market value substitution rules are applied appropriately when working out the maximum amount of downsizer contributions that an individual can make. 

The Bill also includes a number of technical amendments, including: 

1. clarifying when a person has been ‘involved’ in a contravention of a provision, other than an offence provision, for the purposes of the SIS Act 
2. making minor amendments to streamline terminology for consistency with modern drafting practices. 

Many of these amendments have been the subject of previous consultation – see ASFA Action issues 720, 700. 

 

 

Status of superannuation bills 

Parliament concluded its sittings for 2019 on 5 December and will not sit again until 4 February. 

As noted above, the newly introduced Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 includes amendments to several aspects of the superannuation and related tax legislation. 

The status of other superannuation-related bills, when Parliament rose, was as follows: 

• Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019 – this Bill includes amendments to allow separated de facto couples in Western Australia (WA) to split their superannuation interests as part of their property settlements (see ASFA Action issue 729). The Bill remains before the House of Representatives and has been referred to the Senate Legal and Constitutional Affairs Legislation Committee for inquiry and report by 13 March (submissions close 24 January). 

• Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Bill 2019 – this Bill includes amendments to implement recommendations from the ASIC Enforcement Review Taskforce (see ASFA Action issue 729). The Bill remains before the House of Representatives 

• Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 – this Bill provides for a one-off amnesty to encourage employers to self-correct historical Superannuation Guarantee non-compliance (see ASFA Action issue 722). The Bill has been passed by the House of Representatives and is awaiting debate in the Senate. The Senate Economics Legislation Committee has recommended the passage of the Bill. 

• Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 – this Bill includes amendments to ensure employees under new workplace determinations or enterprise agreements have an opportunity to choose the superannuation fund for their compulsory employer contributions (see ASFA Action issue 729). The Bill remains before the House of Representatives and has been referred to the Senate Economics Legislation Committee for inquiry and report by 21 February. 

 

 

Financial advice by superannuation funds: ASIC report 

ASIC has released a report on financial advice by superannuation funds, which examines the ways in which funds provide financial advice to members and the overall quality of personal financial advice provided to members of those funds. Overall, ASIC found that the quality of personal advice provided to members was generally appropriate. 

Some of ASIC’s findings from surveying 25 superannuation funds to understand the ways in which financial advice is provided to members include: 

1. across all funds, general advice made up 75 per cent of advice accessed by members from their fund 
2. the most popular advice topics sought by members were member investment choice, contributions and retirement planning 
3. across all funds that offer advice services to members, the most common delivery channels for providing advice to members were in-house call centres and advice providers employed by a related party 
4. across all funds, the key identified conflicts of interest were vertical integration, relationships with third-party advice providers, and bonuses paid to advice providers 
5. 61 per cent of funds intend to increase their use of member self-directed digital advice that can generate Statements of Advice (SOAs). 

Of the 233 advice files that were reviewed, ASIC found that: 

• 49 per cent (114 files) of the files demonstrated full compliance with the best interests duty and related obligations 

• 36 per cent (83 files) of the files did not demonstrate full compliance with the best interests duty and related obligations, but the file did not indicate that the member was at risk of suffering financial or non-financial detriment as a result of following the advice provided 

• 15 per cent (36 files) of the files did not comply with the best interests duty and related obligations and there was an indication that the member was at risk of suffering financial or non-financial detriment as a result of following the advice provided. 

The main reasons for files not complying with the best interests duty and related obligations were: 

• the advice provider failed to identify the subject matter of the advice and the member’s objectives, financial situation and needs; and 

• the advice provider failed to conduct a reasonable investigation into financial products and base all judgements on the member’s relevant circumstances. 

ASIC provided a number of tips for trustees to improve the quality of advice provided to members: 

1. Oversight of advice providers: trustees should conduct regular reviews of the appropriateness of outsourced arrangements 
2. Managing conflicts of interest: advice referral arrangements and remuneration arrangements for advice providers should be regularly reviewed to ensure that payments or other incentives do not drive conflicts 
3. Providing intra-fund advice: trustees should communicate with members their rights to intra-fund advice and outline its limitations, as well as having internal policies to manage the costs of providing intra-fund advice and ensure that this advice is not excessively used by any particular member to the detriment of other members 
4. Charging of fees: trustees must have in place strong governance, risk management and oversight processes to ensure that only authorised and appropriate advice fees are deducted from a member’s superannuation account 
5. Record keeping: trustees should maintain member authorisations for fee deductions from their superannuation accounts and be satisfied that adequate processes are in place to ensure that the deduction is consistent with the sole purpose test. 

 

 

ASIC website: refresh of superannuation regulatory content 

ASIC has revised and updated the superannuation regulatory content on its website. 

The revisions have sought to rationalise the material and improve the ability of stakeholders to find information they are looking for in a timely manner. The changes include the removal of outdated material, the addition of new pages and the reorganisation of information. ASIC expects the revisions will make it easier for stakeholders to understand relevant regulation, and regulatory expectations. 

The refreshed website provides easier access to: 

• major ASIC reports 

• ASIC’s corporate plan 

• communications with industry 

• regulatory guides and information sheets 

• legislative instruments. 

ASIC has indicated that it welcomes any feedback or questions about the changes. 

 

 

ASFA REGULATORY WATCHLIST

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

and other regulatory announcements relevant to superannuation.